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Friday, December 10, 2010

Paul Krugman: Obama’s Hostage Deal

Obama needs to understand that "concerns about the tax deal reflect realism, not purism":

Obama’s Hostage Deal, by Paul Krugman, Commentary, NY Times: I’ve spent the past couple of days trying to make my peace with the Obama-McConnell tax-cut deal. President Obama did, after all, extract more concessions than most of us expected.
Yet I remain deeply uneasy... Obama has bought the release of some hostages only by providing the G.O.P. with new hostages.
About the deal: Republicans got what they wanted — an extension of all the Bush tax cuts, including those for the wealthy. This part of the deal was bad all around...
In return for this bad stuff, Mr. Obama got a significant amount of short-term stimulus. Unemployment benefits were extended; there was a temporary cut in the payroll tax; and there were tax breaks for investment. ...
The deal essentially sets up 2011-2012 to be a repeat of 2009-2010. Once again, there would be initial benefits from the stimulus, and decent growth a year before the election. But as the stimulus faded, growth would tend to stall — and this stall would, once again, come in the months leading up to the election, with seriously negative consequences for Mr. Obama and his party.
You ... have to consider the situation likely to prevail a year from now, as the good parts of the Obama-McConnell deal are about to expire. Wouldn’t there be pressure on Democrats to offer Republicans something, anything, to improve economic prospects for 2012? And wouldn’t that be a recipe for another bad deal?
Surely the answer to both questions is yes. And that means that Mr. Obama is, as I said, paying for the release of some hostages — getting an extension of unemployment benefits and some more stimulus — by giving Republicans new hostages, which they may well use to make new, destructive demands a year from now.
One big concern: Republicans may try using the prospect of a rise in the payroll tax to undermine Social Security finances.
Which brings me back to Mr. Obama’s press conference, where — showing much more passion than he seems able to muster against Republicans — he denounced purists on the left, who supposedly refuse to accept compromises in the national interest.
Well, concerns about the tax deal reflect realism, not purism: Mr. Obama is setting up another hostage situation a year down the road. And given that fact, the last thing we need is the kind of self-indulgent behavior he showed by lashing out at progressives whom he feels aren’t giving him enough credit.
The point is that by seeming angrier at worried supporters than he is at the hostage-takers, Mr. Obama is already signaling weakness, giving Republicans every reason to believe that they can extract another ransom.
And they can be counted on to act accordingly.

    Posted by on Friday, December 10, 2010 at 12:36 AM in Economics, Fiscal Policy, Politics | Permalink  Comments (191)


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