Yesterday, the White House announced that Obama would remove Chained-CPI from his next budget. Chained-CPI is the way of raising the cost of living more slowly so that Social Security benefits would be cut over the course of a worker’s retirement. Although it is not reported as much, it would also increase the taxes of lower and middle class people. So it is a good thing that the administration is officially giving up on it.
White House spokesman Josh Earnest said, “There was a point in time when there was a little bit more optimism about the willingness of Republicans to budge on closing some tax loopholes, but over the course of the last year, they’ve refused to do that.” This was always the idea: Chained-CPI would entice the Republicans into a Grand Bargain of entitlement cuts and tax increases. Economically, this is a stupid idea. Cutting spending in a depressed economy is bad. Raising taxes in a depressed economy is bad. So other than the thoroughly repudiated idea of “expansionary austerity,” there was never a good economic reason for a Grand Bargain.
But I understand that politicians aren’t economists and often do things that make no sense in that regard. However, they ought to be smart from a political standpoint. Unfortunately, the Grand Bargain never made any political sense. A standard political compromise is where each side gives up something to get something else they want. But that doesn’t describe the Grand Bargain. It was making compromises to get something each side could deal with losing. Republican voters don’t want entitlement cuts and they really don’t want tax increases. Democratic voters don’t want tax increases and they really don’t want tax cuts.
Of course, there is a group that wants to raise taxes and cut entitlements: Washington centrists. These are the Very Serious People of legend. What makes them Serious? Being in favor of policies that no one likes! And if the policies are objectively bad for the economy, so much the better! What’s especially sad about this is that the Republican elite never really fell for this. But among the New Democrats who now control the Democratic Party, such Serious Thinking is all the vogue. This is the biggest problem with the party going forward.
Sadly, I don’t think this decision by the White House shows any growth either in terms of their political or economic thinking. Obama still pines for a Republican Party that will make deals the people hate. And he still thinks that the deficit is an important economic issue. (It is, of course, but in the opposite way he thinks.) Instead, I suspect his advisers are telling him that he’s already cut the deficit in half and it continues to go down. What’s more, it is getting hard to deny that all the cuts (especially the Sequester) are the cause of our weak recovery. But it is good that after four years of debt obsession, the White House is giving up. For now.