Joseph Stiglitz sees stagflation on the horizon. If it does hit, what's a fiscal policy wonk to do? For those who think that a well-managed globalisation has the potential to benefit both developed and developing countries, and who believe in global social justice and the importance of democracy (and the vibrant middle class that supports it), all of this is bad news. Economic adjustments of this magnitude are always painful, but the economic pain is greater today because the winners are less prone to spend.

OMB Watch released a statement yesterday afternoon harshly criticizing the Democratically control Congress and the president for abandoning fiscal responsibility in the final hours of 2007 after they entire year was spent adhering to or attempting to adhere to righting our nation's fiscal course. From the statement: Adding insult to a year of fiscal policy injuries, Congress has abandoned fiscal responsibility by waiving pay-as-you-go (PAYGO) rules in order to pass a one-year patch to the alternative minimum tax (AMT) without offsets. This tax cut adds another $50 billion to an already expanding deficit next year, and will give fewer options for our children and grandchildren to seek solutions to the problems of tomorrow. While I expect as much from President Bush, this is a huge disappointment from the new Democratic majority in Congress whose number one promise was to uphold pay-as-you-go (PAYGO) rules. So much for promises: This vote is particularly disappointing as Democrats have gone to great lengths this year to comply with PAYGO rules, particularly on spending. From student loan reforms to expansions of the State Children's Health Insurance Program and Food Stamps, Democrats have negotiated the turbulent fiscal waters of the federal budget responsibly, diligently, even courageously. That is why at this point, after all that work and sacrifice, the compromises and the concessions needed to construct balanced solutions to the AMT problem, it is unacceptable for them to abandon their stated principles of fiscal responsibility because they fear Americans will not accept paying up front for the services and benefits the country demands. As the statement makes clear, there is plenty of blame to go around in Washington for this policy failure. What an awful way to end 2007.

The routine matter of passing a resolution to adjourn Congress for the session is getting caught up in the effort to pay for the AMT patch bill. The adjournment resolution, H Con Res 271, failed by a 184-218 vote yesterday, with members of the Democrats' Blue Dog Coalition using the vote to draw attention to the PAYGO principles, which the Senate violated last week in approving an AMT patch bill without any offset provisions, a move that would add a $50 billion hole to the deficit next year.

Leaving a Legacy of Kleptocracy In "Budget Gridlock Is a Shameful Legacy for Bush and Many Others," in today's Roll Call, leading congressional scholar Norman Orenstein bemoans the shrinking center in Congress and its impact on budget policy, as expressed in the current AMT and budget debates. Orenstein fingers the GOP for the fix we're in on AMT, sacrificing PAYGO on its altar and having to fix it at all: