The Magic Lie on Debt Deal and Jobs: Assuming Your Milk will Never Expire

Now that an economic 9/11 has been averted and the full faith and credit of the United States, along with our credit rating, has been saved, let's play a little game. Assume your milk will never expire. Ignore the expiration date printed on the milk carton. Did you assume it? Good. Congratulations! Now you have milk forever, and it's never going to go bad! Yay!

This is the essence of a completely dumbfounding "assessment" of the debt deal the President signed into law. Marie Diamond of Think Progress declares "Debt Ceiling Deal Will Cost 1.8 Million Jobs In 2012." Her source? A statement by the Economic Policy Institute that actually has a much more nuanced message- but filled with all the same daydreams as Diamond's reporting nonetheless.

First, here's Diamond's characterization:
The Economic Policy Institute, a top nonpartisan think tank, estimates that the deal struck this weekend to raise the nation’s debt limit will end up costing the economy 1.8 million jobs by 2012.
A few things wrong with that. The Economic Policy Institute may be a "non-partisan" think tank technically, but they are hardly without a political side, as their Board of Directors should tell you. Not that having a side is bad - I have a side, too. But more importantly, the report makes assumptions that are akin to - or even worse than - assuming that your milk will never expire. Or at least, assuming that your milk would never go bad were it not for this deal.

Here's what the "report" has:
The spending cuts in 2012 and the failure to continue two key supports to the economy (the payroll tax holiday and emergency unemployment benefits for the long term unemployed) could lead to roughly 1.8 million fewer jobs in 2012, relative to current budget policy.
Yes. Because, you know, if there were no debt deal and we defaulted, and social security checks couldn't go out and military pensions couldn't go out, that would have no effect on the economy and jobs. None at all. Also, the payroll tax cuts and the emergency unemployment benefits would automatically continue without any additional action from Congress even though they are scheduled to end at the end of this year by law. If only we didn't have the debt deal, those things would be extended easily. How? Magic.

That is the assumption here - that the payroll tax cut and the unemployment benefits would just magically be extended if this deal weren't in place. And evidently, the assumption itself makes it fact. Just like our milk-never-going-bad assumption.

Seriously, the stupid burns.

Now, for some truth. First of all, the EPI claims the discretionary spending cut for 2012 to be $30 billion, but as it turns out the actual 2012 cut is more like $7 billion. In addition, they make a economically confounding assumption that every dollar in GDP loss (resulting from the spending cuts and the expiration of the payroll tax cut and unemployment benefits) has exactly the same effect on employment. That is simply not true. If that were true, and if every dollar in spending boosting GDP had the same impact on employment, maybe these geniuses call tell us what the hell happened to the Bush employment boom. After all, Bush racked up federal spending like no one else, which inflated our GDP, so shouldn't have been looking at a flood of employment at the end of the last decade rather than the economic meltdown we did see?

The unemployment benefits extension and the payroll tax cut of 2 percentage points (which, by the way, is the first federal tax cut for the working poor in a long long time) are scheduled to expire at the end of 2011, and it has nothing to do with the debt limit deal. Congress can - and the President has openly advocated for them to - extend both through 2012. Will Congress do it? I have no crystal ball, but members of Congress have to run for re-election. Do they want to run being the guys who blocked an extension of help for the unemployed and raised taxes on the working poor while the President is on the campaign trail reminding voters of that everyday? Even some Teabaggers might have pause on that.

Regardless, the point remains that even a clean debt ceiling increase wouldn't magically extend unemployment benefits and the payroll tax cut. Additional Congressional action is required. In other words, the debt deal doesn't end those benefits - it has nothing to do with those benefits. They are scheduled to end anyway. And Congress will likely extend those in some form anyway - either through the supercommitte bill that is due out in October, or separately. So this idea that the debt deal is "costing" us any potential employment deficits likely to result from the expiration of such is nothing more than magical economics.

Oh by the way, why is it that we're hearing people blame the President for not getting those extended in the debt deal without first thanking him for getting them in place for this year in the first place? What's up with that?

Look, I get the argument that a clean debt ceiling increase bill is ideal. I can even understand and agree with the argument that the debt limit hostage taking by the Republicans and the ensuing cloud of crisis has hurt the economy at a time it needed to be propped up. But the crisis would not have gone away if there weren't a deal. The debt ceiling could not just be wished up if nothing happened. And the stimulative measures for the economy would not magically kick in if a deal didn't happen. On the contrary, the crisis would have become much more serious. To assume otherwise is worse than wishful thinking; it's delusional.