President Barack Obama signed last-minute legislation Tuesday that raises the country’s debt ceiling and avoids a government default, but gives little comfort to economists and political observers who see it as a Band-Aid that won’t revive a pummeled economy.
The Senate earlier Tuesday voted 74-26 for the bill, overcoming an intense partisan showdown that also paralyzed the GOP-led House, which passed the measure Monday – barely ahead of Tuesday’s midnight deadline.
“One of the most important things about this legislation is the fact that never again will any president … be allowed to raise the debt ceiling without being held accountable for it by the American people and without having to engage in the kind of debate we’ve just come through,” said Senate Minority Leader Mitch McConnell (R-Ky.).
Obama said a compromise was crucial to the debt deal.
“Everyone will have to chip in,” he added. “That’s the principle I will be fighting for during the next phase of this process.”
While the legislation raises the $14.3 trillion cap on how much the U.S. is allowed to legally borrow – also ensuring that the country can pay its bills – it also requires Obama and Congress to figure out how to cut more than $2 trillion in spending during the next decade.
A bipartisan panel of lawmakers has until Nov. 23 to propose those savings, with Congress voting on the recommendations by Dec. 23.
The problem, economists said, is that meaningful reform to expensive entitlement programs, such as Medicare and Medicaid, isn’t a sure bet in these new talks. Meanwhile, there are still the nagging issues of consumer confidence, unemployment, a poor housing market and the U.S.’s teetering credit rating – all of which remain despite the debt deal.
“All Washington did this week was say, ‘We’ll make good on the bills we’ve already run up,’” said Roberton Williams, an economist at the nonpartisan Tax Policy Center. “That strikes me as not getting to the heart of the problems.”
“This certainly won’t help the situation,” Williams added.
Kenneth Goldstein, an economist with the Conference Board, which reports on consumer confidence, said the economy is “demand deficit,” meaning people aren’t buying like they used to. By cutting spending, he said, the economy can’t grow in a way that would increase output and promote rapid employment.
“We’re stuck in the slow lane with no help coming,” Goldstein said.
Jamie Chandler, a political science professor at Hunter College, said the likelihood that key economic legislation will be passed before the 2012 presidential election is slim because lawmakers don’t want to jeopardize their political futures.
“Whenever there’s an election year, Congress is not going to take any risk,” he said.