Actually, I will probably be showing some of my own economic illiteracy  with this post, but any economists who read FDL diaries will hopefully correct any of my errors.  I’ve been trying to determine what the figures are behind Obama’s latest capitulation over extending the Bush tax cuts, and frankly, I’m confused.  Despite what Jon Walker wrote up, I’m not entirely sure what the entire cost of Obama’s capitulation is. 

“OK Merlin.  I’ll bite.  Why is the total cost of Obama’s capitulation important?”

It’s important because I am trying to determine the amount of so called “stimulus” in Obama’s capitulation.  We are already hearing from Obama and other defenders of this sellout that there is so much bang for the buck in this deal that unemployment will come down to 8% by 2012.  This from the same gang who claimed the original stimulus bill would keep unemployment to 8%. 

“So if you don’t believe the stimulus in Obama’s deal is enough, why are you fixating on the actual number Merlin?”

Well, I’m one of those that has a lot of time on my hands (unemployed), and I have this compulsion to try and be a political prognosticator.  In other words, I enjoy telling some people, “I told you so!”  But bear with me on this.

Anyway, from the Administration’s figures, they are claiming about 352 billion dollars in stimulus over the next two years.  From what I can determine, this will be on top of the approximately 740 billion in Bush tax cuts (I’m assuming 370 billion in lost revenue each year under the Bush tax cuts).  Of course, I’m hearing 900 billion dollars, so I’m not sure what to believe.  Given the fluidity of these figures, I’m going to round up to an even one trillion dollars in tax cuts.

Now, I am going to define the 740 billion in Bush tax cuts as not stimulatory.  Yes, raising taxes would take 370 billion dollars out of the economy in 2011, but it is not like this is NEW money.  It is just money that Americans have now.  The Bush tax cuts would act as a stabilizer maintaining the economic status quo.

So this means that there is approximately 260 billion dollars in new stimulus money in Obama’s capitulation.  However, that number is not correct either.  Seems that we forgot to include the economic effects of dumping the 99ers from unemployment benefits.  From what I can calculate, the costs to the economy of cutting off the unemployment benefits to four million Americans is approximately 64 billion dollars a year.  So we should subtract the 64 billion in loss income from the 99ers from the 260 billion dollar total figure to arrive at 194 billion dollars in new stimulus money.

“So what is your point Merlin?”

Here it is.  When the debt ceiling comes up in March, I predict that the Republicans will demand budget cuts in Social Security or Medicare to pay for the increase in the deficit.  No debt ceiling raise without budget cuts.  And I predict that Republicans will demand 200 to 300 billion dollars in budget cuts in March 2011.

There is nothing magical about the above number.  Whatever the amount of money in stimulus that may exist in this deal will be wiped out with the next Republican extortion attempt.  Cutting Social Security is cutting transfer payments to Americans who spend that money immediately.  No stimulus means no real jobs growth by 2012. 

This is a Republican insurance policy for Obama’s defeat.