On Baseline Scenario, James Kwak writes More on the Tax Deal where he clarifies how Obama’s behavior comes under the heading of Greenberg’s Law of Counterproductive Behavior.

If we can infer people’s preferences from their behavior, then the logical inference is that Obama thinks the Bush tax cuts, taken as a whole, are good policy.

Prior to that statement, he had just explained what he thinks was wrong with extending the Bush tax cuts:

This was the best chance to kill the tax cuts once and for all. Yes, it would have been worse in the short run for the economy. But this is a huge price to pay for a modest stimulus made up entirely out of tax cuts (largely tax cuts for the rich). Instead, we are stuck with a huge reduction in the tax burden of the rich and a small reduction in the tax burden of the middle class–which, on balance, helps the rich and hurts the middle class–forever.

He goes on to point out:

Finally, are the “middle-class” tax cuts really worth fighting for? Or, to put it another way, why does Obama care about them so much? Contrary to the beliefs of the Tea Party, money doesn’t just get eaten by a big monster when it goes to the IRS. It gets spent on stuff that ordinary people want and need. So a priori, we can’t say that an additional dollar of tax revenue is good or bad for ordinary people.

I think Kwak’s ending puts Obama’s choices in the stark contrast needed to see what is going on:

So perhaps with the best intentions, the Obama administration, by making it more likely that the Bush tax cuts will become permanent (just like the AMT fix is permanent), is probably hastening the day when push will come to shove and Medicare will be gutted. The bigger the projected national debt, the more seemingly reasonable people in the middle of the ideological spectrum shake their heads sadly and say something has to be done about Medicare, as if it’s a fact of nature and not a fact of politics. As I’ve said before, no administration has tried harder to control health care costs and thereby protect the future of Medicare. But at the same time, they are digging deeper the hole on the funding side that, politically, is the big threat to Medicare–and to retirement security for hundreds of millions of ordinary Americans.

Apparently Obama is upset at people on the left for insisting on purity. In his view of the world, he drew a line in the sand: he was going to protect tax cuts for the “middle class,” and he succeeded. Maybe he did. Maybe we should be giving him credit for getting what he wanted. But if that’s the case, he’s drawing moderate-Republican lines in the sand. His priorities, as reflected in his policy decisions, are lower taxes (for everyone, not just the rich) and the smaller government that necessarily implies. And that’s why the left is angry.

James Kwak writes about the Tax Cut Capitulation on Baseline Scenario web site,

(Note to Barack: If you want to win a negotiation, you have to be willing to walk away. Take my daughter. If I threaten her with a three-minute timeout, she says, “I want a timeout for eight hours!” If I threaten to take away an episode of Dinosaur Train, she says, “I don’t want to watch Dinosaur Train ever again!” You have two daughters, right?)

Good stimulus policies bring about economic improvements that are larger than the government money spent.  In economics this is called a multiplier that is greater than 1. Kwak quotes Mark Zandi about the multiplier on the package just “compromised”:

According to Mark Zandi (via Menzie Chinn), the multiplier for the Bush income tax cuts is 0.29 and the multiplier for accelerated depreciation is 0.27.

There is another thing wrong with the Obama capitulation other than the low multiplier:

Second, this can no longer be considered a two-year tax cut. This year, the Democrats gave in to the framing that letting the cuts expire would be a tax increase. President Obama has already nailed himself to the cross of “stop[ping] middle-class taxes from going up.” With that on his resume, how is he going to flip-flop and let those taxes go up in 2012? He won’t win a vote to cut taxes just for the middle class with fewer Democrats in Congress than he has now. So if he wants to preserve the middle-class tax cuts, he’ll have to compromise again.

Following along in the vein of Greenberg’s Law of Counterproductive Behavior he says:

So finally, you have to ask, what does Barack Obama want? Does he really like most of the Bush tax cuts? Does he really think the bulk of the tax cuts are good for the country, and that going along with the tax cuts in the top brackets is a reasonable price to pay to keep them?

In a footnote explaining why the Bush  (now Obama) Tax cuts were bad policy, he points out:

How bad? Here’s one example. In order to pass the bill using reconciliation–the first time reconciliation was ever used to pass a deficit-increasing bill–they had to limit the ten-year cost of the bill. One way they did that was by adding a provision that allows upper-income taxpayers, in 2010, to convert their traditional IRAs to Roth IRAs. This is unambiguously good for upper-income taxpayers, because it’s optional, so you can decide if you want to do it. So in the long term, it will result in lower tax revenues. But it artificially juices tax revenues in 2010, because when you convert you have to pay tax on the conversion amount now. That increased the amount by which they could cut taxes elsewhere in the bill. So, as my tax casebook puts it, the bill uses tax cuts for the rich to fund more tax cuts for the rich.