There are two lessons about this deal that most Democrats seem to be missing. First, in any "divide the dollar" type negotiation, the side that is most willing to see no deal take place has a big advantage. Second, the side that makes the proposals has a big advantage. In this case, both of those advantages were with the Republicans. We should expect, based on those two factors alone, that the Republicans would be able to get almost all of what they wanted.
Monday, August 01, 2011
The Democrats were divided between those, like Reid, who wanted a combination of modest cuts and modest tax increases and those on the left who wanted only tax increases.
The Republican House was demanding massive and immediate cuts to social security, medicare and medicaid all while refusing any consideration of tax increases. Some versions of their demands even demanded additional tax CUTS.
So what did they get? CNN has a summary of the deal here. The full text of the bill is here. The big thing is that the debt limit will be increased in stages such that we won't face this kind of crisis/deadline again until after 2013 (after the 2012 elections). There will be neither any immediate tax increases or cuts to medicare, medicaid or social security. With regard to the two biggest issues being debated, the compromises essentially punts. Neither spending cuts nor tax increases will take place immediately but both could be possible later. The bulk of immediate deficit reduction will come in the form of caps on military spending and domestic spending other than medicare, medicaid and social security. The second round of deficit reduction will take place this fall and will be proposed by a bipartisan joint committee of House and Senate members. If they can't get a deal then, the debt ceiling will automatically raised. The bottom line is that the deadline is postponed for a couple of years and one would be forgiven for thinking they're going to let the voters determine the actual outcome in November 2012.
The irony is that this is a fundamentally Keynesian deal. At least in the short term, the fragile recovery will not be burdened with either tax increases or spending cuts. So for all the wailing and gnashing of teeth on the left, we are going to see the Republicans sign onto a deal that implicitly acknowledges the legitimacy of Keynes' approach to economics. Von Hayek would not approve.
Many Democratic activists are running around bemoaning Obama's lack of backbone or the Democratic parties habbit of caving in to Republican demands. These are silly and, to the extent they hurt Democratic party chances in 2012, ultimately counter productive attitudes to take. Frankly, I'm inclined to think that Obama and the Democrats got very close to the best deal they could have gotten out of a Republican party willing to put the entire world into a global recession to prevent a few relatively minor tax increases on the rich and oil companies. Democrats had a very weak hand to play but managed to avoid their worst case scenario or even their second worst case scenario.
For those liberal activists convinced that Obama "caved," I'd like to know what they think he should have done in this situation. What should Obama have done with default looming? Should he have refused to sign anything that didn't include tax increases and dare the Republicans to join him in default? Doing that would not only be disastrous for the economy, it would be unclear who voters would blame for the misery that would result.
Posted by Raised By Republicans at 9:42 AM