The Debt Deal's Three Biggest Winners and Losers

By

Published August 02, 2011

| FoxNews.com

With a debt ceiling agreement finally in place and the Senate on track to approve it today congratulations are being handed out all around. 

Armageddon and catastrophe has supposedly been averted. And politicians are rushing to put the best face on the deal. 

Unfortunately, the new agreement does not accomplish as much as many had hoped, or as much as it should have, in terms of curbing spending and continued deficits. This explains why stock markets continued to fall despite the supposedly "good" news. The reason is because, once again, politicians are continuing to push the problem to the future. 

Here's a look at the winners and losers in the aftermath of the "catastrophe" that's just been averted: 

The Winners:

1. Stimulus Recipients and Big Government: President Obama’s “Stimulus” was supposed to just be temporary. Alas, the debt agreement locks in big government and the extra spending President Obama initiated will continue. 

After government spending soared by 28 percent from 2008 to 2011, the debt deal only starts cutting a meager $22 billion next year. That is an incredibly trivial cut -- just 0.6% of expenditures planned for next year. The cuts agreed on are heavily back-loaded towards the end of the 10 year budgeting cycle, when President Obama and many members of Congress will be out of office. 

Short of a constitutional amendment mandating balanced budgets, there is unfortunately no way that the current Congress can force future Congresses to make those cuts if they don't want to do it. Even if all the hoped-for cuts are made over the next ten years, the $2.4 trillion reduction in the deficit amounts to just 5 percent of the $46 trillion that President Obama had planned to spend over the next decade. 

2. Deficit Spending: Deficit spending will continue on almost as recklessly as before. 

If everything works as promised, the federal government’s debt will rise from $14.3 trillion to "only" $22.2 trillion rather than to $24.6 trillion. That is over $71,000 for everyone who is alive in the United States today, or $286,000 for every family of four. 

Just imagine what it would be like having to pay the interest on that -- like having another house to make full mortgage payments on. 

3. Score a Victory for Scare Tactics: President Obama constantly threatened a default, higher interest rates; horrible unemployment and GDP growth; and a tumbling stock market if the debt ceiling wasn’t increased by today, August 2. 

He openly wondered whether money would be available to send out Social Security checks. 

No reporters challenged such ridiculous predictions, as can be seen from the daily White House press conferences -- not a single member of the press asked how there could possibly be a default when revenue would be over nine times greater than the interest payments. 

Similarly, his scare tactics about Social Security checks went unchallenged. After all, reporters ought to know, just like the president does, how much revenue will be coming in over the next couple of months. 

There would have been absolutely no crisis from temporarily limiting government spending to the revenue that was being brought into the government's coffers. After all, government spending would just be cut back to about what it was in 2007. 

And we know from last time this happened, when there was a shutdown for about a month in 1995 and early 1996, nothing horrible happened

Letting the deadline pass would have been a dramatic way of proving the scare mongers wrong. 

But the stock market's reaction to the deal should serve as a lesson. We have been told over and over again, the stock market would collapse without an agreement. But American and European markets continued falling after the deal was announced

The Losers: 

1. Our Bond Rating: Rating agencies said that at least $4 trillion had to be cut out of our deficits over the next decade. The deal, if it works, cuts just over half of that. Whether rating agencies follow through on their threats and cut our bond rating now or a little later, our debt is going to go up a lot, and our ratings will be cut if we stay on this new spending path. 

2. The Tea Party: True, things have gotten better since the beginning of the year, which might possibly be seen as a very slight victory for the Tea Party movement. 

After all, in February, President Obama’s budget proposed increasing the already large expected deficits by another $1.2 trillion over the next decade

Yet, going from an increase in deficits to a small cut in the deficits is worth something, but it is a long way from what Tea Party activists were hoping for. After all, they did have all the cards. 

Republicans may not be in the White House and control only half of Congress, but they wielded a veto threat -- no debt ceiling deal unless they agreed to it. 

Spending would have automatically been limited to revenue (sort of a self-made balanced budget amendment). 

The reason that the Republicans held all the cards is a simple one. Republicans supposedly want to cut government spending. For them, failure to raise the debt ceiling should have been a plus -- moving us a long way on the path to controlling government spending. 

The risk is that Obama could have made a real hash of things with where he cut spending, but America survived a month long budget shutdown under President Clinton and we would have survived this also. 

Tea Party lawmakers in Congress have also been the Democrats' favorite punching bag over the last month, with Vice President Biden even claiming, according to some reports, that the Tea Party “acted like terrorists.” 

3. The Economy: According to Democrats, large government spending is the key to economic growth. So how is that Keynesian economics really working for you? 

The chaos created by the massive growth in government under Obama has only prolonged and worsened the recession. Just look at the gloomy numbers: For the first half of this year, GDP has grown at just 0.4% (0.8% at an annual rate). Just as Big Government is the winner, the economy is the loser. 

For Obama, this is a mixed bag. He gets the government spending he wants and he can reward his supporters. But the weaker economy will come back to haunt him next year. 

Austan Goolsbee, Obama's head of his Counsel of Economic Advisers, blamed the continued extremely slow economic recovery on those few politicians who were against raising the debt ceiling. So who or what are they going to blame now for the slow growth in the economy?

John R. Lott, Jr. is a FoxNews.com contributor. He is an economist and author of the revised edition of "More Guns, Less Crime" (University of Chicago Press, 2010).

URL

http://www.foxnews.com/opinion/2011/08/02/debt-deals-three-biggest-winners-and-losers/