Agreement Means Ruin for Obama and the Economy

It is not hard to understand who won and who lost with the agreement over the American deficit. While 50 percent of Democrats voted against it, two-thirds of Republicans voted in favor. 60 percent of representatives belonging to the tea party, the ultra-right faction of the Republicans, supported the accord.

The agreement is basically the result of an effort by Barack Obama to save his presidential candidacy through an obvious strategy. Convinced that in 2012 Democratic voters will have to vote for him for lack of an alternative, Obama dedicated himself today to cultivating the center of the electorate, and even a slice of the conservatives. With this, he hopes to make up for the desertion of a large portion of the voters and the personalities that worked the magic for his campaign in 2008, who now treat him with contempt and bitterness and will hardly be inclined to turn up at the polls.

Obama gave an arm and two legs in the negotiations. He is going to cut the benefits that were reaching the pockets of poor and middle-class families. He yielded, nevertheless, to Republican pressure that blocked the raising of taxes on wealthier people. Purely mathematically, the agreement is going to contribute to the widening divide in American society — one of the most unequal among developed nations.

It is important to note that the agreement is ruinous for the American and world economy. Clearly, defaulting would have even more ruinous effects on jobs, investor confidence and the possibility of growth. For this reason, the agreement brought a certain relief, even though this will not be very long-lived.

The problem is that even while it avoids a major catastrophe, the agreement is not going to stimulate the economy. At a time of low stock markets, the decision to make new cuts is only going to make things worse. In a certain way, the pact is a repetition of the famous “mistake of 1937,” but with a small difference that just aggravates the situation.

For those who don’t remember: In 1937, under pressure from Republicans and also big investors, U.S. President Franklin Roosevelt suspended his stimulus programs, and decided to cut investment with the argument that it was better to guarantee a definite fiscal equilibrium. The problem is that the cuts knocked back an economy that was still recovering from the catastrophe of 1929, creating a new recession, which would only be beaten years later, with the help of investments of World War II.

The difference between 1937 and 2011 is that the economy today is much weaker than 80 years ago. The recovery is slower, more irregular and more difficult. The index of job creation continues to be shamefully low; consumption continues to be low as well. This means that the “mistake of 2011” can have even more ruinous consequences.

Whoever imagines that the agreement will please investors and ensure an improvement in the credibility of the American economy needs to remember that the main credit rating agencies are demanding a much bigger sacrifice to give their endorsement to the agreement. With a social cruelty matched only by their capacity for errors in economic forecasting, they don’t want a cut of $1 trillion in 10 years, but $4 trillion.

In recent months, Obama has racked up other examples of incompetence and incapacity for political action.

He could have initiated negotiations at the end of last year, instead of leaving the discussions until the last minute. He also could have assumed a position of strength, with the argument that the 14th Amendment of the Constitution prohibits a president from suspending payment of debts “authorized by law,” instead of sitting at the table in the humiliating position of a head of government who seems to beg for a nod from his adversaries.

Obama can be guaranteed some boost from this agreement. But the musculature of the president who arrived in the White House with promises of big changes has lost fiber and force.