A grand bargain might seem like smart politics for the administration, but if it hurts the economy, it'll come around and look like bad politics in 2012.
It's official: The debt ceiling negotiations are headed into overtime, as Republican leadership confirmed this morning that they are still miles apart from the White House on a big budget compromise that would raise the debt limit with $3 trillion to $4 trillion in savings. Meanwhile, the Senate is working on a last-ditch measure to avert default with smaller, but still significant, budget cuts.
The White House wants a grand bargain for three simple reasons that come down to one big reason: timing. A grand bargain could mean more stimulus now when the economy is weak, more cuts later when the economy is stronger, and less budget conflict next year as Obama runs for reelection.
The White House thinks a big deal is the best deal, but budget cuts today won't support the weak recovery. And bad economics makes for bad politics.
When Americans feel like the economy is working for them, they're more likely to approve of the politicians working for them. There are many ways to grade an economy. You can look at overall GDP growth, but nobody wakes up and thinks, "Wow, I'm really happy about quarterly export figures." Jobs are crucial , but even with 10 percent unemployment, 90 percent of the workforce has a job, which is much more than any candidate needs to get elected. It turns out that even more than unemployment, growth in real disposable income predicts success for the president's party, as political scientist Seth Masket demonstrated when he looked at midterm elections.