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Reply #11: What is Krugman saying? [View All]

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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Dec-09-10 02:20 PM
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11. What is Krugman saying?
On the straight economics, the tax deal is worth doing. But the history of the past two years drives home, if anyone doubted it, that economic policy must be considered from a political economy point of view; that you have to think ahead to how current policies affect the environment in which future policies will be decided. And the more I work on this, the more concerned Im becoming.

We already knew that extending the Bush tax cuts makes it more likely that theyll be made permanent which increases the costs of doing a deal beyond the direct budget impact. That is, we knew that any deal extending those tax cuts for two years means that we can expect a replay of December 2010 in December 2012, with a high chance of a bad result.

But the new deal creates another hostage situation this time for December 2011, when the good stuff in the deal is scheduled to run out.

Look at the Zandi estimates: they show a boost to the economy in 2011, which is then given back in 2012. So growth is actually slower in 2012 than it would be without the deal.

Now, what we know from lots of political economy research Larry Bartels is my guru on this is that presidential elections depend, not on the state of the economy, but on whether things are getting better or worse in the year or so before the election. The unemployment rate in October 1984 was almost the same as the rate in October 1980 but Carter was thrown out by voters who saw things getting worse, while for Reagan it was morning in America.

He's suggesting something "worth doing" should be overlooked in favor of future politics? That the state of the economy doesn't matter if thing are getting worse, but that something "worth doing" should be overlooked?

"On the straight economics, the tax deal is worth doing..." Is it worth doing or not?

In January, Republicans control the House and will have five more seats in the Senate.

Congress has to either negotiate a better deal now or later.

Later, means the deal will be negotiated by Republicans. They will not need a single Democratic vote in the House, and there will be five more Republicans in the Senate.

They will ensure that all the things that are currently being held hostage by them are still held hostage in the next Congress.

They will negotiate a deal that includes more tax cuts for the rich, middle class tax cuts, a lesser deal for the unemployed and none of the stimulus provisions.

The President will have to sign or veto a bill with relief for the middle class and unemployed. It's unlikely that the GOP will change their package to accommodate the President and Democrats when they are the majority in the House.

Republicans are assholes, and they are not going to act otherwise. This is not shut the government down, this is about tax cuts for the middle class and stimulus provisions. Any package that Republicans negotiate will be accepted by Americans as "the best we can do," especially when they are calling the shots in Congress.

The Democratic Congress needs to make the deal better now because it's unlikely to get better in the next Congress.

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