Friday, September 3, 2010

Why won't the White House listen?

Just about everyone is screaming at the White House that they need to push a big economic recovery bill. The policy and the politics are obvious, but the WH seems to think that forcing the republicans to vote against something good that has no chance of passing due to their intransigence is a waste of time and just not serious. Do they really not understand politics? Really?

It's incredible to me that genius political strategists think that what voters really want are tepid and timid half measures.
Booman: Some Friendly Advice
I don't know if David Axelrod will see this, but maybe he will. He says the following:

"We'll continue to do everything we can, understanding that recovery will require persistent effort. There are no silver bullets," senior Obama adviser David Axelrod said in an interview Thursday. "At the same time, we have to make clear our ideas and theirs, and the fact that the Washington Republicans, having helped create this recession, have attempted to block our every effort to deal with it."

Here is my advice. Stop defending what you've done on the economy. Do not say that the stimulus was big enough. Do not say that no one realized how badly the economy had been damaged. Focus like a laser on the second part of your statement. The Republicans created this recession and they have obstructed every effort to fix it. That's your message. Stick to it.

And, what would help is having an actual fight on the Senate floor over a bill that would fix the economy. I know you're going to lose the fight and that a bunch of Democrats are going to side with the Republicans. Don't worry about that. Show people that you're fighting for their jobs and that the Republicans are not. If you want to change the dynamic, this is the only way to do it.

Krugman: Op-Ed Columnist - The Real Story -

Next week, President Obama is scheduled to propose new measures to boost the economy. I hope they’re bold and substantive, since the Republicans will oppose him regardless — if he came out for motherhood, the G.O.P. would declare motherhood un-American. So he should put them on the spot for standing in the way of real action.

But let’s put politics aside and talk about what we’ve actually learned about economic policy over the past 20 months.

When Mr. Obama first proposed $800 billion in fiscal stimulus, there were two groups of critics. Both argued that unemployment would stay high — but for very different reasons.

One group — the group that got almost all the attention — declared that the stimulus was much too large, and would lead to disaster. If you were, say, reading The Wall Street Journal’s opinion pages in early 2009, you would have been repeatedly informed that the Obama plan would lead to skyrocketing interest rates and soaring inflation.

The other group, which included yours truly, warned that the plan was much too small given the economic forecasts then available. As I pointed out in February 2009, the Congressional Budget Office was predicting a $2.9 trillion hole in the economy over the next two years; an $800 billion program, partly consisting of tax cuts that would have happened anyway, just wasn’t up to the task of filling that hole.

Critics in the second camp were particularly worried about what would happen this year, since the stimulus would have its maximum effect on growth in late 2009 then gradually fade out. Last year, many of us were already warning that the economy might stall in the second half of 2010.

So what actually happened? The administration’s optimistic forecast was wrong, but which group of pessimists was right about the reasons for that error?

Start with interest rates. Those who said the stimulus was too big predicted sharply rising rates. When rates rose in early 2009, The Wall Street Journal published an editorial titled “The Bond Vigilantes: The disciplinarians of U.S. policy makers return.” The editorial declared that it was all about fear of deficits, and concluded, “When in doubt, bet on the markets.”

But those who said the stimulus was too small argued that temporary deficits weren’t a problem as long as the economy remained depressed; we were awash in savings with nowhere to go. Interest rates, we said, would fluctuate with optimism or pessimism about future growth, not with government borrowing.

When in doubt, bet on the markets. The 10-year bond rate was over 3.7 percent when The Journal published that editorial; it’s under 2.7 percent now.

What about inflation? Amid the inflation hysteria of early 2009, the inadequate-stimulus critics pointed out that inflation always falls during sustained periods of high unemployment, and that this time should be no different. Sure enough, key measures of inflation have fallen from more than 2 percent before the economic crisis to 1 percent or less now, and Japanese-style deflation is looking like a real possibility.

Meanwhile, the timing of recent economic growth strongly supports the notion that stimulus does, indeed, boost the economy: growth accelerated last year, as the stimulus reached its predicted peak impact, but has fallen off — just as some of us feared — as the stimulus has faded.

Oh, and don’t tell me that Germany proves that austerity, not stimulus, is the way to go. Germany actually did quite a lot of stimulus — the austerity is all in the future. Also, it never had a housing bubble that burst. And with all that, German G.D.P. is still further below its precrisis peak than American G.D.P. True, Germany has done better in terms of employment — but that’s because strong unions and government policy have prevented American-style mass layoffs.

The actual lessons of 2009-2010, then, are that scare stories about stimulus are wrong, and that stimulus works when it is applied. But it wasn’t applied on a sufficient scale. And we need another round.

I know that getting that round is unlikely: Republicans and conservative Democrats won’t stand for it. And if, as expected, the G.O.P. wins big in November, this will be widely regarded as a vindication of the anti-stimulus position. Mr. Obama, we’ll be told, moved too far to the left, and his Keynesian economic doctrine was proved wrong.

But politics determines who has the power, not who has the truth. The economic theory behind the Obama stimulus has passed the test of recent events with flying colors; unfortunately, Mr. Obama, for whatever reason — yes, I’m aware that there were political constraints — initially offered a plan that was much too cautious given the scale of the economy’s problems.

So, as I said, here’s hoping that Mr. Obama goes big next week. If he does, he’ll have the facts on his side.

  • Steve Benen adds:

    I have to admit, as disconcerting as it is to see the political winds blowing in the wrong direction, arguably the most frustrating thing about Republican impending successes in the midterms is the perverse rewards for those who were the most wrong.

