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Debt-Ceiling Deal Keeps Economy on 'Chill'

Debt-Ceiling Deal Keeps Economy on 'Chill'

Photograph by Shelley Dennis

The Senate deal to raise the federal debt ceiling isn’t the total loss for the Tea Party that it might seem at first glance.

True, it ends the partial government shutdown and raises the debt ceiling without touching Obamacare. But it keeps spending at the low level preferred by Republicans.

That’s why Senate Minority Leader Mitch McConnell (R-Ky.) said today: “This is far less than many of us had hoped for, frankly, but it’s far better than what some had sought.”

McConnell said, in prepared remarks: “For the first time since the Korean War, government spending has declined for two years in a row. That’s the first time in 50 years.”

Holding down spending offers long-term benefits and big short-term costs for the economy. The Congressional Budget Office said in September that removing the sequestration and budget caps would add about 800,000 jobs to the economy by the end of 2014.

Persuading Tea Party members that they have secured even a bit of a victory will be tough sledding, considering how far the deal is from what they pursued—and considering that Democrats had freely offered this level of spending from the outset.

House Republicans today signaled that they will let the measure pass, largely with Democratic votes, effectively acknowledging that many Tea Party members will vote against it.

Coy is Bloomberg Businessweek's economics editor. His Twitter handle is @petercoy.

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