The president just held a press conference on deficit reduction talks with Republicans. I found the president's remarks during the press conference disappointing on several fronts. First, I am disappointed that the president seems committed to doing whatever it takes to reach a deal. There are lines that ought to be drawn in the sand, but even when they are drawn the lines are erased and moved as needed. It looks like a deal will be reached, the only question at this point seems to be how much the president will give away to get it. The president was, of course, trying to make it look like he is the one willing to compromise so that if a deal is not reached, the consequences will be blamed on Republicans. But it also appears he is willing to move quite a bit to get a deal done.There is much more. Read the whole post.
Second, I am disappointed that Obama has adopted austerity as a valid means of stimulating the economy, something he made absolutely clear during his remarks. There is no evidence that this works in a situation like ours, i.e. that deficit cuts create so much confidence that they stimulate the economy. However, there is plenty of evidence that the fall in demand from the deficit cuts is harmful, and that such cuts are likely to impede the recovery. The president has embraced the idea that uncertainty about the future, particularly worries about the deficit, is holding back the economic recovery even though this cannot be justified from the historical record. It's hope over experience.
Uncertainly may be a problem, but it's not uncertainty about the deficit. What's holding the economy back is uncertainty about jobs, worries about the slowing recovery, and whether a second recession is coming.
Sadly, Obama has effectively ruled out the best solution identified by Mark Thoma:
Thus, with the best plan ruled out -- stimulus now, deficit reduction in the future -- we are left with the lesser of two evils. Give in to the job and economy killing spending cuts the Republicans are demanding and the president appears to have embraced, or risk doing even more damage by failing to come to an agreement and defaulting on the debt. Our choices should not be limited to those options, and the fact that they are is yet another reason to be disappointed in the outcome of the talks. The president should have fought for a third option, he has the ability to change the political reality instead of just throwing up his hands and saying this is the best he can do, and those who are the most vulnerable, the unemployed, those relying on programs that will be cut, etc. will pay the largest cost.The next decade or two will be very "hard times" for the bottom 90% of Americans. They have been betrayed by both their major political parties.