Thursday, December 09, 2010

What It All Means

Itdoes the heart good to see the House Dems standing up to the President. Maybe they'll get a better deal. If they don't, however and the deal falls apart, who really wins? Per Robert Creamer:

Back in 2008 Democrats won voters who reported that their personal economic situation was worse by a margin of 40 percent. In 2010 Democrats lost that same cohort of voters by 29 percent. From the standpoint of swing voters, the election was all about one thing: the voter's feelings that their own personal economic outlook was bleak.

To win reelection in 2012, the president had to do something to substantially improve economic growth in general and job creation in particular. That translated into the need for more economic stimulus to jump start sustained economic growth.

But the outcome of the election had also made the prospects that the new Congress would pass new economic stimulus remote. The Republicans who would control the House had no interest whatsoever in providing more economic stimulus. That's not mainly because they have a different economic philosophy. It's primarily because they have no political interest in near term economic recovery. It's just fine with them if the economy continues a slow slog, and the jobless rate is 8 percent or 9 percent in November 2012. After all, no president has been reelected in the last century when the unemployment rate was above 7.2 percent. Reagan was reelected in 1984 with a 7.2 percent unemployment rate, but at the time of the election, unemployment appeared to be -- and was -- in sharp decline.


The tax deal addresses each of these two core interests. It gives the Republicans tax breaks for the rich. And It gives the president and Democrats a major shot of economic stimulus that they -- and average Americans really need. All told the package costs $900 billion over two years. About 60 percent to 75 percent of that could be considered real stimulus, since the balance goes to the rich and has very little stimulative effect. But the money for $70 billion or so of unemployment compensation, the $120 billion for a payroll tax holiday, and the extension of middle class tax cuts -- including the refundable tax cuts from in the original Obama stimulus program -- actually do have increase aggregate economic demand.

Now with the exception of unemployment compensation -- which most economists think generates two dollars of GDP growth for every dollar of spending -- many of the other provisions are not as stimulative as infrastructure construction, a direct federal jobs program, etc. But they definitely increase growth. According to an analysis by the Center for American Progress (CAP), the package may generate or save up to 2.2 million jobs. And most importantly, these measures are far better than no stimulus at all.

The Republicans have basically held the rest of the country -- and economic growth -- hostage to their demand for two years worth of tax breaks for the super-rich, it's that simple. That has infuriated progressives -- and it should.

But that is the basis for the tax deal. It meets to the core, overriding self interests of each of the two protagonists.

The unsung story is that Obama stopped America's economic slide. Period. It's natural to argue that it could have been done better this way or that, but since he succeeded, that's all just Monday morning quarterbacking and sour grapes.

The question is whether you still trust him to make the best decisions for the most Americans.

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