Wednesday, August 17, 2011

Economists for Obama no Longer Advocating for Obama...

Economists for Obama reacts to the debt-deal with this:

That's what I have to say about President Obama's capitulation to the hostage-taking ways of congressional Republicans.

I suppose I might change my mind, but after watching the President give in to the Boehner-McConnell blackmail axis, I don't imagine I'll be spending much of my time advocating his re-election. Assuming he's the Democratic nominee, which I do, I'll vote for Obama, because the alternative will still--somehow--be worse. But I really can't see how, in good conscience, I could defend the economic policies of a guy who has signed on to fiscal contraction in the midst of a major downturn. And that's leaving aside the President's apparent lack of understanding of the importance of bargaining from strength. So much for all that poker expertise he's supposed to have.

What a shame.
I think this is completely wrong-headed. Although I think Obama could have gotten a better deal, and should not have agreed to this, one of the key details is that it cuts budgeting authority by just $22 billion in 2012. That should reduce GDP growth by just .3 percent. Obviously, that's not the direction we want to move in, but that alone should have limited impact. My sense is that anything after 2012 will need to be ratified by future Congresses. I'm not really clear on how much "inertia" the deal will create, but I don't see how this deal is grounds to dramatically reinterpret one's support for Obama. The President could likely have gotten smaller cuts in 2012, but would have been really hard-pressed to get a small increase. Should the president have threatened default over $20 billion in 2012 spending? That seems like a judgment call...

The other issue here is, say Obama had gotten $100 billion in stimulus spending. I suspect, in that case, the Fed would not have changed its language at the last meeting (after which, two year Treasury yields plummeted). In short, not clear that fiscal policy mixed with a Fed that just isn't willing to play ball is the answer here.


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