Robert Kuttner2010-02-09T10:47:19-05:00Robert Kuttnerhttp://www.huffingtonpost.com/author/index.php?author=robert-kuttnerCopyright 2008, HuffingtonPost.com, Inc.HuffingtonPost Blogger Feed for Robert KuttnerGood old fashioned elbow grease.Weathervane Weektag:www.huffingtonpost.com,2010:/theblog//3.4529112010-02-07T22:30:35-05:002010-02-08T18:38:55-05:00Robert Kuttnerhttp://www.huffingtonpost.com/robert-kuttner/
Last week, right after his State of the Union Address, President Obama spent several hours with the Republicans at their Baltimore caucus retreat in his continuing, elusive quest for common ground. This week, he oscillated like a broken compass between bipartisan and partisan.
Obama's meeting with the House Republican Caucus was immediately followed by two sessions where he sounded almost truculent. Speaking to a town meeting in Nashua, New Hampshire, Obama insisted that the health bill was alive, with or without Republican support. "We're in the red zone," he insisted. "We've got to punch it through."
And at a fund-raising event for the Democratic National Committee, Obama demanded, "How can the Republicans on the Hill say, 'We're better off just blocking anything from happening?'" But the very same day, White House aides were discussing a new outreach effort to find areas of collaboration with Republicans.
Obama's strategists went back and forth between seeking a minimalist health bill that Republicans could support, and a Democrats-only strategy proposed by Speaker Nancy Pelosi to pre-negotiate changes to the Senate bill acceptable to House Democrats. The fixes could then be approved by both houses by a simple majority as part the budget process; and the House could use the Senate-passed bill as a vehicle to send directly to the president's desk without having to go back for sixty Senate votes.
Meanwhile, Senator Richard Shelby of Alabama, the ranking Republican on the Senate Banking Committee, advised Democratic Leader Harry Reid that he was placing a blanket hold on all seventy pending nominations requiring Senate confirmation. Shelby was using this threat as leverage against proposed budget cuts in Alabama military installations. Shelby was also not cooperating with Banking Chairman Dodd's efforts to craft a bipartisan financial reform bill, and Dodd announced that he was suspending the joint effort and would draft his own bill.
Also this week, Senate Republicans voted unanimously against raising the debt ceiling. If they had prevailed, they would have repudiated the sovereign debt of the United States.
How much more of this will it take before Obama and the Democrats grasp that bipartisanship is a dead letter, a lousy tactic, and a sign of presidential weakness?
At the national prayer breakfast Thursday, Obama quoted John F. Kennedy's line, "Civility is not a sign of weakness." Columnist Charles Blow, in Saturday's New York Times, hit that one out of the park: "Maybe not, but servility is."
As the White House agonized over whether to do health reform as weak bipartisan tokenism or a go-for-broke Democrats-only bill, a New York Times story quoted a senior Democratic aide comparing the Obama administration to a dithering driver in a traffic rotary unable to decide which road to take. "We're still going around the circle," said the aide. "At some point, you run out of gas."
"What I'd like to do is have a meeting whereby I am sitting with the Republicans, sitting with the Democrats, sitting with health care experts and let's just go through these bills -- their ideas, our ideas. Let's walk through them in a methodical way, so that the American people can see and compare what makes the most sense. And then I think that we have got to move forward on a vote. We have got to move forward on a vote."
What, exactly, does this mean? The idea of a genuinely bipartisan health bill is defunct. Since the Democratic Congressional Leadership does not have the stomach to go back and renegotiate from scratch, point by point with Senators Lieberman, Nelson, et al, the only way to get a bill is to follow Pelosi's strategy and pass a decent measure with 51 votes. But Obama seems wedded to the illusion that Republicans are actually interested in reasoning together -- as opposed to doing whatever they can to crush him.
Last night, Obama showed his hand. Speaking on CBS 60 Minutes, just before the Super Bowl, he said that he will hold a televised summit with the Republicans, after the February recess.
"If we can go, step by step, through a series of these issues and arrive at some agreements, then, procedurally, there's no reason why we can't do it a lot faster [than] the process took last year."
So the president is doubling down. It may be, as was said of Obama during the campaign, that he is playing chess while everyone else is playing checkers; that this is all a cleverly designed plan to go the last mile with the Republicans, smoke out their petty obstructionism for all to see, and then lead as a tough partisan.
Perhaps Barack Obama as Clark Kent is just biding his time before he at last comes out as Superman. If this works, I will be the first to cheer. But I can't imagine this summit producing a breakthrough, either of legislative compromise or of effective shaming.
For sheer comic relief, the most telling story of the week was Rahm Emanuel's apology. A Wall Street Journal reporter, Peter Wallsten, got hold of Jane Hamsher's classic blog post from August about Liberals in the Rahm's Veal Pen, did some more reporting, and quoted Emanuel as calling Democratic activists who were putting pressure on Blue Dogs (to support the Obama health plan!) as "fucking retarded."
So Rahm issued a rare apology -- to Tim Shriver, chief executive of the Special Olympics.
He apologized for using the "R-word," (he is beyond apology on the F-word) slurring people with developmental disabilities as "retards." And he will meet with outraged officials of that organization who have a campaign to discourage use of the R-word.
