Dems Should Bite the Bullet

It is clear that the economy needs additional stimulus. Demand remains too low. The national mood and political wind, however, is to rein in spending and work on the deficit. But following that prescription will only prolong the recession by further reducing demand.

That, I believe, is central to President Obama's agreement to compromise with the Republicans on the tax issue. Yes, the GOP get two more years of economically useless and fiscally irresponsible tax breaks for the wealthy who don't need them and one year of estate tax breaks for the wealthy who really don't need them. But Obama and the Democrats get an additional 13 months of unemployment checks for the out-of-work, two additional years of the lower-middle and middle class tax cuts passed in early 2009, and some breaks for actual small business rather than big business. On top of that, a two-year reduction in Social Security withholding by 2% will put an additional $800 to $1000 a year into the pockets of average workers.

The upshot of all this is more money for average folks that will be spent and result in better growth and employment. It's a $900 billion stimulus. This is not the way Dems prefer to do it, that is, with targeted programs and infrastructure spending, but none of that was going to happen with Senate Republicans unbudging. Yes, this will all add to the deficit, but it is projected to increase growth by .7%, 30% higher than the 2.5% annual rate we've been averaging, and reduce unemployment by an additional .5% to 1% over where it would be without this help.

Given that the Democrats could not agree on a larger or second stimulus before they lost their 60-seat filibuster-proof advantage in the Senate, what more could really have been done? And certainly nothing to their liking will get done after the New Year when Republicans take over the House.

There are some things seriously not to like in the compromise. But it will improve the economy and provide real assistance to regular working folks. Democrats in congress had a chance earlier to enact a more liberal set of tax policies but didn't get it done. There's really no one else to blame for that but themselves. They ought to stop crying and pass the compromise. Nothing better is going to come down the pike for a good long while.