It Gets Better

This won't stop all the self appointed 'liberal base' hucksters from freaking out for maximum blog traffic. But for people who aren't dependent on continual outrage for a living, it's some good news in what appears to be a dark time.

There are two parts of the spending cuts in this package that really do matter. One is the cuts that will apply in Fiscal Year 2012. There probably won’t be very big; there will be $22 billion in spending cuts compared to the baseline for 2012, or about 0.15 percent of GDP. (That’s out of the $1 trillion in cuts that will be agreed upfront.)

A “Super Committee” will be charged with finding a further $1.5 trillion in deficit reduction, and we can expect that the cuts it recommends will again be backloaded. (Indeed, if the Super Committee deadlocks, we will go to an automatic “trigger” process which involves no cuts at all until FY 2013). Discretionary spending cuts that come out of the Super Committee process will again be subject to the whims of future Congresses. Any changes to mandatory spending that come out of the Super Committee are more likely to be sticky—that’s the second part of the cuts that matters—but I’ll believe we’re getting meaningful entitlement reform when I see it.

So, liberals who are upset that this deal is destimulative, or who expect it to tank the economy, are off base. Suzy Khimm cites a study finding that a 1 percent of GDP fiscal consolidation implies a 0.5 percent reduction in GDP after two years—or a reduction in the growth rate of 0.25 percent each year. That points to a hit to annual GDP growth of roughly 0.04 percentage points from the FY 12 changes in this plan—an effect that will be impossible to pick up amidst the noise.

Hit the link at the top & read the whole thing.