Okay, my resolve to avoid discussing the election until the Iowa caucus has lasted about as long as it took Rick Perry to shoot off his mouth.

Let’s start with the obvious. The implied threat of violence if Bernanke ever visits Texas is just macho posturing. I no more believe the Governor of Texas intends to incite mob violence against the Chairman of the Federal Reserve than that he intends to secede. No point fainting over it.

Second, is he advocating tighter money? The general conservative line is that he is dead wrong to call for violence (even if it is just so much hot air), but right to call for tighter money. The view of some liberals and monetariests is that he is, indeed, calling for tighter money, and that he is dead wrong about that. I consider myself unconvinced.

Put me in the third category, of people who long suspected the Republicans are committing economic sabotage, but never expected them to come right out and admit it. Admittedly, Perry’s statement was somewhat ambiguous. He said:

We’ve already tried this. All it’s going to be doing is devaluing the dollar in your ocket and we cannot afford that. We have to learn the lessons of the past three years that they’ve been devastating. The President of the United States has conducted an experiment on the American economy for almost the last three years, and it has gone tragically wrong and we need to send him a clear message in November of 2012 that new leadership is coming.

This appears to be a statement that he believes we need tighter money, and that any monetary easing would be economically disasterous. No sign of sabotage there.

But he also says, “If this guy prints more money between now and the election -- I don’t know what y’all would do to him in Iowa, but we -- we would treat him pretty ugly down in Texas. Printing more money to play politics at this particular time in American history is almost treacherous -- or treasonous in my opinion.” And, when asked if he thought the Fed's primary motive was to get Obama reelected, he said, “If they print more money between now and this election, I would suggest that’s exactly what’s going on.” Both these statements sound like an acknowledgment that monetary expansion can improve the economy and is therefore illegitimate because it might help Obama be reelected. In orther words, sabotage.

Granted, if I wanted to be charitable, I could square this circle. He could mean that the Fed mistakenly thinks that monetary expansion will help the economy (and, by extension, Obama), but that really it will be harmful. Or he could mean that monetary expansion will temporarily improve the economy just long enough to sway the election, but will do greater damage in the long run. And that latter view could explain why he regards any attempt to revive the economy before the election as illegitimate. But that seems a lot more sophisticated than the general tenure of his remarks, and I am in no mood to be charitable.

Although I regard the implied threat of violence as so much hot air, I do regard Perry’s speech as a threat. Originally I took it as a threat to Bernanke that if he tried to revive the economy before the election, he (Perry) would take it as an unfriendly act and refuse to reappoint Bernanke to the Fed after he won the election. It seemed like a hollow threat. Presupposing Perry would win the election is a case of counting your chickens before they are hatched and besides, why would Bernanke want to be reappointed to such a hot seat? But this comment convinced me that it was a more immediate and obvious threat. It was a threat that if the Fed does anything to revive the economy before the election, Republicans will regard it as an attempt to sway the outcome and denounce the Fed for being partisan. And there is nothing the Fed dreads more than accusations of partisanship.

Of course, allowing the Republicans to sabotage the economy to sway the election their way is equally partisan. And a lot less public spirited.


P.S.

Incredible! A conservative who actually gets it: "The idea that Bernanke would be playing politics by printing money between now and the next presidential election suggests that doing so would improve short-term economic growth and improve President Obama’s reelection prospects. However, if a more expansionary monetary policy would help the economy, why would anyone oppose such a policy, let alone call it treason?"

Why Perry would oppose it is obvious enough; it hurts his chances of election. Expecting a presidential candidate to want the economy to be revived just in time to undermine his prospects is asking for more public spirit than can be reasonably expected of anyone. But for him to be unable to imagine any reason for Bernanke to want to revive the economy now, as opposed to in 2013 other than a illegitimate attempt to sway the election really is disturbing. It suggests he has no concept of public spirit at all. And it arguably may be taken to imply he considers a Democratic presidency inherently less than legitimate.

See also this comment that comments like this just might, indeed, make Bernanke want to avoid a Perry presidency.

What if the Republicans Win?

