I was going to do another post on Obama´s loss of nerve, compulsive Broderist triangulation, cringe to the Tea Party hicks, selling out his base, etc. But now comes the tax deal, and I thought again. I respect Andrew´s gloomy take, but don´t share it.
Basically Obama had a choice between
- letting all the tax cuts expire (the default outcome of a gridlocked Congress), scoring a satisfying victory against the malefactors of great wealth, and improving long-run fiscal sustainability at the expense of short-term employment;
- making a deal along the lines he has, improving the short-run prospects for the economy, protecting (if only for one year) many of a large group of vulnerable Americans, the long-term unemployed, and giving the rich and their GOP tools the tax cut they crave for two years.
That he chose the second reveals a lot about his priorities, and they are sound. Morally, as it´s more important to do good to your needy friends than to punish your enemies. Politically, as the White House seems to have relearnt the Clinton lesson from the mid-terms: ITES. [Update as this confused commenters: ¨It´s The Economy, Stupid.¨] (I agree that it would have been much better to have seen this earlier). It looks OK to kick the long-run fiscal sustainability problem down the road for two years. Andrew´s right, full-employment US taxes will have to go back to Clinton levels at least, someday.
Giving away money to investment bankers to spend on Ferraris, caviar and cocaine is about the second most inefficient and inequitable stimulus imaginable. It´s still a stimulus. Every billion helps Obama´s reelection prospects and ordinary Americans a little.
Ordinary Irish and Greeks too.
The title is a tip to Keynes. General Theory of Employment, Interest, and Money, Chapter 10, VI:
If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.