A Budget Deal and 2012

Over the weekend, Marc Ambinder tweeted:

Ponderable: if Obama signs a grand-bargain-style debt deal, does it remove from the table govt spending as a 2012 issue?

Here is how I see it.

Scenario #1: There is no deal.

Assume there is no deal and then assume, as Geithner and others have warned, that there are serious consequences for the economy when the debt ceiling isn’t raised.  This will hurt Obama.  And it will hurt him more than it will hurt the Republican Party.  Presidents suffer the consequences of a bad economy.  Divided government does not change this.  Beware pundits who see silver linings for Obama in this scenario.

Scenario #2: There is a deal, but it hurts the economy.

Assume the Keynesians are right and the GOP and, for that matter, Obama are wrong.  If so, fiscal austerity is only going to make the economy worse.  Maybe not as bad as it would be if the debt ceiling weren’t raised, but still: worse.  If so, Obama will suffer.  End of story.  It does not matter that the deficit will (in theory) go down.  Election-year changes in the size of the national debt do not affect election outcomes.  And it does not matter that a deal could make Obama appear “bipartisan.”  Independent voters do not put political process ahead of the most tangible outcome: the economy.  See also Matt Yglesias.

Scenario #3: A deal, with no effect on the economy.

Assume that there is some sort of deal, which in all likelihood will not be the grand bargain Ambinder mentions but some smaller deal built around the Biden talks.  I will ignore for the moment what must then be negotiated in 2012.  Assume that neither a 2011 deal nor any future deals affect the economy between now and November 2012.  Then what?  Let’s subdivide.

  • Scenario 3a: The economy is still weak throughout 2012, as some forecasts suggest.  Obama will suffer.  See Scenario #2.  He may win, depending on the GOP nominee and the campaign itself, but it will not be easy.  All the GOP has to do is hammer him on jobs, jobs, jobs and no one will remember his masterful bargaining over the debt ceiling, or what the debt ceiling is in the first place.

  • Scenario 3b: The economy does improve—somehow, someway.  Now Obama has the edge, and the economy is what he should campaign on.  Maybe it’s not morning in America, but election-year economic growth is a powerful elixir to myopic voters.

    At this point, there is finally an advantage for Obama to a budget deal.  The GOP nominee will need an issue to emphasize other than the economy.  As Lynn Vavreck argues in The Message Matters, that issue must be one on which (1) the GOP nominee’s stance is closer to voters’ than is Obama’s and (2) Obama can’t easily weasel out of his position.  By passing a budget deal, Obama will have made it harder for the GOP to use the budget and deficit as that issue.  They may still try, but now Obama can take credit for cutting spending and the debt, all the while noting that many in the GOP sided with him.

So there you go.  Obama’s reelection effort gets a boost from a budget deal only if the deal doesn’t itself hurt the economy and if the economy improves enough that the GOP needs another issue to campaign on.

2 Responses to A Budget Deal and 2012

  1. Davis Jones July 15, 2011 at 12:03 am #

    I agree with you. I’m an Obama supporter, and I can’t see how his campaign can turn this momentum in their favor.

  2. Patrick July 16, 2011 at 5:34 pm #

    “Assume the Keynesians are right” They have been proven wrong again and again, so no need to assume that, or its contrary view either. In both 1920-1923 and 1945-1948 the Federal government spending fall by more than half, and the economy grew quickly.

    The whole idea that $2 trillion in ‘cuts’ over 10 years is in any way ‘austerity’ is guff. Nonsense. Malarkey. The budget was increased from $2.5 trillion in 2007 to $3.7 trillion today. There is no plan – not Ryan, not Rand Paul – no plan to get spending down below $2.5 trillion and ‘undo’ the so-called ‘stimulus’ of massive increases in government spending.

    The FY 2012 House budget looks to be spending in their proposal about $200 billion less than Obama’s spend-it-all budget. The Senate Democrat plan is … well, an enigma, wrapped in a riddle, never to see the light of day. The Democrats wont share specific plans, have no budget. but we do know this. When asked about how much the Biden ‘cuts’ actually cut from next years budget, the answer came back …. $2 billion. Surely the GOP budget will be negotiated down, so the top-end of actual cuts for FY 2012 will be no more than $100b.

    So, here is the reality: We may spend anywhere from $2 billion less to maybe $100 billion less next year than this year, a 0% – 3% cut in spending, on a ‘baseline’ that is massively inflated from prior spending years. 3% cut in federal spending isnt ‘austerity’ just a start to a much-needed fiscal restraint. A SMALL start. Since Obama’s $45 trillion budget plan for the next 10 years is about $15 trillion ABOVE what our economy will truly be able to support, the real fiscal tightening train has yet to hit.

    BTW, nothing in this deal can help the economy, but the tax increases would be hurtful. So would default. So Obama is being foolish and almost suicidal in deciding to default in the event of no debt ceiling deal by Aug 2nd. That is completely unnecessary and counterproductive. We have more than enough funds to be interest on the debt, and Obama could order the Treasury to pay interest on debt as first order of business.

    Your bottom-line is correct: any of this debt ceiling gymnastics will be irrelevant.Obama has the worst record on jobs of any President since Hoover. The unemployment rate will re-elect or un-elect Obama. Most voters judge the outcome, not how it was made.