Brad DeLong, I Do Not Understand the Obama Administration:
The big reason to make a deal before January 1, 2013 was that detonating the “austerity bomb” would impose 3.5% of fiscal contraction on the U.S. economy in 2013, and send the U.S. into renewed recession. It was worth making a good-enough deal–sensible long-run revenue increases and tax cuts to close the long-run fiscal gap plus enough short-term fiscal stimulus to make the net fiscal impetus +1.0% of GDP–in order to avoid renewed recession.
But by my back-of-the-envelope count, the deal the Obama administration has agreed to still leaves a net fiscal impetus of -1.75% of GDP to hit the U.S. economy in 2013. That is only 40% of the way back from the “austerity bomb” to where we want to be.
That isn’t enough to make it worthwhile to make a deal before the new congress. After Boehner’s reelection as Speaker and after the expiration of the Bush tax cuts eliminates the U.S.’s structural deficit, the politics become very different…
No, when you look at it that way, i.e., the deal’s likely effect on the economy and the leverage the administration would/will have to strike a better deal after we go over The Cliff, it doesn’t make a lot of sense for Pres. Obama and the Democrats in congress to support the current deal, does it? Why on Earth does anyone agree to a lousy deal that also makes them look spineless? Scratch that. Nevermind looking spineless the real issue is being spineless. @#$%. I don’t get it.