Monday, August 1, 2011

It could have been even worse

I finally was able to see some of the details of the budget "compromise" (see here and here). It is still a victory for the Republicans, but a somewhat mitigated one. It is "back-loaded" in the sense that most of the cuts will be after 2011-2012, and a good chunk of the cuts will be in the bloated defense appropriations. Also, it seems that Medicare, Medicaid and Social Security will not be severely damaged, though there is no guarantee as to what the "bipartisan committee" will come up with.

There will be bad effects on our already feeble recovery: there is simply no way that cuts can help in a (de facto) recession. The unemployed will really take it in the neck. as will cities, towns and states. Federal aid to education will suffer, thereby placing the burden on local governments who will have to maintain schools as well as police and fire departments.

The Wall Street banks and traders, who played a major role in getting us into this mess, will be bailed out once again, since a default would have actually hurt them at least as much as everyone else. They will continue to make out like the bandits many of them are.

I still think that Obama's lack of leadership was a big strategic mistake for him and his party. A lot will hinge on the 2012 elections. These, in turn, will be strongly influenced by the state of the economy and the perceptions of the electorate. I am not encouraged by the short memory that people have about how things got to this state. Most people still seem to believe, for example, that the TARP was an Obama program, and that the deficits were, and are being, caused by his health care plan.

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