I'm going to try to stay away from election until the Iowa caucus. Let's see how well I do. I did think, though, that I might as well put down my reflections on what happens if the Republicans win in 2012. By this I mean win the Presidency, hold onto the House, and get a majority, though not filibuster-proof, in the Senate.

(1) Senate Republicans, after using the 60-vote filibuster as a matter of routine, will find a way to get rid of it.

(2) Obamacare and Frank-Dodd will be repealed. I think this will be the end of the line for universal health care, at least for another generation. Up till now, the official Republican position is that health insurance for all, though not all that important, was not per se objectionable, but they didn't like the way the Democrats were going about it. This time they have made clear that they will fight to the death any expansion in the number of people with access to health insurance (and probably favor controlling health care costs by pricing even more people out).

(3) Having made such a big deal about the importance of spending cuts, I don't see how they can possibly change their minds and decide that big spending is only bad if a Democrat is in the White House. On the other hand, I don't believe that even a President Bachman will find the political nerve to cut spending by 40% overnight. So what we will probably get is significant spending cuts, targeting primarily programs for the poor and assistance to states. There will not, however, be any deficit reduction because all spending cuts will be more than offset by even larger tax cuts, aimed primarily at the top. It is Republican dogma that the harmful effects of deficits do not apply if they are caused by tax cuts.

(4) I don't think they will be able to kill Social Security of Medicare, or turn Social Security into a 401(k). Interestingly, even as they plan to turn programs for the poor into block grants and Medicare into something a lot like Obamacare, they have not even raised the possiblity of turning Social Security into a 401(k). My guess is that this is because the idea was toxic enough when Bush proposed it, and given what has happened to 401(k)'s since, it will be even more toxic now. I don't rule out their getting rid of Medicaid altogether, or at least for people under 65. The elderly vote a lot more than the poor.

(5) Right now Republicans are very upset at the Fed for its expansionary policies and calling for higher interest rates. A number of commentators have remarked they were singing a different tune when the economy was in recession and Bush was President. But then again, the Fed has become a lot more unconventional since then. So I really have no sense whether they will appoint members who favor tighter monetary policy, or suddenly change their minds once a Republican is in power.

(6) They will undoubtedly seek to engage in a lot of regulatory rollback, but I have not idea how far it will go. Neither do I have a sense whether they will revive torture as an official policy (probably).

(7) They will undoubtedly send any future terror suspects to Guantanamo to be held forever without a trial. Let's hope there aren't any.

If we get a Republican as President and a Democratic majority in either house, I expect utter gridlock and dysfunction. Republicans will be unable to repeal Obamacare or Frank-Dodd, but the President may seek to block enforcement by refusing to appoint any officials. So far as I know, there is no precedent for what happens then.*

I can't find the link, but I am sure Jonathan Chait ran an aticle speculating that if Mitt Romney won the election, he would convert to understand the need for stimulus (his reelection would depend on reviving the economy, after all) and speculates on whether it would be worth it. His conclusion is probably not because he dislikes too many of Romney's other policies. My conclusion is no, because it would effectively be submitting to blackmail. It would be allowing the Republicans to say, "Give us the presidency, and we'll stay sane. But if you even elect another Democrat, we'll go off our meds and make this country completely ungovernable."
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*Congress has passed legislation forbidding the President from refusing to spend money it has appropriated. This has been upheld by the Supreme Court, but today's Supreme Court might change its mind.

Reflections on the Conservative Approach

It's very hard for people on my side of the spectrum to tell to what extent Republicans are sincere in believing that immediate, deep spending cuts will be economically beneficial and to what extent they are engaging in deliberate sabotage (consciously or unconsciously). But I will stick to addressing consevatives who are sincere.

The less sophisticated appear to believe that immediate, deep spending cuts will bring about immediate improvement by freeing up resources for more productive use. The problem, of course, is that a recession by definition means that significant economic resources are going unused. The short-term effects of deep cuts in government spending are that even more resources will be unused. But others, more sophisticated, recognize that cuts will mean short-term pain and argue that short-term pain is worth the cost. That is the argument I want to address -- including why these more sophisticated conservatives are so enthusiastic acout short-term pain.

