Krugman on the deal

Paul Krugman wrote in the New York Times today that this budget fight is really a fight over the future of the welfare state and that there are two ways they can lose.   One is to have it voted down outright, which the Romney defeat put to rest for the time being.

The other was is the conservatives' "starve the beast" strategy, which cuts available money in the budget so that social welfare programs have to be cut.   The Bush tax cuts, plus fighting two wars on credit and a drugs-for-seniors program without providing to pay for it.  So the results of that are what we are struggling with now.

Krugman writes:

"The bad news is that the deal falls short on making up for the revenue lost due to the Bush tax cuts. Here, though, it’s important to put the numbers in perspective. Obama wasn’t going to let all the Bush tax cuts go away in any case; only the high-end cuts were on the table. Getting all of those ended would have yielded something like $800 billion; he actually got around $600 billion. How big a difference does that make?

"Well, the CBO estimates cumulative potential GDP over the next decade at $208 trillion.So the difference between what Obama got and what he arguably should have gotten is around 0.1 percent of potential GDP. That’s not crucial, to say the least.

"And on the principle of the thing, you could say that Democrats held their ground on the essentials — no cuts in benefits — while Republicans have just voted for a tax increase for the first time in decades.

"So why the bad taste in progressives’ mouths? It has less to do with where Obama ended up than with how he got there. He kept drawing lines in the sand, then erasing them and retreating to a new position.  And his evident desire to have a deal before hitting the essentially innocuous fiscal cliff bodes very badly for the confrontation looming in a few weeks over the debt ceiling.

"If Obama stands his ground in that confrontation, this deal won’t look bad in retrospect. If he doesn’t, yesterday will be seen as the day he began throwing away his presidency and the hopes of everyone who supported him."

Good analysis of the situation.

Ralph