Posted by | August 1, 2011 14:00 | Filed under: Top Stories

by Stuart Shapiro

The deal agreed to this weekend by President Obama and the GOP deserves criticism.  It raises the debt ceiling by cutting spending that is sorely needed by the poor and middle class.  The spending cuts put the economy at risk of a double dip (but when do they take place, everything I’ve read just says they are spread out over 10 years — if they are not immediate, the risk may be smaller).  But let’s put blame where it belongs, with the Tea Party.  Being true to its history as a circular firing squad, the Democrats are ready to heap criticism on President Obama and to a lesser degree Senator Reid.  But in assessing any compromise, it is important to think about what the alternatives were:

Default: This would have been a disaster and would have hurt the most vulnerable more than the deal agreed to.  A severe recession would have resulted.

The 14th Amendment: I wrote on this yesterday.  President Obama would have invoked it to prevent default to bondholders but the practical impact of this would have been a government shutdown and it probably would not have prevented a downgrade in our credit rating.  If he had used it to pay government expenses (as opposed to debts) a year’s worth of impeachment hearings (that inevitably would fail but would dominate Washington) would have resulted.  I can tolerate arguments that this spectacle would have been better than the deal but I don’t agree with them.

Convincing the American Public:  This is the favorite one of the left.  President Obama should have argued for more stimulus and bent Congress to his will.  Ummmmm, were you watching the past few weeks.  The House GOP was not bending to anyone’s will.  And because of gerrymandering, they don’t need to worry about the President; their constituents hate him and the GOP reps fear a primary more than a Democratic opponent.  This is not 1935 or even 1995 (or the West Wing) where the President can uniformly capture attention.

Instead, he (with a lot of help from Minority Leader Pelosi) protected programs like Social Security, Medicaid, and veteran’s benefits and effectively took the debt ceiling off the table until 2013.

President Obama did not play this perfectly or even particularly well.  I think a better deal was possible (but spending cuts were coming no matter what) and a lot depends on how the next battle (the 2012 budget due on October 1) plays out (for a pessimistic take, see here).  My guess is that the House GOP will force a shutdown.  Here the hostage of these terrorists won’t be the entire economy but rather the government.  Here the President will need to allow a shutdown and let the politics play out.  While there will be innocent victims in a shutdown, it won’t be the same as not raising the debt ceiling.  If Obama has to give up more cuts in October then this deal will look even worse than it does now.  If he doesn’t and the Bush tax cuts for the wealthy expire as scheduled in 2013 (and as Alan posted earlier the dynamic on this issue will favor the Democrats), then this one will not look so bad.

One more point: I’ve heard the criticism that President Obama only cares about his reelection.  What first term president doesn’t?  And because of the craziness in the House, his reelection is extremely important (more on this in a later post).  And like it or not, it became even more likely today.

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Copyright 2011 Liberaland
By: Stuart Shapiro

Stuart is a professor and the Director of the Public Policy
program at the Bloustein School of Planning and Public Policy at Rutgers
University. He teaches economics and cost-benefit analysis and studies
regulation in the United States at both the federal and state levels.
Prior to coming to Rutgers, Stuart worked for five years at the Office
of Management and Budget in Washington under Presidents Clinton and
George W. Bush.