Why America Doesn't Want "Bipartisan" Budget Agreements

http://www.alternet.org/economy/why-america-doesnt-want-bipartisan-budget-agreements



The lamentable state of American political parties has become common sport amongst the chattering classes in DC and beyond. Although, one wonders whether this dysfunction has really been such a bad thing, when considering how united bipartisan “responsible” action always seems to result in yet more budget cuts.

By virtue of the fact that Congress and the Obama Administration couldn’t agree on much for the past few years, America’s deficits got large enough to put a floor on demand. The transfer payments via the automatic stabilisers worked to stabilise private sector incomes and allowed a general, albeit tepid, recovery in the economy.

But since the beginning of the year, Democrats and Republicans have put aside a lot of their differences. And what has been the result? Well, first we got the deal to avert the so-called “fiscal cliff,” the upshot being tax increases (and not just on wealthy people, but via the regressive payroll tax hike), which took around .5% out of GDP. This despite the fact that the deficit, as a percentage of GDP, had already fallen from 10% to 7% — one of the fastest 3 year falls on record.

Since that time, it feels like we’ve been witnesses to a slow motion train wreck. We’ve had the sequester, which will suck a further 1 – 1.5% of GDP out of the economy. True, the data which has come out recently has continued to be pretty robust: the February manufacturing ISM index showed significant improvement since December. The forward-looking new orders component is better than the overall index by a decent margin. The employment index is moderate and stable. The non-manufacturing is even better. And ADP showed companies added more workers than earlier projected in February, indicating the U.S. job market will keep expanding this year.