At this point I don't know what is going to happen in Congress over the next few days with the new "deal" announced by the president Tuesday, but my initial take is that he got more than he is being credited for, and the GOP was exposed as having a very weak economic hand which spells trouble for them in the consequential economic debates to come.
At a macro level, very little has changed with this deal. We still don't have a national economic plan, a roughed out consensus on how to get the economy moving again and over time reduce the deficit. As long as job and wage growth remain below desirable levels, the current very intense -- and very much needed -- debate about the future of the American economy will be with us. The steps proposed this week will help provide some stimulus to the ailing American economy at a time when demand remains weak, put a little extra in everyone's paycheck for the next two years and do an awful lot for the many Americans out of work for far too long. At its core the deal is a rejection of a politics of austerity inappropriate for the economic and political moment. So on balance it is a good deal for America's middle class. In fact independent analysts have so far been upbeat about the deal, raising their estimates for American GDP growth next year.
But this deal is not enough alone to ensure "recovery" in the short term or prosperity in the long term. Much more must be done -- from radically improving how our kids and workers learn and acquire new skills, to modernizing our aging infrastructure, to adopting a new national energy strategy, to promoting regional, "place-based" economic development and innovation, to finishing the job on immigration reform, to making a sustained and powerful case for continued economic liberalization throughout the world -- all the while starting to get serious about putting our fiscal house in order. The deal needs to be seen as what it is -- a single step forward in a much longer march towards a better American economy in the 21st century.
What surprised me the most about the deal was what the Republicans thought most critical to our economic future. They fought for and won on two major points -- the temporary extension of Bush era tax rates on incomes over $200,000 a year a person and $250,000 per family, and a trimming of the inheritance tax. Both of these "victories" protected the very wealthiest among us from modest tax increases. The expiration of the individual income tax rates would have increased a wealthy person's tax bill by less than 10%, and returned to rates which were in place during the greatest economic boom in American history. Republican claims that restoring these rates would be risky for the recovery remain more political spin than sound economics.
The Republican strategy on display this week reinforces how intellectually bankrupt and ideologically enthralled with wealth but not growth and broad based prosperity the right has become. Their big "wins" were to protect the wealthy in a time of historic inequality, offer nothing concrete to help grow the economy and, and perhaps most remarkably, refusing to accept the most powerful deficit reduction tool currently available to either party -- the expiration of the high-end tax rates -- after spending 18 months attacking the Democrats for letting the deficit grow too much. The deal reminds all of us that the Republicans rhetorical commitment to deficit reduction is the big lie of American politics today.
Like many I am disappointed with aspects of the deal, but President Obama enters the next round of this debate having won some major concessions from the GOP; reinforced his position as a champion for everyday people and the overall American economy; and having had his opponents publicly and foolishly choose the interests of the wealthiest among us over the national interest or the American people at a time of great national challenge. While this may not have been a rout for President Obama, I think he enters the next and much more consequential stage of this battle in better shape than his out of touch conservative adversaries, and the American people enter 2011 also better off than they would have been otherwise. That's perhaps the best holiday present we can give to the American people in these challenging times.
Update: See this excellent piece by David Leonhardt for more on the economics of The Deal.
Cross-posted at the NDN Blog.