I always knew a deal would get done, and other than the media everyone else did too. This is why it’s called political theater. But what actually did surprise me was how weak the deal really was.
I’ll give you a brief summary of the deal but you can read over it in greater detail here. Basically almost all of the cuts come from caps on spending in the future. That’s like saying you can spend $200 today and I know we said you can spend $250 next year but we need to cut that to $225. The best thing is future Congresses don’t even have to adhere to that cap. More cuts will come from a bipartisan “supercommittee” but that probably won’t go anywhere.
But there are real cuts here, in the trillions of dollars. And if you’re a fan of less spending then you will be happy with that. The downside is that government spending makes up a huge portion of the economy and a reduction in spending does directly hurt the economy. This is going to happen during a time when the economy is already skating on thin ice. The government’s hands will be tied if we slip back into a recession, leaving it all on Ben Bernanke again.
It’s not like things are better in other countries either. Most of the developed world has already gone through some kind of austerity and they are fighting their own slowdowns. The risk of us falling back into a global recession is very much a real thing. It’s not unreasonable to say we’re going to experience a decade of slow growth, this could only be the beginning of the pain.
But that isn’t to be confused to a depression. It could just be a time where there isn’t much growth. That means there won’t be many jobs. I hope this isn’t the case, but we got ourselves into this mess and no matter what if we want to avoid a bad debt situation we’re going to have to eat some crow. This is the first step in a long series of steps we’ve been putting off for a long time.
The only question that remains (if you’re in the media) is who won? My own opinion is that Republicans sacrificed almost all of their gains from the last election for this victory. And in the process still they alienated the Tea Party. But other people lost too. The unemployed lost too, which was unavoidable.
Few can argue with the facts though. Whether you like big government or little government, we can’t sustain ourselves the way we’ve been going. Raised taxes will come (count on it) and major changes to entitlement programs are inevitable. Perhaps these changes could spark renewed confidence in the US and we’ll all live happiyl ever after. We just have to wait and see.
 By The Weakonomist |
The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics. Also keep in mind that nothing I say can be construed as financial advice. |
