It’s important to understand that “deficit” and “stimulus” mean the same thing: money pumped into the economy by government spending and not pulled back by taxation. So deficit reductions (tax hikes and spending cuts) destimulate the economy. FDR learned that the hard way in the first year of his second term; in a premature return to “fiscal responsibility,” he cut deficits, which destimulated the economy and induced the Recession of 1937.

In the Summer of 2011, Obama concocted the Grand Bargain of 2011, a deficit-reduction package not unlike that of FDR. But, it cut Social Security and Medicare (entitlements), which offended some progressive Democrats. And, because it also contained tax increases, which offended Tea Party Republicans, it was eventually shot it down.

But, Obama immediately countered with a delay-triggered second destimulus package, now known as the Fiscal Cliff, that didn’t cut entitlements and easily passed — for details, read “Let’s Celebrate the Failure of the July 2011 Great Betrayal” by Bill Black. Immediately upon his reelection, however, Obama immediately sought to replace his Fiscal Cliff with another Grand Bargain that which restored those long-term entitlement cuts, on which he had been working cheek-by-jowl with Pete Peterson ever since his election in 2008.

No matter what you call it, deficit reduction destimulates the economy, which is not a good thing in the middle of a recovery. But, the more disturbing aspects of Obama’s grand bargains is that he uses near-term deficit cuts as a Trojan Horse to sneak in Pete Peterson’s long-term entitlement “reforms,” which will have no near-term effect on the deficit.

Social Security, for example, has never contributed a penny to any deficit, is prohibited from doing so by law, and is auditably solvent for the next two decades. Obama’s true near-term concern is that Social Security has loaned $2.7 trillion to the General Fund (i.e., the income-tax payers) that the wealthy don’t want to pay back and won’t have to if he can “strengthen” Social Security in such a way that it never runs a deficit, which it would otherwise do within a year or so. The point is that 70% of income taxes are paid by the top 10%, while the Social Security Trust Fund has been funded by the working class (and on their behalf by their employers).

This is a matter of class warfare. Obama’s “grand bargains” are “grand larceny” against the America’s working class. And, in the matter of derailing these grand bargains, the Tea Party is our very effective ally. On Thursday night, they did what liberal Democrats have not done; they stood on principle and stood up to their party’s leadership. A year and a half ago, they save us from Grand Bargain 2011 and on Thursday they at least delayed Grand Bargain 2012. It’s time for Democrats to join them in blocking this Obama/Peterson grand larceny.

Photo by Phil Roeder under Creative Commons license.