Megan McArdle, speaking of Ireland, argues that shrinking government spending, despite the painful cuts, depressed economy, and even large deficts that result, is worthwhile to avoid the worse consequences of an outright default, "[F]iscal crises are much, much worse than austerity budgets. Fiscal crisis means that rather than unpleasant cuts, you have sudden, unmanageable collapses in things like public pension plans. The resulting suffering is not unpleasant; it is disastrous."

To this a liberal critic responds that cutting spending to fend off a future default doesn’t work – by shrinking the economy, it depresses tax revenues and thereby increases the deficit. The trouble with this argument is that ultimately cutting ca balance the budget, albeit at geat cost, and some conservatives advocate this approach. Suppose, for instance, that President Bachman actually keeps her promise and refuses to raise the debt ceiling, necessitating an overnight 40% cut in spending. The results would be catastrophic as McArdle herself acknowledges. But the economic contraction is so severe as to cut revenues by two-thirds, the deficit will shrink. It will not disappear because the shinking economy will mean less revenues, necessitating more cuts and continuing the cycle. Eventually, though, an end point will be reached. The budget will balance and the economy will presumably bottom out, albeit at considerable cost, possibly including the collapsing pension plans and disasterous suffering that we are trying to avoid by balancing the budget.

This is not merely theoretical. Something like it happened to Chile in the Great Depression. Faced with collapsing export prices, the Chileans cut and cut and cut, shrinking their economy by half, but eventually its credit was restored, and it bottomed out and began to recover. The top current examples, much touted as positive models by conservatives, are the Baltics, Latvia, Estonia and Lithuania. All three countries maintained their currency pegs and balanced their budgets. Not coincidentailly, these three also suffered the worst relative economic declines of any country in the recent crisis, but they did ultimately bottom out and start to recover. Conservatives eagerly call on the rest of us to emulate them.

The same dynamic applies to mortgage foreclosures. Liberals warn that without some sort of mortgage relief, the market will be flooded with foreclosed houses, further driving down prices. The drop in prices will cause even more homeowners to be under water, leading to more foreclosures, and perpetuating the cycle. But eventually it has to run out of people to foreclose on. Some people, after all, have paid off their mortgages. Others have mortgages close enough to being paid to be worth almost any sacrifice to own the house free and clear. So ultimately the wave of foreclosures will have to cease. Since banks will not be able to sell their homes for more than market price, they will take their losses either way. The difference will be that without debt relief housing prices will fall much lower and many more people will lose their houses without debt relief than with it.

So it seems fair to ask, given the severity of their downturns, why do conservatives think the Baltics are such wonderful models to follow? And given that it will cause great suffering to home owners, no gains to the banks, and losses to everyone’s property values including their own, why are conservatives so dead set against mortgage relief?

One reasons, I suspect, is that they believe there is an inevitable bottom we have to hit, and any attempt avoid sinking so low merely prolongs the pain. The faster we bottom out, the quicker we can start recovery. But more than that, I think they regard any suggest that proper intervention may make the bottom less low is cheating and attempting to thwart the will of the free market.

And that, I think, leads to the deeper answer. They see these as moral issues. Economic conservatives, so far as I can tell, regard the primary moral issues in economics (aside from shrinking government, of course), as paying debts and making sure no one escapes punishment for bad decisions. Human suffeinrg ranks much lower on their scale of moral priorities. And as for collateral damage to the innocent, well it takes balls to execute an innocent man.

Counter Cyclical is Counnter Intuitive

It’s becoming increasingly clear that the problem with being counter-cyclical is that it is counter-intuitive. It meets with fierce popular resistance even though it doesn’t call for any painful measures because it just feels wrong. How can the remedy for a bubble brought on by easy credit be easier credit? How can the remedy for running up too much debt be running up more debt. And it families are having to cut back and make sacrifices, shouldn’t government be doing the same thing? Arguing that the rules that apply to families don’t apply to government just generates resentment – no fair, why doesn’t government have to play by the same rules we do? And stimulus spending invariably distributes benefits unevenly, which increases the resentment.

There are a lot of fine bumper sticker anti-Keynesian slogan – Government should balance its budget, just like families; if we have to make sacrifices, so should government, you can’t spend your way to prosperity, and, of course, you’re mortgaging our children’s future.

