Relax! The debt-ceiling deal cuts next to nothing.

[Ian David]

RT @EconUS: Relax! The debt-ceiling deal cuts next to nothing http://econ.st/ndgtW0

On the debt-ceiling deal

Aug 1st 2011, 19:26 by W.W. | IOWA CITY

TO DEMOCRATS I would like to say relax, guys. The debt-ceiling got raised. Yay! And the debt-ceiling deal is not going to destroy the recovery, if there has been a recovery. While the deal does rule out further fiscal stimulus, the bulk of the putative cuts in the deal are so far in the future that their contractionary effects are likely to be small to nil. Josh Barro is today's cool-headed voice of reason:

{L}iberals who are upset that this deal is destimulative, or who expect it to tank the economy, are off base. Suzy Khimm cites a study finding that a 1 percent of GDP fiscal consolidation implies a 0.5 percent reduction in GDP after two years—or a reduction in the growth rate of 0.25 percent each year. That points to a hit to annual GDP growth of roughly 0.04 percentage points from the FY 12 changes in this plan—an effect that will be impossible to pick up amidst the noise. The consolidations get larger in later years. But an eventual fiscal consolidation is inevitable—we can’t run deficits over 5 percent of GDP forever. If the economy remains terrible in 2014, it is likely the cuts will be delayed.

Moreover, as Tyler Cowen regularly reminds us, the monetary authority moves last. If, for some reason, an all-but-undetectable cut relative to the pre-deal 2012 spending baseline nudges the economy into contraction, the Fed will likely respond to offset destimulative effects. For all I know, the Fed has been ready to go with QE3, or some other plan for additional monetary stimulus, but has been waiting for some legislative commitment to future deficit reduction before opening the spigot.

That said, I see very little credible legislative commitment to cut anything. Hark! Buttonwood:

There is no balanced budget amendment, the cuts are less than the rating agencies want to ensure the continuance of AAA status and there is an element of "can-kicking" in the way the cuts are designed. Much is left to 2013, which will be a new Congress (and possibly new president); what one Congress can do, another can undo. Remember the Gramm-Rudman-Hollings balanced budget act?

But wait, it gets worse/better! Chris Edwards of the Cato Institute looked at CBO's scoring of the alleged spending cuts and produced this graph:



More:
http://www.economist.com/blogs/democracyinamerica/2011/08/deficit-reduction

H/t: http://twitter.com/#!/Slate/status/98121083932246016

[leveymg]

1. Relax. This isn't going to hurt a bit. You don't need all those fingers. They gave you spares.

Chop.

[roguevalley]

16. but it raises nothing. how in the blue hell does a country run without

revenue? this deal shows the hatred of all who put it forward for the rest of us including obama. he's a cold blooded tool. God bless the opposition, the guys from oregon, the black caucus and everyone else who are trying.

[Larkspur]

2. So this debt bill really means, Relax, you didn't want a job, did you?

Biden talks about concentrating on jobs, but this bill effectively hamstrings them from doing so.

[DJ13]

3. ...... so far

If they had left that bullshit commission idea out of this I bet many who are against it would give it support.

That 'super congress (but wait, theres more!)' is where the real cuts to our social programs will come from, the rest of the bill is just window dressing.

[TheWraith]

4. What do you imagine the committee is capable of doing, exactly?

Because the chances are good that what you expect of it, and what's realistic, have nothing in common.

[DJ13]

6. Take the cat food commission report, strip it down to the cuts they envisioned

Then Congress has to vote on it up or down.

Their proposals were crap, designed to cement low tax rates for the upper classes by reducing the expense of social programs.

Anyone who says otherwise is lying.

[TheWraith]

8. And what do you imagine will pass the Senate, hmm? nt

[DJ13]

9. Its a trap for Obama, I hope you know that

If (IF) the Senate wont pass the chickenshit commission's recommendations on the up or down vote that triggers across the board cuts that will severely impact the economy in 2012.

[TheWraith]

10. The "cuts" are spending caps which mostly don't kick in for a couple years.

Specifically to avoid harming the economy.

[roguevalley]

18. that fucking committee can't be constitutional. what the hell?

[girl gone mad]

5. Anything less than expanding the deficit right now..

is going to produce economic pain for most.

[Ian David]

11. Oh, come on. That's what they told Herbert Hoover. Oh, wait... n/t

[Cool Logic]

7. Indeed, if that graph is an accurate depiction; there are no cuts at all.

For spending increases every year.

[emulatorloo]

12. It is from the Cato Institute, and it is driving the freezers insane.

[pnorman]

13. K&R!

n/t

[Dragonfli]

14. That is a bald faced lie, please retract. over two trillion dollars in cuts is very large

[Doctor_J]

15. Even the most sychophantic Obamans admit to 2.4 trillion in cuts

and there are no revenue bumps. this is stupid propaganda from two right-wing sources. Probably shouldn't even be allowed here.

[fascisthunter]

19. unbelievable isn't it.....

no, it is believable, just hard to swallow.

[seabeyond]

17. i am thinking, from what i have read to this point, obama did a good job keeping it to a nothing

deal, too and there may even be some things that are good, if they stick.