Let's see, now. Unemployment is above 9 percent and shows no indication of descending anytime soon. The share of working-age Americans who are even in the workforce is lower than at any time since the early 1980s, when far fewer women worked outside the home. American multinational corporations are increasingly doing their hiring overseas, where labor is cheap and markets are expanding. The wages and benefits of those Americans who do have jobs are at their lowest level, as a share of corporate revenues, than at any time in half a century. American families are more deeply mired in debt than at any time since the nation's founding. All of which means that American consumers aren't doing much consuming, and they won't be for the foreseeable future.
Sounds like there might be a role for government in perking up the economy, no?
Well, not by the terms of the deal that the White House reached with Senate Republican Leader Mitch McConnell, to which Harry Reid, Nancy Pelosi, and John Boehner have now signed on.
In the immediate future, none of the emergency aid that Democrats hoped might be part of the package -- extensions to unemployment insurance and payroll tax cuts -- were included in the compromise package. And if President Obama now wants to get busy creating jobs (something he's been saying for a couple of years now without actually getting busy creating jobs), it's hard to see how he'll go about that under the constraints that will be enacted in the next two days.
In the less immediate future, discretionary spending (the government's appropriations for infrastructure, education, research, food safety, financial oversight -- the kinds of things that make a country safe, smart, and livable) took a major hit. All that will be contractionary enough. But in a nation where it's no longer apparent how the private sector will create the millions of jobs we need just to get back to the status quo of several years ago, the shift from stimulus to cuts will block the only plausible path the nation has to economic recovery.
Certainly, the playing field on which the debt-ceiling battle was fought was tilted toward Republican priorities. By their willingness to threaten the nation with governmental default -- something that the Democrats were clearly not willing to do -- the Republicans ensured that the deal that was ultimately reached would grant them a victory well in excess of what they could expect from their statutory power, which consists of control of one half of one branch of government. Playing on that field, Obama did preserve some Democratic priorities -- but he never should have permitted the Republicans to set the terms of the debate in the first place. He could have insisted on raising the debt ceiling last December, when the Democrats still controlled Congress. He didn't.
More seriously, Obama hasn't clearly challenged the Republican narrative that government spending is at the root of our problems. He's given speeches that argue otherwise, but he's also echoed the Republicans' nutty mantra that cutting spending would create jobs. (It may be no coincidence that virtually every serious economist has now left the White House's employ.) He proposed raising the age of eligibility for Medicare and reducing Social Security benefits, though these ideas were linked to tax increases that were deal-breakers for House Republicans. The deal he cut Sunday holds Social Security, Medicaid, and Medicare recipients harmless, to be sure, but at the expense of every other domestic priority, and with no increase in taxes. Republicans will have to accede to a lower level of Pentagon spending than they otherwise would, but that still doesn't make this a balanced deal.
Some Obama acolytes say he still can get the tax hikes by simply refusing to sign any bill extending the Bush tax cuts, which expire on the last day of 2012. But Obama (and Democratic candidates for the Senate and House as well) surely will be pressed by the Republicans during next year's presidential campaign to promise not to raise taxes. They will send him a House bill extending the cuts on everyone -- the rich included -- as a package deal. The game of chicken that will ensue will be over tax hikes for all or tax hikes for none. Want to bet who blinks first?
Obama's political strategists clearly believe that when he enhances his stature as the nonpartisan compromiser, the disinterested non-politician, he wins supports from independent voters. I suspect, and fear, that those voters will be swayed far more by the condition of the economy next year. The deal reached Sunday, however, won't permit Obama to do much to help the economy between now and November 2012, and it will impede Democratic efforts to repair the economy for many years beyond.
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