The debt deal

Paul Krugman is apocalyptic this morning. "Disaster," "catastrophe," "abject surrender." I think we need to keep a few points in mind.

1. One way or another there needs to be spending reductions over the next ten years. I don't have the exact figures on me, but at the current pace of spending the federal government will spend something like 45 trillion dollars over the next decade. The promised cuts (relative to that baseline) are about $2.5 trillion, or just under 5 percent. Significant but not catastrophic.

2. the first round of cuts supposedly consists of programs identified by the Biden group that were uncontroversial. If we're talking about ethanol subsidies and other agricultural subsidies and the like, then liberals have nothing to complain about here.

3. The cuts don't start happening until 2013 (I believe; we don't have all the details), so they don't do significant damage to the economy right now. Hopefully the economy will be stronger by then and able to absorb the cuts with little pain.

4. It's unlikely that the Congressional commission that is supposed to propose further deficit reductions in November will propose significant tax increases. However, as I understand it the commission will use "current law" as the baseline for it's recommendations. Current law is that all of the Bush tax cuts expire at the end of 2012, increasing revenue by $3.5 trillion or so over the next decade. So if the commission fails to make any recommendations for tax increases, revenues will rise by that amount, more than the total amount of spending cuts. Theoretically the Commission could propose keeping the tax cuts at the low end but letting the high end cuts expire (liberals' preferred outcome) and this would be scored as a tax cut by the Commission!

5. So I don't think the agreement is terrible. The worst that can be said about it is that it does not include any tax cuts or spending increases to create jobs this year. Obama indicated in his speech that he is still committed to pushing a continuation of the payroll tax cuts imposed in December and an infrastructure bank, legislation for which is working it's way through Congress. I don't know how the agreement affects those efforts, but if we can now turn our attention to jobs, that's a good thing.