The US debt deal

So it loooks as if the US Congress will agree a deal to raise the US debt ceiling to enable the government to borrow a sufficient amount to continue operating.  Perhaps this should be seen - assuming it does happen later today - as a welcome break-out of bi-partisan spirit.  However, it's not clear whether this is the right deal and the politics don't seem right from a progressive standpoint.

For a start, it commits the government to large spending cuts in the near term and with more fiscal withdrawal to come.  Tax rises are not part of the deal.  There is some hope from the Democrat side that they will be able to introduce tax rises on the wealthy in the second part of the deal when Congress has to agree a further package of measures.

The Obama administration appears to have conceded much ground to the Republicans, even though the GOP is split.  Perhaps the main problem was that Obama did not originally have a plan on how to cut the deficit.  He could have taken hold of the politics of the situation much more clearly if he had demonstrated how, after the economy was in sustained recovery, the public sector deficit would be reduced.  Instead, a plan has been constructed for him which might threaten the recovery if spending is cut too soon.   On what ground will Obama fight the presidential election?  Clive Crook in the Financial Times today makes this point very well.

The lesson for progressives is that you have to be credible on deficits otherwise credibility will be forced upon you.  You may eventually have to do more than is healthy for the economy if you ignore the issue.  Labour take note.

Stephen Beer, 01/08/2011

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