Krugman: The President Surrenders!!!!!

Progressives are dismayed and disappointed that President Obama capitulated on the "the deal" that permitted the debt ceiling to be raised.  Raising the debt ceiling has ALWAYS been essential and routine.  But in their goal to make President Obama a "failure" and a "one term president,"  the right wing in the Congress extracted spending cuts without any enhanced revenues (taxes) to address the deficit and the debt.  Nobel Laureate Paul Krugman says the President surrendered to his opposition.  See Krugman below.  RGN

July 31, 2011

The President Surrenders  

By PAUL KRUGMAN

A deal to raise the federal debt ceiling is in the works. If it goes through, many commentators will declare that disaster was avoided. But they will be wrong.

For the deal itself, given the available information, is a disaster, and not just for President Obama and his party. It will damage an already depressed economy; it will probably make America’s long-run deficit problem worse, not better; and most important, by demonstrating that raw extortion works and carries no political cost, it will take America a long way down the road to banana-republic status.

Start with the economics. We currently have a deeply depressed economy. We will almost certainly continue to have a depressed economy all through next year. And we will probably have a depressed economy through 2013 as well, if not beyond.

The worst thing you can do in these circumstances is slash government spending, since that will depress the economy even further. Pay no attention to those who invoke the confidence fairy, claiming that tough action on the budget will reassure businesses and consumers, leading them to spend more. It doesn’t work that way, a fact confirmed by many studies of the historical record.

Indeed, slashing spending while the economy is depressed won’t even help the budget situation much, and might well make it worse. On one side, interest rates on federal borrowing are currently very low, so spending cuts now will do little to reduce future interest costs. On the other side, making the economy weaker now will also hurt its long-run prospects, which will in turn reduce future revenue. So those demanding spending cuts now are like medieval doctors who treated the sick by bleeding them, and thereby made them even sicker.

The full article.