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Wednesday, August 3, 2011

How Bad Was the Debt Deal for the Middle Class?

John Boehner says he got 98% of everything he wanted. That's a bad sign. More concretely, the Economic Policy Institute estimated that between the cuts in the deal, and the expiration of two stimulative measures that could have been renewed as part of the deal, the country will lose 1.8 million jobs in 2012 alone. Hint: those won't be high-finance jobs.

If EPI is too left-leaning for you, J.P. Morgan (via Calculated Risk) estimates the “fiscal drag” on the economy from federal fiscal policy to be 1.5% of GDP in 2012. That's a big deal. Economic growth is critical for the middle class.

Going forward, Mitch McConnell (“the most honest man in Washington,” according to Ezra Klein) says that taking the debt ceiling hostage will now be the norm. There's also the budget resolution vote coming up in September, with the possibility of a government shutdown. Lots of hostage taking opportunities lie ahead.

Then there's the “Super Congress” tasked with determining another $1.5 trillion in deficit reduction. Since the six Republicans on that committee will reject any revenue increases, that means $1.5 trillion in cuts. Remember, Y = C + I + G + (X – M), so that's another $1.5 trillion hit to GDP over the next 10 years, ignoring any multiplier effects.

If this committee cannot reach agreement and Congress does not pass a balanced budget amendment (“the worst idea in Washington,” again according to Ezra Klein, and he is absolutely right), we get $1.2 trillion in cuts anyway. Social Security and Medicaid are exempt from budget slashing, but Medicare is on the table, perhaps with the self-inflicted wound of the President's offer to raise the eligibility age from 65 to 67. As has been pointed out by Sarah Kliff, doing this hurts the health exchanges by putting relatively expensive 65- and 66-year olds into the pool, driving up rates for everyone else and giving the healthy more incentive to drop out and game the system.

Supposedly, about half of the $1.2 trillion will come out of the Defense Department, but I think Markos Moulitsos might be on to something when he predicts Republicans will turn around and offer a separate bill to cancel those cuts, and accuse the Democrats of “not supporting the troops” in an election year.

Bottom line: bad for middle-class jobs, bad for Medicare, bad for health care reform. We're likely to be in recession again come the 2012 elections. This is not the time to get discouraged: the stakes are much higher in the 2012 elections, where we've got to elect a lot more people attuned to middle-class needs or a lot worse things will happen than were in this debt deal.


  1. I agree, but how do we find those people? Obama has turned out to be such a disappointment. Instead of Churchill--we got Chamberlain I think I have seen others say online. I am loathe to switch horses in this election just because it could split the Democratic ticket and allow the others [trying not to use pejoratives] to win with a minority.

    I just don't see how *We the People being able to mitigate much of anything so long as we have that idiotic Public Citizen ruling that makes corporations like people legally--allowing foreign powers to funnel huge amounts of cash into various campaigns for nefarious motivations. And then the revolving door politics, where many politicians and their appointees do all they can so smooch the behinds of their future corporate employers in the industries they are supposed to be regulating. Getting a new private sector job and still [if they are a legislator] having direct, unmitigated lifetime access to the hill and it's facilities at any hour.

    How do regular people compete with that? How are we supposed to get these turncoats off the corporate teat with *standing in the way?

    Motherjones had an issue 2 months ago that re-arranged congressional seating by corporate sponsorship. It was really interesting. You should try and get that illustration. Lots of campaign contribution stats in that issue as well.

  2. You are quite correct. We are now seeing how right Charles Lindblom was in *Politics and Markets* (IMO the greatest book on politics in at least the last 50 years) when he said in 1977 that the modern corporation is not compatible with democracy.

    Defeating corporate influence will be long, hard work. Outrages like in Wisconsin and Ohio have energized a lot of people. I think online aggregators like Act Blue can help maximize the power of small donations. I just hope it doesn't take another Great Depression to make real progress.