The responses to these slogans are all too vague and abstract to offer any emotional satisfaction. One response is to talk about just what would have to be cut, which is never very popular. But the response is always, too bad, we can’t afford it. We need a snappy comeback. So what intuitively appealing, emotionally satisfying, bumper sticker slogans are there in favor of Keynes.

Here are mine:

I won’t promise services in good times and take them away just when they are needed.

When half the raft is losing air, the other half has to inflate to keep it afloat.

As the private sector stands up, government can stand down.

Unemployment is not cured by layoffs.

Government spending = teachers and Social Security

You can’t shrink your way to prosperity.

(I think the one about not curing unemployment with layoffs works. Not so sure about the others).

Results are What Matters

Here are posts by Jonathan Chait and Paul Krugman sayung much the same thing.

When Franklin Delano Roosevelt ran for President in 1932, it was as a Tea Party candidate. Roosevelt denounced Hoover as a big spender and promised to make drastic cuts in federal spending and balance the budget. Whether he actually meant it and later changed his mind, or whether he was lying from the start, FDR obviously thought attacking big government spending was a winning argument. And he was right; he won by a landslide.* He then promptly went back on all his promises and became a bigger spender than Hoover ever thought of. And the funny thing was, the American people forgave him.

Granted, his big spending ways weren't popular. In 1935, fully 70% of those surveyed thought it was time to balance the budget and start reducing the national debt. Yet in 1936 55% of the public thought the Administration's policies were helping recovery, as opposed to 45% who thought they were harming. And at the time of the 1936 election, 65% of the public favored balancing the budget, as opposed to a mere 28% who diaagreed. None of this, however, kept Roosevelt from winning by an even bigger landslide in 1936 than he did in 1932. In 1937, Roosevelt gave the people what they wanted and balanced the budget. The economy promptly slumped, as did his popularity.

The moral here is obvious. Nothing succeeds like success. Voters want results and don't care so much how they are achieved. Big spending and big deficits are something that people oppose in an abstract and theoretical way. A bad economy is something that affects people concretely in their real lives. Given the choice between the two, people will vote the real economy any time.

Andrew Sullivan is Stating to Annoy Me

Andrew Sullivan is starting to annoy me. I suppose I should give him credit for finally coming out and saying that our economy just has to go through this and we shouldn't try to do anything about it. But could he please at least acknowledge that this isn't a winning political message?

Granted, he has occasionally suggested that the economically optimum approach may be short-term stimulus and long-terms cuts, but that just isn’t olitically feasible, so let's forget all about it. Swing voters are too upset over our debt level to tolerate any more big spending, so we should concentrate on cuts, regardless of how they affect the economy. What Sullivan doesn’t understand is that what is economically optimal ultimately IS what is politically optimal.

Sullivan presents evidence that voters when surveyed want deficit reduction, but prefer Obama’s balanced approach of tax increases and spending cuts over the Republican approach of spending cuts only. He presents ample evidence that the voters just don’t buy the theories of Keynes. And I’ll agree with him on both counts. But the evidence is also overwhelming that what voters care most about is not deficit cutting, but the economy and jobs. Voters are angry over the debt ceiling quarrel for the same reason they were angry over the whole spectacle of healthcare reform – why is congress throwing all its energy ad ego into that instead of issues we care about like the economy and jobs? (The fact that both bills seemed to be all about ego and winning rather than the public good didn’t help either). The sight of Obama running around campaigning on how he is going to cut spending and raise taxes is just going to reinforce the notion that Washington is out of touch.

Finally, let mepose two hypotheticals to Sullivan.

Suppose Obama and the Republicans agree on some big spending cuts. I personally don’t think this will be all that popular because, while voters hate government spending in the abstract, actual cuts tend to be much less popular. But never mind, we’ll assume the cuts are popular. Now assume Keynes is right. The cuts withdraw demand from the economy and the economy shrinks as a result. My guess is, these two events will not be linked in the eyes of most voters. But so what? Does Sullivan really think voters will say, “So what if the economy is in the tank, at least they finally cut spending”? I’m guessing no, people will be too upset about the economy being in the tank to care much about the cuts.

