Who Won the Debt Debate? The Economy Still Lost


Wednesday August 3rd, 2011   •   Posted by Stephanie Freedman at 9:39am PST   •  

The Economist had a thing or two to say about the debt deal that was reached this week. The article “Nuts and bolts” asserts:

As for long-term fiscal consolidation, the deal also falls short. Total deficit reduction of $2.4 trillion is less than the $4 trillion that bipartisan groups and political leaders had more or less agreed was necessary to put the debt on a meaningful downward path relative to GDP.

Read full article here

The article “On the debt-ceiling deal” quotes Cato Institute’s Chris Edwards regarding a graph he created on the CBO scorecard.

Spending isn’t being cut at all. The “cuts” in the deal are only cuts from the CBO “baseline,” which is a Washington construct of ever-rising spending. And even these “cuts” from the baseline include $156 billion of interest savings, which are imaginary because the underlying cuts are imaginary... The federal government will still run a deficit of $1 trillion next year. This deal will “cut” the 2012 budget of $3.6 trillion by just $22 billion, or less than 1 percent.

The article concludes:

Maybe Washington’s game of debt-ceiling chicken went on too long for comfort, but the resolution of the game looks a lot like a pragmatic compromise to me. Unless the bill fails, which it might, it looks like our democracy will have raised the debt ceiling, didn’t really cut a thing, passed off responsibility for substantial deficit reduction to a “super committee”, which will either come up with a plan that does not bind the future executive and legislature or will trip a “trigger” that won’t go into effect until after the next election, and then, again, will go into effect only if the government of the future wants it to go into effect.

Read full article here




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