Job creation
slowed
to just 88,000 in March, signaling a sluggish economy. And President
Obama, with unerring timing, picked this moment to put out an authorized
leak that he is willing to put Social Security and Medicare on the
block as part of a grand budget bargain that will only slow the economy
further.
(AP Photo/Susan Walsh)
The deterioration in economic performance was all too predictable,
given the combined lead weights of the March 1 $85 billion of budget
cuts in the sequester and the January deal to raise payroll taxes by
about $120 billion. (The tax hike on working people was almost double
the much-hyped tax increase on the top one percent, which totaled a
little over $60 billion.)
Taken together, these twin deflationary deals cut the deficit by
around $270 billion dollars this year. That’s close to two percent of
GDP. And according to the Congressional Budget Office, this combined
contractionary pressure will cut the 2013 year’s growth rate in half. So
the slowdown in job creation is just what you’d expect.
The grand bargain that, for the moment, is mercifully eluding
President Obama and the Republicans, would apply the same sort of
medicine
for nine more years, and with the same results—a
prolonged slowdown growth and jobs. Obama and the Republicans are
talking of a decade of cuts in the 3 to 4 trillion-dollar range.
What could possibly go wrong with this bold, new strategy? ... Just about everything.
Has everyone lost their minds? No, but the entire elite has been
influenced by the economic myths of the Robert Rubin-Pete Peterson-Fix
the Debt propagandists.
You can understand Republicans wanting to crush government and hoping
to slow the recovery in a way that harms the Democrat in the 2014
midterm elections. But what is the president thinking?
Listen to a “senior economic official,” as quoted in today’s
New York Times’s
authoritative story revealing that the administration will offer to cut
Social Security (by the backdoor method of reducing the cost of living
adjustment via the “chained” Consumer Price Index) and Medicare if the
Republicans will reciprocate with tax increases. “[T]he things like
C.P.I. that Republican leaders have pushed hard for will only be
accepted if Congressional Republicans are willing to do more on
revenues.”
According to the
Times story, the president has decided to
pick up where he left off with Speaker John Boehner and put the final
deal on the table, opening with big cuts in the two most popular
programs that voters count on Democrats to defend. Reporter Jackie
Calmes
tells us,
“In a significant shift in fiscal strategy, Mr. Obama on Wednesday will
send a budget plan to Capitol Hill that departs from the usual
presidential wish list that Republicans typically declare dead on
arrival. Instead it will embody the final compromise offer that he made
to Speaker John A. Boehner late last year.”
What could possibly go wrong with this bold, new strategy? (Actually
the same strategy that has failed Obama since January 2009). Just about
everything.
First, even if works, the ten-year grand bargain that results will condemn the economy to a decade of low level depression.
Second, the Republicans have a well-established history of taking the
White House final offer as the starting point. As any smart negotiator
knows, you don’t offer your final position in the opening bid.
Last, the strategy gives away the Democrats’ crown jewels—their
defense of Social Security and Medicare, which should not be part of a
budget deal in the first place. Now voters can conclude that they can’t
trust either party.
Is their any silver lining? Maybe House Speaker Boehner, once again,
will save the president from himself by failing to deliver enough
Republicans for a tax increase. Maybe outraged rank and file Democrats
in the House and Senate will get energized and refuse to support Obama’s
proposed deal. And maybe the slowing of the economy, after this year’s
down-payment on a grand budget bargain, will get Obama’s attention.
How much evidence do we need that neither austerity nor appeasement is smart strategy?
© 2013 The American Prospect
Robert Kuttner is co-founder and co-editor of
The American Prospect magazine, as well as a Distinguished Senior Fellow of the think tank
Demos.
He was a longtime columnist for Business Week, and continues to write
columns in the Boston Globe and Huffington Post. He is the author of
A Presidency in Peril: The Inside Story of Obama's Promise, Wall Street's Power, and the Struggle to Control our Economic Future,
Obama's Challenge, and other books.
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