Suppose, by contrast, that Obama, having failed as a poker player, decides to imitate McCain and be a high stakes craps shooter. Suppose he draws up Paul Krugman’s dream stimulus and persuades all Democrats in Congress to join him in his crapshoot. Suppose he persuades a handful of Republicans to go along as a amatter or economic sabotage. (“You think I’m wrecking the economy? Then help me really wreck it and it should get you a landslide next year.”)
No doubt such a measure would be very unpopular. Glenn Beck would call it our Archduke Ferdinand moment. Fox News and talk radio would say that Obama so ignoring the will of the people was the moment our democracy died and we became a Communist/fascist/Islamist/atheist dictatorship. They would darkly hint that armed rebellion was in order, although, mindful of Anders Breivki and Timothy McVeigh, I think cooler heads would prevail. But a rash of vandalism and death threats would break out against members of Congress who voted for the measure. Tea Parties would vow primary challenges against every Republican who voted for the monstrosity. Some hotheaded House Republican s might even institute impeachment proceedings. And it would probably not go over well with swing voters either. They would be angry that politicians in Washington were ignoring the will of the people and continuing thei spending spree. Obama’s ratings would plummet, except among the liberal base.

But suppose it worked. Suppose the economy actually did start recovering? I am guessing these two events would be linked in the minds of most voters because Democrats would do their best to pitch the connection. They could compare it to George Bush’s surge – a publicly unpopular action that seemed like just doubling down on a hopeless policy, but in fact finally turned and seemingly intractable situation around. But even if the voters did not connect the two events, the message would be loud and clear – the economy would be improving, and Republicans would not be happy about it.

Does Sullivan really believe that voters response would be that economic improvement was all fine and good, but ignored the really important issue of cutting spending?

And if Sullivan's position is really that there is nothing we can do about the economy so we should start cutting regardless of the pain, he should come out and say so and not pretend his position will be politicall popular.

Now What?

OK, I'm a bit late to the game, but my basic take on the debt ceiling deal is that for a complete capitulation, it could be worse. The Republicans got the raising the debt ceiling tied to equivalent cuts in spending, no tax inceases, further opportunities to humiliate Obama, and a new hostage to be used routinely in future debt ceiling negotiations. Democrats got spending cuts back loaded, protected programs for the poor from automatic cuts, put defense spending on the table and (possibly) demonstrated that Republicans will step away from the precipice at the last moment. Backloading to avoid immediate economic damage and protecting the poor are important priorities.

So, given that Republican are unwilling to cooperate with Obama in any policies he may believe will benefit the economy, the obvious question is now what. The economy looks just about poised to tank again and Republicans have cut off any action to revive it. Immediate economic recovery may be the only thing to keep the government out of the hands of complete lunatics in 2012. So what can Obama do? I have three suggestions.

(1) Make recess appointments to the Federal Reserve of officials willing to adopt unconventional measures to revive the economy. Right now Republican Senators are apparently ready to filibuster any appointment that would make a difference the House is apparently threatening to hold regular pro forma sessions to block recess appointments. (See here for an excellent discussion of this mess -- and how it is not exclusively the Republicans' fault). Jonathan Bernstein recommends a non-controversial appointment as a warning shot. I say you might as well be hanged for a sheep as a lamb. Republicans will freak out over any recess appointments, you might as well give them something to freak out ove.r Clearly Congress is not going to pass any fiscal stimulus; that leaves the Fed.

(2) Alas, I cannot find the link. It is probably outrageously optimistic, but but I hear rumors that federal and state attorney generals are contemplating a settlement with Bank of America, to serve as a prototype for other banks, that would drop criminal charges in exchange for real relief for underwater homeowners. Since the household debt burden is the primary factor holding back recovery, this would be very important news indeed. Unfortunately, I have heard way too may such false starts to put too much stock in this one.

