12/20/2013 06:21 pm ET Updated Feb 19, 2014

A Few Final Thoughts on the Budget Deal

It's not over -- they still have to appropriate their new top-line spending numbers down to all the agencies -- but it looks like the budget deal that quite handily cleared both chambers will soon be enacted.

But I've got a few lingering thoughts about that I wanted to jot down.

First, why did they fail to extend UI benefits? As I show here, the share of labor force that's long-term unemployed is twice what it's been in the past when Congress allowed extended benefits to expire.

Yes, there are Republicans who were against an extension on principle, but the word on the street was that Rep. Boehner asked D's who supported the increase, "Well, where's your offset?" meaning how were they going to pay for this $25 billion extension?

I'm sure that sounds like a reasonable question to a lot of people but not to me. I've no objection to a backloaded "pay-for," of course, but as I speak to in a moment, I can't think of any that would be of that magnitude that could be agreed upon.

It's an expense that could legitimately be added to the deficit. Deficit reduction has occurred very quickly in recent years... too quickly. Borrowing rates remain low, and while the economy and labor market are clearly on the mend, the gaps remain large, and it's bad micro -- UI beneficiaries need the money -- and bad macro -- they also spend the money -- to allow extended UI to expire prematurely like this.

But it's pretty unimaginable that anyone in government would suggest adding this expense to the deficit. That's a strong reminder that our misunderstanding of the dynamic role of budget deficits -- the CDSH thing -- remains terribly high.

Second, I believe we're at the outer edge of the fiscal space-time continuum wherein we pay for things we need to do now without raising revenues, higher deficits, or entitlement cuts beyond the 2 percent cut to Medicare providers that's part of sequestration (and was, in fact, extended for two more years, 2022-23, in the new budget deal).

Remember, one reason the Murray-Ryan deal passed was because appropriators, including House Republicans, could not appropriate to the spending caps established under sequestration. They couldn't squeeze their feet into those shoes, especially on the defense side -- and the nondefense discretionary side is even more squeezed.

I'm not advocating for a grand bargain. In my view, the fact that the deficit savings we've generated so far have been something like 80/20 spending cuts versus new revenues (when you count the sequester), and the fact that tax revenues remain historically low (remember, the fiscal cliff deal from late 2012 locked in 82 percent of the Bush tax cuts), suggest that's where there needs to be some give in the system.

So one lesson we might take from the deal that just went down -- and I'm glad to see some compromise, a budget, slightly diminished fiscal headwinds, and no shutdown -- is that with neither higher deficits nor significant revenues anywhere near the table, our fiscal debates remain as cramped as ever.

This post originally appeared at Jared Bernstein's On The Economy blog.