Wednesday, December 22, 2010

The Budget Deal

I didn't want to jinx the budget agreeement by treating it as a done deal unless it really became a done deal. Now that it is a done deal, I would say that it is as good as anyone could hope for and maybe better. Democrats got what they wanted most -- a one-year extension of unemployment benefits that Republicans seemed determined to fight tooth and claw. The one-year break in Social Security tax is problematic if extended (likely), but about as good as we could hope for in the short run. I fully agree with Megan McArdle that a deal in which Republicans don't get anything they want is utterly unrealistic. But that is what many Democrats were asking.

After continually insisting that unemployment benefits must not be extended without some compensating spending cut, Republicans have agreed to extend them if there is a tax cut. Republicans are now madly scrambling to explain that a tax cut is really the functional equivalent of a spending cut. The war on arithmetic continues. Or, as Jonathan Chait puts is, "Why were Republicans so flexible? They are willing to deal away a lot if they're getting tax cuts for the rich. . . . [I]t's the party's core policy goal, and if you help them attain it they can be surprisingly reasonable."

Of course, this is a wildly fiscally irresponsible agreement. But that's a good thing. When your economy is still struggling to extricate itself from a severe recession, the last thing you need is fiscal responsibility. You need irresponsible counter-cyclical measures. Fiscal responsibility can wait until the economy is stronger. Of course, the Republicans may yet ruin everything by being fiscally responsible after all and pushing for serious spending cuts. And I expect plenty of bipartisan irresponsibility whenever our economy does become strong enough to seriously tackle the budget. (I expect the deficit to be much smaller when our economy recovers, but still dangerously large and unsustainable).

I also wholehearted agree with Matt Yglesias that this is reassuring in at least one regard. Republicans are not trying to sabotage the economy to ensure a victory in 2012. This really is a good faith dispute about the best policy.

Update:

I like this post by Megan McArdle, arguing that the reason we are seeing so much extraordinary fiscal irresponsibility right now is that both parties recognize a painful need to balance the budget is coming up and are trying to create irrevocable "facts on the ground" to force the other party to make most of the concessions when that inevitable time arrives. Since I think we can rule out the possibility that anyone has read Keynes or believes that deficits are temporarily necessary, this does, indeed, seem the most likely explanation.

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