(3) If you can't get stimulus, you might as well propose it. Yes, granted, political will fo rthe stimulus has passed, and much of it was unpopular to begin with. My response would be this: What is resented is a benefit or a burden is the sense that it is unequally distributed. A bailout of (say) auto companies or a public works project invokes resentment because people see themselves as being taxed for someone else's benefit. By contrast, a universal refund is widely popular because everyone share in it. The bad news, of course, is that a universal refund does nothing for anyone's cash flow and therefore has limited long term effect.

The stimulus most commonly mentioned is some sort of payroll tax holiday -- preferable one longer and deeper than the little one we have now. It will be politically popular because it means a wage increase for everyone, and a tax cut for employers to encourage hiring. Both those things should be well-received. So the Republicans refuse to pass it. So what? Have Senate Democrats introduce it, talk it up, and at least use it to embarrass Republicans. Perhaps you might get a similar opportunity to embarrass with a proposal for aid to the states -- I think by now it is becoming clear that state budget cuts hurt, and that federal assistance to avoid them would probably be popular.

Why do I suspect, though, that Obama's basic response will be to make a few empty speeches and accomplish nothing?

I Could Almost Wish . . .

If the Republican Party were sane, I could almost welcome its coming to power in 2012 (or sooner). If I believed we could recover quickly, I would almost welcome a default. But it isn't and we won't, so I have to hold on, closing my eyes and wishing for the best.

Why would I want to Repoublican Party to come to power in 2012? The answer is simple. Up till now we have been fighting the recession with fiscal and monetary expansion and, at the least, have not succeeded in achieving a strong recovery. Is a stronger stimulus called for. Maybe so, but the political will for one is not present. Republicans have made the case that the deficit is causing the recession and what is needed is deep spending cuts to free up resources for more productive uses.

If the Republican Party were sane, I would say fine. The "spend more" party has not brought about an economic revival, so let's give the "spend less" party a chance. One of two things will happen. Either it will work and the economy will recover, or it will not and the economy will get worse. If the economy gets better -- well, that's what we want after all. It would require rethinking a lot of my economic beliefs, but that seems a small price to pay for a real recovery. If the economy gets worse, then austerity will be discredited and stimulus will get a second chance. Granted, there will be a lot of personal hardship along the way, which I would prefer to avoid. But apparently the only way to discredit austerity is to try it and watch it fail. It worked with the US in the Great Depression. It worked in Asia and Latin America in the 1990's. And apparently nothing less is going to work today.

As for a default, well Megan McArdle has an excellent post up on why any attempt at an overnight 40% cut in government spending would discredit the concept VERY rapidly and probably dampen enthusiasm for spending cuts for quite some time. She thinks Republican will get the blame for such a catastrophe and be swept from office. I'm not so sure.

Be that as it may, either way the human costs will be considerable, and, as a liberal, such things upset me. But either way, if the damage could be rapidly repaired, I would consider it worth while to discredit austerity once and for all.

Unfortunately, I have no such confidence. I don't fully understand the implications of what a default will mean -- and neither does anyone else, really. But by all accounts, it will deliver a shock to a very weak economy and cause a downturn. Quite possibly, it might damage our credit rating to the point of forcing austerity and preventing any further stimulus. Almost certainly, when the economy turns down, the President will get blamed, and the Republicans will sweep in 2012.

I suppose dealing with the realities of power might eventually sober them up, but who knows how much damage they can do in the meantime? Maybe I'm letting my imagination ru away with me. Maybe President Bachman, with her newly elected Tea Party Congress won't decide that a second Great Depression is a small price to pay for getting rid of the New Deal. Maybe they won't decide that a Great Depression without a safety net is better than a Great Recession with a safety net. So maybe they won't try to force overnight 40% spending cuts, or elminate unemployment insurance, food stamps and Medicaid. Maybe they won't end Frank-Dodd, the SEC, the FDIC, and possibly the Federal Reserve. Maybe they won't sell off the national park system to timber and mining companies. Maybe they won't consider the end of 80% of all home mortgages an acceptable price for ending Fannie and Freddie. Maybe they won't revive the gold standard. But given the current mood of the Tea Party, I don't want to bet the nation's future on any of these things.

And even if the newly empowered Tea Party do only one or two of these things and are ridden out on a rail at the next election, it will be very difficult to put Humpty Dumpty together again.

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.