Moving Forward After the Debt Deal

At last Washington has reached a deal that raises the debt limit and averts a default that would have been a national embarrassment and an economic and geopolitical catastrophe. The forces shaping the deal are multifaceted and so are reactions. Mine has a number of elements. Relief. There will be no default; no economy-damaging short-run austerity; no attack on the nation’s core social protection programs or universal health care; and no repeat, for at least 15 months, of the recent shabby spectacle. All of this was in doubt just a few days ago. It is no small thing for the administration to have reached an agreement that does no immediate harm. And it may well be that no better agreement was achievable given the political dynamics in Congress. Cynicism. Objective observers would forecast larger U.S. budget deficits in the out-years than would have been predicted a few months ago. The economic forecast has deteriorated, and it is reasonable to estimate that even a half-a-percent reduction in growth averaged over 10 years adds more than a trillion dollars to the national debt in 2021.