I Disagree with Krugman

That THAT, Mr. Nobel Laureate!

Paul Krugman's column today is about him wrestling to come to peace with the Obama-McConnell tax deal.

He makes some good points, as always.  But he notes that the good parts of the deal - the payroll tax holiday,  for instance - expire after a year.  And he presumes that we will get a short burst of growth from the stimulative part of the deal and then it will expire in time to drag down the economy before the 2012 election.

He also notes correctly that more important than the absolute unemployment numbers in 2012 will be the trend in unemployment.  If we are at 7.5% and falling, voters will see an improving climate.  That was what won Reagan re-election in 1984.

I think the clear calculus on Obama's part is that we are getting close to getting over the hump.  Just give a little more gas and the economy will start to recover on its own.

Krugman has also argued elsewhere that the problems in unemployment are not structural.  Well, if it's not structural, then once pent up demand begins to be unleashed, the economy should begin to right itself.

This sets up 2012 as being an argument about permanently extending the Bush tax cuts, especially for the rich.

Critics of the plan like to say that Obama has caved and been a moral and political coward.  It seems instead that he's wagering his presidency on this.  That's a fairly ballsy move.  He's wagering that the economy - after a horrific financial panic - is beginning to rebound.  It needs a significant short term kick - pump priming, to use the New Deal term - to get the economy going again.  Once it starts healing itself, less stimulative measures are needed.  Then he can take on the GOP over tax cuts for the wealthy and deficit spending.  Let's face it, could the GOP have abandoned fiscal discipline ANY more quickly?  I mean, they haven't even taken power yet!

Now, he could be wrong.  The economy might be structural unhinged.  Once the "good stuff" that Krugman talks about wears off in early 2012, we might crash again.  Or Spain might crash us.  Or BofA.

Now, I agree with Krugman that the payroll tax might be a long term hostage scenario.  That's the scariest part of the deal in my mind.  But I don't think 2011 will be a repeat of 2009.  And I don't know why Krugman does.