The rumored deals flying around Washington today all sound pretty bad. And how could they not be? The White House started with a position that:

1. Failure to raise the debt ceiling is unacceptable.
2. The country should enact substantial deficit reduction in 2011.
3. Any deficit reduction package must include revenue increases.

But (1) and (3) were in significant tension. The White House strategy for getting (3) was to persuade the public that (3) was the correct position. They did that, and all polls showed that public opinion was on their side. But then an underpants gnome problem arose. They didn’t dissolve parliament and call for a snap election. Eric Cantor said “no” and once he said “no,” (1) collided with (3) and the White House dropped (3). Once you’re there, how is the deal not going to be bad? Then various people spent the past few weeks desperately trying to toss the President some kind of weapon he could use for leverage. Platinum coins, 14th amendment, weird option swap schemes, etc. But the President didn’t want to pick any of these up. In that negotiating context, how can a decent deal emerge?

On the merits, the real action now passes to the tax side. Obama will propose permanent extension of the regressive and expensive “middle class” Bush tax cuts. House Republicans will propose permanent extension of the completely, more regressive and more expensive Bush tax cut suite. “Centrist” Democratic Senators, including many self-described “deficit hawks,” will break with the party and endorse the GOP position on this. If Obama nonetheless vetoes full extension, we’ll get more revenue than was contemplated in the earlier grand bargain phase of compromise-mongering. We’ll see.

I actually think that whatever the contours of the deal, at this point the biggest damage is to the overall system of government. Obama has successfully transformed massive debt ceiling hostage taking from an act of breathtakingly irresponsible brinksmanship into a proven effective negotiating tactic. Suppose he gets re-elected in 2012. What’s he going to do when this issue recurs in 2013? Every time the president’s party has fewer than 60 votes in the Senate, we may face a recurrence of this crisis.

By Matthew Cameron

Looking at the details of Friday’s report from the Bureau of Economic Analysis largely reinforces what we already knew about the state of the economy. Namely, exports are on the rise and the federal government is holding steady in part because national defense is a relatively recession-proof industry. The big losers, meanwhile, continue to be states, local governments and industries involved in residential and commercial development. To illustrate this, here’s a chart showing the best- and worst-performing sectors (not including overly broad categories such as Personal Consumption Expenditures) since the start of the recession:

None of this should come as a surprise, but it’s yet another reminder that cutting federal spending at this point would pull the rug even further out from under the economic “recovery.”