    At a moment of crisis, conservatives made a series of predictions, assessments, and guarantees -- all of which turned out to be hopelessly backwards. Rewarding the confused only encourages more confusion, while punishing those who were right only encourages worse policymaking.


With the economy struggling to break out of its funk, many are asking what, if anything, the White House intends to do next. Reading the tea leaves is proving to be a bit of a challenge.

ABC News reported last week that leading officials had no intention of pushing significant new proposals, beyond what's already on the table. The Wall Street Journal reported earlier this week that leading officials are actually considering a sizeable new package.

A few days later, President Obama's outgoing chief economist said what the economy needs is more stimulus. This was immediately followed by President Obama's press secretary saying that "some big, new stimulus plan is not in the offing."

As of this morning, the Washington Post has a front-page piece suggesting a stimulus-esque tax-cut package is receiving "serious" consideration.

With just two months until the November elections, the White House is seriously weighing a package of business tax breaks - potentially worth hundreds of billions of dollars - to spur hiring and combat Republican charges that Democratic tax policies hurt small businesses, according to people with knowledge of the deliberations.

Among the options under consideration are a temporary payroll-tax holiday and a permanent extension of the now-expired research-and-development tax credit, which rewards companies that conduct research into new technologies within the United States. [...]

More spending on infrastructure, particularly transportation projects, is also under discussion. But it would be easier for a package composed purely of tax cuts to "avoid the stain of a 'bailout' or 'stimulus' label," said one official familiar with the talks, speaking on the condition of anonymity because the deliberations were private.

Great, the most effective policy in boosting the economy doesn't sound good, so it's more likely we'll see proposals touting less effective measures.

Given the mixed signals of late, it's worth noting that Politico has a report similar to the Post's, explaining that administration officials are "mulling a raft of emergency fixes to stimulate the economy before the midterms, including an extension of the research and development tax credit and new infrastructure spending."

It's hard to evaluate any of these ideas without more details, and for that matter, no matter what the White House recommends, Congress' inability to function makes progress unlikely for the foreseeable future.

That said, it's at least somewhat encouraging to see a shift away from "everything's on track, so just be patient." Moreover, there's obviously real political salience to even just having the debate -- with two months before the midterms, it's worth having the two parties fight over how to help the economy grow. If Republicans intend to kill every proposal the White House offers, that should matter to voters, too.

The Post's report concluded that President Obama "could roll out additional measures as soon as next week." Stay tuned.

digby: Message: They Care

This NY Times story says that the youth vote for Democrats is dwindling because of the economy. I think this quote is very telling:

“There’s a vibe,” he said on a recent afternoon, while pumping weights at the gym. “Right now it seems like Republicans just care a lot more than Democrats.”
I get that. They do seem like they care more.

Those who are paying close attention realize that they either care more about destroying the socialist/Muslim menace or they care more about taking back the power they so recently lost. But either way, they do appear to give a damn. The Democrats, on the other hand, rather than coming out with their guns blazing at those who have made it impossible for them to fix these problems seem content with trying to convince people that it isn't as bad as they think it is.

You know --- like when your friend tries to convince you that you shouldn't be upset about something you are upset about. It's annoying. And you realize very quickly that they just don't want to hear about it anymore. That's how the Democrats seem right now --- that they are sick of hearing about it.
Serwer: The false 'liberal overreach' narrative

Michael Scherer, who generally writes good stuff, succumbs fully to village fever here:

It's not as if the White House didn't see this coming. After a meeting in December 2008 about the severity of the economic crisis, Axelrod pulled Obama aside. He recalls saying, "Enjoy these great poll numbers you have, because two years from now, they are not going to look anything like this." But even as Obama aides were aware of a growing disconnect, it didn't seem to worry their boss. Instead, the ambitious legislative goals usually trumped other priorities. Both in the original stimulus package and then in the health care and energy measures, the White House ceded most of its clout to the liberal lions who controlled the Democratic majorities in the House and Senate. That maneuver helped assure passage of reforms, but it also confirmed some of the worst fears about how Washington works. "I'd rather be a one-term President and do big things than a two-term President and just do small things," he told his team after Republican Scott Brown was elected Senator in liberal Massachusetts and some in the Administration suggested pulling back on health reform.

This isn't even a remotely accurate reading of recent history. Liberals wanted a bigger stimulus package and more infrastructure spending, the moderate Republicans in a position to kill the bill wanted a smaller package and more tax cuts. With health care, liberals wanted a (popular) public option, centrist Democrats in the Senate arbitrarily decided that it was more important to make liberals unhappy than to have a more fiscally responsible and effective health-care bill. In the House, liberals agreed to stronger restrictions on abortion then they wanted to appease the pro-life faction led by Bart Stupak.

With both bills, the point of leverage was somewhere in the center right, not on the left. Which is why liberals ended up making concessions, leaving Democrats feeling more ambivalent about their legislative victories than they should have been.

Furthermore, as an empirical matter, it's clear that it was compromising with Republican centrists by making the stimulus smaller that is hurting Obama and the Democrats now. As Jonathan Cohn points out today, had the stimulus been twice as big, "unemployment would have been more than a full percentage point lower than it is today. And it would be heading down faster." And the Democrats poll numbers would look substantially better.

"Liberal overreach" is a beltway rule of thumb, and in a country where more people identify as conservative than liberal, it's sure to be a crowd-pleaser. But that doesn't mean it's accurate. Liberals didn't "overreach;" they didn't reach far enough. They didn't reach far enough in part because they were unwilling or unable to counter silly beltway narratives of "liberal overreach" with empirical evidence. And now Democrats are paying the price, not just with Americans who are angry about the economy, but with their own frustrated, demoralized base.

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