Is this deal good for the economy, or our fiscal health, or long-term deficit reduction? I think the answer is no on all three counts.
This is the new debt ceiling deal in a nutshell: Republicans get spending cuts without tax increases and a guaranteed vote on the Balanced Budget Amendment. The White House gets the debt ceiling extended until 2013. The Democrats get basically nothing. An optimistic Democrat (if such a thing exists, anymore) could argue the party benefits from the very existence of a deal, which averts default, downplays the deficit in an election year, and clears the way in 2012 to talk about the GOP's Medicare votes. But at the end of the day, Democrats are a left-of-center party in a right-of-center country signing onto a right-of-right deal to reduce the deficit. You practically need infrared goggles to see the silver linings.
But enough about the politics. Is this deal good for the economy, or our fiscal health, or long-term deficit reduction? I think the answer is no on all three counts.
1. Is it good for the economy?
No. Government is a part of the economy. When it shrinks, the economy shrinks, unless the private sector is strong enough to make up the difference.
Today, there is very little indication that American businesses are prepared to bike on their own without the government's tricycle wheels. The economy has grown less than 1% in the last six months, which happened to coincide with the end of the stimulus and the shrinking of overall government. Job creation has been abysmal. The government is the only part of the economy that can go to international markets, borrow a $100 billion dollars tomorrow, and send it in the form of checks to millions of families. Instead, we're prematurely accelerating from stimulus to stasis to austerity.