Tuesday 7 December 2010

Where'd that deal come from?

I read a Salon article that points out that the best predictor of whether a president gets a second term is the state of the economy, so this whole negotiation has been a clever ruse to pass a StimPak II and to try and perk things up by 2012.  While this does fit the facts pretty well, it assumes a level of economic understanding by the administration that has not so far been apparent. So it might just be doing mostly the right thing for the wrong reason.

It's worth noting that historically, the way we have dealt with high levels of government debt has not been to pay it off, but to grow the economy so that the debt level shrinks in comparison. That's what we did in the late 1940s and 1950s with the WW II debt. (Note to Republicans: the last Republican president to balance the budget was Grover Cleveland, the last Democrat was Bill Clinton, and the last time we paid off the national debt was in the 1830s.) So running a higher deficit to try and kickstart the economy is actually not a bad gamble.

I also note that the largest pushback from Democrats in Congress is on the estate tax, which makes sense since that is the least stimulative tax cut there is.

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