Cross Posted at Legal Schnauzer
Barack Obama signaled that he was going to be a weak president on January 11, 2009. That is when Obama, nine days before his inauguration, told ABC News' George Stephanopoulos that he was going to take a "look forward, not backwards" approach on the apparent crimes of the George W. Bush administration.
Obama, unfortunately, followed through on that pledge, and it helped Republicans claim the U.S. House of Representatives in November 2010. The House takeover, in turn, led to last night's debt-ceiling deal, which a leading columnist calls a "disaster"--and a "political catastrophe" for Democrats. The deal probably will make the nation's economy worse, not better, and it provides more evidence that Obama is headed for a failed presidency.
How bad is the debt-ceiling deal, from both an economic and political perspective? Allow Paul Krugman, New York Times columnist and Nobel Prize-winning economist from Princeton University, to explain:
A deal to raise the federal debt ceiling is in the works. If it goes through, many commentators will declare that disaster was avoided. But they will be wrong.
For the deal itself, given the available information, is a disaster, and not just for President Obama and his party. It will damage an already depressed economy; it will probably make America's long-run deficit problem worse, not better; and most important, by demonstrating that raw extortion works and carries no political cost, it will take America a long way down the road to banana-republic status.- Advertisement -
Is Krugman going over the top? Could the U.S. really become a banana republic? We think the answers are no and yes. And it's because the White House, the Congress, and the public seem to be clueless about fundamentals of macroeconomics. Writes Krugman:
Start with the economics. We currently have a deeply depressed economy. We will almost certainly continue to have a depressed economy all through next year. And we will probably have a depressed economy through 2013 as well, if not beyond.
The worst thing you can do in these circumstances is slash government spending, since that will depress the economy even further. Pay no attention to those who invoke the confidence fairy, claiming that tough action on the budget will reassure businesses and consumers, leading them to spend more. It doesn't work that way, a fact confirmed by many studies of the historical record.
Indeed, slashing spending while the economy is depressed won't even help the budget situation much, and might well make it worse. On one side, interest rates on federal borrowing are currently very low, so spending cuts now will do little to reduce future interest costs. On the other side, making the economy weaker now will also hurt its long-run prospects, which will in turn reduce future revenue. So those demanding spending cuts now are like medieval doctors who treated the sick by bleeding them, and thereby made them even sicker.- Advertisement -
These concepts are not all that difficult to understand. But Americans apparently would rather listen to the simplistic "solutions" served up by Tea Party Republicans. Why is this dangerous? Rana Foroohar explains in a Time magazine essay titled "Balanced-Budget Blues: If families have to balance budgets, government should too, right? Wrong." Writes Foroohar:
Folksy politics is always difficult to counter successfully, in part because it has such strong emotional appeal. Consider the hoopla over raising the U.S. federal debt ceiling and the Republican efforts to pass a balanced-budget amendment to force the U.S. to make whatever spending cuts are required to get into the black and stay there, year after year.