The Satan Sandwich

Lots of people are writing about how awful the deficit reduction plan agreed to by the President and congressional leadership is. I’m not sure that I want to go at it piece by piece, but I’m going to put out a few thoughts on the whole thing.

First and foremost, what we have is a plan which cuts spending at the worst possible time. The debt ceiling was and is a red herring – it was never a question on Bush or Reagan as to if it would be raised or not. Instead conservatives saw and successfully positioned it as a Big Deal. The President and Democratic conservatives accepted this framing because they too want to cut the size of government and cut entitlements.

The problem is not and has never been the deficit. It’s been jobs and strengthening the economy. What we are getting instead is something which is anti-stimulative and will likely cost jobs by reducing government spending. Mohamed El-Erian of Pimco talks about the devastating effects this deal will have on the economy broadly.

Last week brought the disconcerting news that the economy grew no faster than the population during the first six months of the year, in part because of spending cuts by state and local governments. Now the federal government is cutting, too.

“Unemployment will be higher than it would have been otherwise,” Mohamed El-Erian, chief executive of the bond investment firm Pimco, said Sunday on ABC. “Growth will be lower than it would be otherwise. And inequality will be worse than it would be otherwise.”

He added, “We have a very weak economy, so withdrawing more spending at this stage will make it even weaker.”

Jared Bernstein, formerly the chief economist for Vice President Biden and no enemy of the administration, gets at the specific impacts this plan will have on poor and working and middle class people.

What does it mean to cut $3 trillion in government spending? How will it affect retirement security? Education? Jobs in the short run and investment over the long run? Does it put us on a sustainable fiscal path.

We’re about to agree to cut $1 trillion from something called discretionary spending. That probably sounds great to some folks and bad to others. But what does it mean?

The President bragged on this very point last night, telling America that discretionary spending as a share of the economy will come down to its lowest level since Eisenhower. As if we’ve all been walking around thinking, “if only we could get this budget category down to Ike levels, everything would fall into place.”

In fact, these cuts will hurt our ability to pursue what I view as most positive aspects of the President’s economic agenda—investment in infrastructure, clean energy, research, education. They will pinch programs that are already budget constrained…programs that help low income people with child care, housing, and community services. (One piece to watch for here—defense spending is also in this category, and is supposed to account for about one-third of the cuts…that helps, of course, take pressure of these other parts.)

Then, in part two of the deal, we unleash the gang-of-twelve who are assigned to come up with $1.5 trillion more in deficit savings.

They’ll be hitting the entitlements—Social Security, Mcare, Mcaid—and more defense, but if they deadlock—a non-trivial probability—automatic cuts ensue.

Bernstein goes on to make a critically important and not widely made point: namely, if you’ve already cut $1 trillion in discretionary spending, how do you find another $1.2 trillion in discretionary spending to cut without either (a) eviscerating Medicare, Medicaid or Social Security or (b) basically destroying all other government programs. This is a horrible place to be in and one which will make life harder and more painful for huge swaths of America.

Over the weekend, Rep. Emanuel Cleaver called this deal “a sugar-coated Satan sandwich”. I’m not sure where the sugar-coating is, but the Satan sandwich part sounds right. It’s not a done deal yet, but I don’t expect it to get any better.

What’s particularly frustrating is that it’s not as if there isn’t ample, recent data about how austerity plans affect struggling economies. Britain implemented a 2:1 spending cuts to revenue increases last year and it has absolutely ground their economy to a halt, making things worse and causing tremendous pain for working people. When the President initially proposed a 3:1 plan, it seemed like an even worse idea that flew in the face of the British experience. That then fell to a 4:1 then a 6:1 ratio in various negotiations, reaching a point where it was clear that there was zero ideological difference between what Republicans wanted (all spending cuts) and what the President wanted (almost all spending cuts with the fig leaf of small tax increases on the rich). Given that, it isn’t shocking that we’ve ended up with a deal that amounts to all spending cuts, no new revenues, and while there are no immediate cuts to the big three social safety net programs, it’s near-certain that those cuts will come in the later stage of this deal. As El-Erian and Bernstein point out, this deal is going to have a hugely negative impact on the economy and it’s not like our economy was doing well to begin with.

Oh and to make this deal even more dangerous, the deal includes votes on the “balanced budget amendment.” While I doubt there are 20 Democratic votes in the Senate to reach the required two-thirds for a Constitutional amendment to pass, in this climate, you never know what sort of stupidity will rise out of the Hill. The “balanced budget amendment” is a recipe for destroying the social safety net, ensuring that government no longer works for the bottom 98% and survival in bad economic times will be totally dependent on how much money you have lying around. So basically if you’re not already rich, you’re screwed. Here’s the kicker: this is something Tea Party Republicans in the House want to have passed, but the inclusion of the “balanced budget amendment” in the deal doesn’t mean the Tea Party caucus is going to vote for the bill. Michele Bachmann is already out against it and Boehner is likely to lose scores of Tea Party Republicans on this vote. So I don’t even know what this gained, other than taking on the risk of it passing.

This thing is a Satan sandwich and we’re going to be the ones who eat it.

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