This is a fascinating account of how the Grand Bargain came to be the tired conventional wisdom among the Village wonk crowd. (I’m characterizing it that way, not the author, the esteemed Larry Mishel. ) It’s required reading for anyone who has been following this story for the past few years:
The Center for American Progress (CAP) has issued an important new report saying that “new realities” dictate that we “reset button on the entire fiscal debate,” end the pursuit of a fiscal “grand bargain” with Republicans in Congress on deficit reduction, and replace the sequester (through 2016). One can only hope this signals a change in direction for the administration and others on the center-left who embarked on the grand bargain deficit reduction journey in late 2009 and early 2010 when their focus should have remained on job creation. That turn of events was one of the most consequential economic policymaking decisions in decades, because it derailed job creation (i.e., further stimulus) efforts thus ensuring that recovery from the Great Recession would be agonizingly slow. That, of course, has had a hugely adverse impact on the wages, benefits and employment of the vast majority of Americans, but has also had tremendous political fallout (i.e. 2010) and weakened the public’s faith in government’s ability to spur job growth. It was a clear unforced error by CAP and the administration to suggest the need for a grand bargain on deficit reduction, embodied in the appointment of the Simpson-Bowles commission. For these reasons it’s worth examining the argument CAP has made and compare it to the situation in late 2009 and early 2010 when CAP pushed for a grand bargain, praised the Simpson-Bowles effort and recommended a deficit plan that, if adopted, would have started to cut spending in October 2010 (when, it turns out, unemployment was still 9.5 percent). This is not an across-the-board indictment of CAP—they do lots of excellent work, including Michael Linden’s budget analyses. But it is important to highlight that there were two paths available to liberal and center-left policymakers over the course of this crisis, and many of today’s difficulties are with us because the wrong path was chosen. EPI, I am proud to say, was and remains resolutely focused on the ongoing jobs crisis. Read on
He discusses how the paths between EPI and CAP diverged at a very specific time and concludes that CAP was listening “to the Wall Streeters who were telling them, as they told the administration, that interest rates can “turn on a dime” so we need to undertake a deficit reduction plan.”
I’m glad he mentioned the administration because I think this is a chicken or the egg story. Anyone who reads this blog knows that President-elect Obama was telling everyone who would listen that he wanted that Grand Bargain leading up to the first inauguration. And he very explicitly said that he needed to pass a stimulus first and then he planned to pivot to the tax reform, “entitlement” reform and health care. And that is what he did.
Mishel is right that CAP could have taken another path and they might have been influential. But they would have been going up against the president’s agenda if they did so. And there is little evidence that were inclined to do that on much of anything.