Economic Half-Measures Loom As Roadblocks To Reelection For Obama
WASHINGTON -- During the 2008 campaign, the ultra-reductive way of looking at what each candidate wanted to do about the country's economic calamity was to say that then-Senator Barack Obama wanted to stimulate the economy, and Senator John McCain wanted to institute a spending freeze. As such, there was a lot riding on the debate over the stimulus package.
I was of the opinion that the Obama's approach was the right one to counter the downturn. And I have to say, I'm in agreement with Harold Meyerson when he says that if things go poorly for Obama in 2012, you can point right back to the early months of 2009 to see why:
Of course, by the standards of a conventional recession and conventional American politics, Obama did a lot. He sent an $800 billion stimulus package to the Hill, where it encountered rocky going from Republicans and center-right Democrats who thought it too large. It did look large at the time, even though critics pointed out that its chief features -- an incremental payroll tax cut, aid to state governments, and funds for infrastructure projects that trickled painfully slowly through the normal state and local bidding and approval processes -- might halt the economy's slide but were hardly sufficient to turn it around. And by opting for barely perceptible tax cuts, preserving public services and a glacial rollout of public works, the Obama administration had devised a stimulus whose price tag was apparent to all but whose achievements were all but invisible.
If I recall correctly, many of the "critics" who held that "its chief features... might halt the economy's slide but were hardly sufficient to turn it around" weren't necessarily critics of this sort of stimulus. But regardless of how they felt about it, they were precisely right: The effort arrested the downward trend, but we're still waiting for anything that even remotely resembles a robust recovery.
There's a lot of blame to go around. The stimulus was made less effective through GOP intransigence, Blue Dog timidity and, ultimately, White House compromise. If we're talking in terms of the raw-throated politics that get presidents re-elected, the smarter play for Obama might have been to refuse to settle and hang the bad consequences on congressional Republicans. Of course, even if that had proven to be effective political strategy, the practical impact would have been that more ordinary Americans were ground up in the gears of the downturn. Obama chose instead to sign the half-measure into law, cross his fingers and hope for the best.
Nobody's best hopes were realized. But while I'd say Meyerson is correct in framing the early stimulus battle as a potentially important moment of context, should Obama fail to win a second term, it's Zachary Goldfarb in today's Washington Post who documents a mistake that has hurt Obama's chances much more:
By early last year, Geithner was beginning to gain the upper hand in a rancorous debate over whether to propose a second economic stimulus program to Congress, beyond the $787 billion package lawmakers had approved in 2009.
Lawrence Summers, then the director of the National Economic Council, and Christina Romer, then the chairwoman of the Council of Economic Advisers, argued that Obama should focus on bringing down the stubbornly high unemployment rate. This was not the time to concentrate on deficits, they said.
Peter Orszag, Obama's budget director, wanted the president to start proposing ways to bring spending in line with tax revenue.
Although Geithner was not as outspoken, he agreed with Orszag on the need to begin reining in the debt, according to current and former administration officials. Some spoke for this article on the condition of anonymity to discuss internal deliberations.
Even before the president had been inaugurated, Geithner had been urging him to set a target for the budget deficit that would require shrinking its size to 3 percent of the U.S. economy. At that level, the national debt would eventually become manageable.
"From the earliest moments of the administration and even before, he clearly had a big focus on long-term deficit reduction and making clear, not just to the markets but for the entire economy, that the government is living within its means," Goolsbee said in an interview.
The economic team went round and round. Geithner would hold his views close, but occasionally he would get frustrated. Once, as Romer pressed for more stimulus spending, Geithner snapped. Stimulus, he told Romer, was "sugar," and its effect was fleeting. The administration, he urged, needed to focus on long-term economic growth, and the first step was reining in the debt.
Wrong, Romer snapped back. Stimulus is an "antibiotic" for a sick economy, she told Geithner. "It's not giving a child a lollipop."
In the end, Obama signed into law only a relatively modest $13 billion jobs program, much less than what was favored by Romer and many other economists in the administration.
"There was this move to exit fiscal stimulus a lot sooner than we should have, and we've been playing catch-up ever since," Romer said in an interview.
Some of Obama's Democratic allies felt let down. Andrew Stern, former president of the Service Employees International Union, said in an interview that Geithner looks at the world "from his experience, which is predominantly a Wall Street, Treasury, fiscal and monetary policy point of view."
Here's where the administration says, "Let's try it John McCain's way, then!" It's no wonder the recovery has slowed down and leveled off.
When you have a "predominantly ... Wall Street, Treasury, fiscal and monetary policy point of view," it's no big thing to, say, lend out $9 trillion in emergency loans to major banks, and you certainly don't worry about how it could affect the deficit. At the moment, the deficit battle is little more than a pageant of partisan pre-election posturing, designed to allow deficit peacocks to display their plumage to voters in order to retain their seats.
So, if we're keeping score here, Wall Street got taken care of, magnificently. And incumbency is also being well-served. Ordinary people? Well, they got a half-assed stimulus effort and a few kind words.
The story here is a story of disconnect. Lawmakers have become tragically disconnected from the real lives of ordinary Americans. That bespeaks a broken system. But Geithner and Obama also have clearly chosen a disconnected course all on their own.
I have to imagine there's a very good chance that ordinary Americans will return the favor.