1. It does nothing to address the drastic slowdown in growth, underscored by today’s manufacturing report. In fact, the “balanced” approach that relies strictly on spending cuts will hurt growth by killing more jobs directly and indirectly tied to the federal budget. It precludes a badly needed (real) stimulus. And it doesn’t deal with health-care costs, which are a major driver behind the deficit, besides wars, the Bush/Obama tax cuts and the recession.
2. Without a big pickup in growth, job creation will languish. Thus, unemployment looks to remain unusually high for years to come. And without real growth, the deficit will linger.
3. Even though the budget reductions are severe, they are not enough to address the worries claimed by the credit-ratings agencies. One big problem is the lack of additional revenue, including taxes on the richest and closing corporate loopholes and ending corporate welfare.
4. State and local fiscal crises remain, also adding to the burden on recovery. They will get worse in many places as the last of the federal stimulus runs out and no new help from Washington can be expected.
5. The federal government will be doing even less to address our growing deficit in infrastructure, education and research. The result will take years to play out, but will be a net economic (and social loser).
6. Nothing has really been settled in our dysfunctional government. Further budget showdowns and gridlock will happen, the result being ever greater lack of confidence at home and worldwide.
And this is just the economics. I’ll leave it to others to address how President Obama, moderate conservative, is willing to seek balanced budgets on the backs of the working poor, the unemployed, and elderly Americans. It’s a human capital issue, sure. More, it’s a moral issue.
Note to readers: I’ll be blogging less during August. In September, I’ll be back to making posts every business day. I will update my Twitter feed. You can follow me at jontalton).
Today’s Econ Haiku:
With a big right wing
And very noisy engines