Economy isn’t the real beneficiary of fiscal cliff deal

January 2, 2013, 4:47 PM UTC

FORTUNE — The compromise reached by Congress, after multiple rounds of painful negotiations, makes some political sense. The economic benefits are mixed, at best. The social dimension is notable, but will need to be quickly reinforced by measures to reinvigorate economic growth and job creation.

The political attractiveness of the deal comes from the fact that both parties, and virtually every faction within each party, can claim at least a partial victory.

Led by a determined President, Democrats restored the pre-Bush tax rates on higher earning individuals and couples. In the process, they delivered on one of Barack Obama’s most important and consequential election promises.

They also managed to secure an extension in unemployment benefits, one of the most tangible and targeted support measures for particularly vulnerable members of society. And they resisted pressure to cut entitlements that would have disproportionately hit the poor.

On their side, Republicans fought until the very end on tax rates, even willing to temporarily go over the cliff. In the process, they shifted Democrats away from the $250,000 threshold for tax rate hikes, securing instead a $400,000 level for individuals (though below the $1 million threshold Speaker John Boehner had proposed).

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They resisted Democrats’ efforts to extend the payroll tax cut and to add stimulus measures. They secured concessions on the estate tax that speak to both exemptions and indexation. And they ensured that the two-month delay of the sequester, draconian spending cuts, was paid for by other spending cuts (and some revenue increases).

The political attractiveness to both parties of the messy compromise goes further.

By omitting a debt ceiling hike from the compromise and by delaying the sequester by only two months, the two parties will be returning to the bargaining table(s) within a few weeks. As such, and while each has already given something up, most factions retain the optionality that is so valued by politicians – especially in these fluid times when they are unsure of the reactions of their base.

The economic attractiveness of the deal is much more problematic.

On the positive side, the compromise averts a mix of tax increases and spending cuts that would have done more harm than just push the nation into another recession. It would have also seriously undermined the hard-earned healing occurring in the housing sector and in many families’ stretched balance sheets. With that, our economy would have experienced a significant air pocket, and would have faced an even more difficult subsequent recovery.

As important as this gain is, it is unfortunately not overwhelming. The hard-negotiated political compromise does little to address the consistent headwinds that undermine growth, hold back corporate investment, and dampen job creation.

If the objective were to promote employment, the nation’s most urgent challenge, the compromise prolongs crippling political uncertainty rather than removes it. This is reflected in the risk premium applicable to longer-term financial commitments (particularly corporate investment in new plant and equipment), discouraging a range of productive activities.

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If the objective were medium-term fiscal reform, then there is no meaningful content in the fiscal cliff deal. Many longer-term budgetary issues remain unresolved. Also fiscal hawks will find little to appease their concerns about debt and deficits – especially as the scoring of the tax component (by the Joint Committee on Taxation/Congressional Budget Office) will likely add trillions in red ink to the ten-year budget projections.

If the objective were to place a down payment on all this pending full delivery of comprehensive policy initiatives, the tone coming out of the negotiations suggests rougher, rather than smoother, sledding ahead.

Finally, if the objective were to provide the economy with some short-term breathing space, what came out of Congress serves to somewhat diminish what is already a rather sluggish growth momentum.

This is not to say that Congress achieved little after so many months of posturing and brinkmanship.

In addition to temporarily covering the mess it created for itself 18 months ago, Congress has come up with more excuses to postpone really tough decisions on urgent economic and financial priorities for the nation! It has also managed to maintain its domination of the news coverage. And for that, it is only giving up on a salary increase that, in any case, would have proved quite controversial.

More seriously, there is an important serious silver lining to what, otherwise, should be regarded as one of the most uninspiring and wasteful Congressional dramas of all times. And this has to do with the social dimension.

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For many years now, the rich have done very well in America while the middle class has stagnated and a growing number of poor Americans have fallen through the country’s stretched safety nets. Even in the aftermath of a global financial crisis triggered by irresponsible risk taking and excessive concessions to powerful lobbies, the bulk of state support has gone to the better off segments of society.

The fiscal cliff compromise is the first meaningful attempt to redress this multi-year phenomenon.

By increasing tax rates on better off segments and by maintaining redistribution mechanisms, an effort is being made to stop years of steady deterioration in income and wealth inequalities. Yet the benefits will only prove durable and meaningful if the nation’s overall economic context is addressed in a more comprehensive manner that improves economic growth and creates jobs. For that, we need a much more visionary, responsible and functional Congress.

Mohamed El-Erian is the CEO and co-chief investment officer of PIMCO. President Obama recently appointed El-Erian to head the U.S. global development council.