According to the folks at the Special Olympics:
"The meeting will be a face-to-face discussion with Rahm Emanuel about the suffering and pain of people with intellectual disabilities that is perpetuated by the use of the terms "retard" and "retarded" as well as the damage that can be done by the casual use of the R-word - even if it is not directed toward people with intellectual disabilities."
It's good to see Emanuel apologize at all. I wonder when he will apologize for slurring the party base.]]>Love, Love Me Dotag:www.huffingtonpost.com,2010:/theblog//3.4438062010-01-31T23:00:41-05:002010-02-01T19:12:36-05:00Robert Kuttnerhttp://www.huffingtonpost.com/robert-kuttner/
After the Democrats' stunning loss of the Massachusetts senate seat once held by Ted Kennedy, you might have expected Obama to change a posture of partisan conciliation that clearly is backfiring. Instead, what we got was an elegant fine-tuning of the same failed strategy.
The address to Congress, and the president's remarks at the Republican Caucus, obviously, are aimed at multiple audiences. Obama seems to think that if he demonstrates to the voters that he is going the extra mile to appease the Republicans, he will win approval from opinion-leaders for delivering on his pledge to "change the tone in Washington," while Republicans will reap the public's scorn for their refusal to meet him halfway. Then he will gain some leverage to pressure the Republicans to at least find some areas of common ground.
Except, politics doesn't work that way. The Republicans get far more mileage out of continuing to block him at every turn. And his increasingly plaintive pleas only make him look weak.
The voters may tell pollsters and focus group facilitators that they are sick of partisan bickering. But this is never a highly salient concern. It is certainly less important to voters than, say, unemployment, or evaporating health and retirement coverage, or declining home equity. Nobody held Republican obstructionism against Scott Brown. The only issue in next fall's election will be whether Democrats delivered -- and if not, why not.
The challenge for Obama is to say straightforwardly to voters that he has a strategy to bring about a strong recovery as well as greater security of health and retirement and mortgage relief and other first tier pocketbook concerns -- and that Republicans are standing in his way. He also needs to clearly hold Republican ideology and policy for the mess that the country got into in the first place. But he seems congenitally incapable of being a partisan in the best sense of the word.
Instead, his own anti-recession policies are puny -- a budget freeze, some modest tax credits, aid to state governments that makes up less than one sixth of their revenue gap -- so the claim that these policies would produce a strong recovery doesn't persuade. And he is too preoccupied denying that there are principled differences between the two parties to persuade voters that Republican obstructionism is the obstacle.
So, in both venues, we get efforts to cajole, co-opt, charm, shame, whatever, Republicans into making nice, as well as ideological capitulation.
From the State of the Union:
What the American people hope -- what they deserve -- is for all of us, Democrats and Republicans, to work through our differences, to overcome the numbing weight of our politics.
No, dammit. Why ascribe symmetrical blame to the two parties, to himself and his opposition? The problem isn't "the numbing weight of our politics." It's free-market ideology and sheer obstructionism of the Republican right. Lines like this one reinforce the view that the problem is generic gridlock and the incompetence of "government." But that's a rightwing theme.
Substantively, Obama kept offering Republican-lite. Presumably, if he moves close enough to the Republican view, they will come over and play in his tree house. From the State of the Union Address:
We cut taxes. We cut taxes for 95 percent of working families. We cut taxes for small businesses. We cut taxes for first-time homebuyers. We cut taxes for parents trying to care for their children. We cut taxes for 8 million Americans paying for college.
Democrats clap. Republicans are silent. Obama looks over at the Republican seats and ad libs, "I thought I'd get some applause on that one." Well, no, Mr. President, you won't. The Republicans are going to keep going for your jugular.
And when he got to health reform, Obama sounded almost like the playground priss, begging for mercy from the schoolyard bully:
Don't walk away from reform. Not now. Not when we are so close. Let us find a way to come together and finish the job for the American people. Let's get it done. Let's get it done.
You can almost hear John Boehner smirking to Mitch McConnell, "Whack him again."
Now, you may say that the State of the Union Address is no place for small-minded partisanship. But, if anything, it got even worse when Obama ventured into the lions den of the Republican Caucus Retreat.
Some of my friends think the Baltimore exercise was masterful. About the only thing I cared for was the juxtaposition of the words "Republican" and "Retreat." Obama did a fine job of defending his record and sounding high minded and presidential, but again the plea was for sweet reasonableness.
They sent us to Washington to work together, to get things done, and to solve the problems that they're grappling with every single day.
Obama ticked off area after area where he agreed with Republican policies. Can you imagine Ronald Reagan giving that to the Democrats? At one point, insisting that he was open to good ideas from any quarter, Obama declared:
I am not an ideologue. I'm not.
You're not? Then why bother? Ideology is not some arbitrary penchant for clinging to stale ideas. It is a principled set of beliefs about how the economy and society work, and should work.
To be a conservative Republican is to believe that markets work just fine, people mostly get what they deserve, and government typically screws things up. To be a liberal Democrat is to believe that market forces are often cruel and inefficient; that the powerful take advantage of the powerless; and that there are whole areas of economic life, from health care to regulation of finance, where affirmative government is the only way to deliver defensible outcomes for regular people.
That's an ideology, one that progressives are proud to embrace. So why does Obama think it virtuous to disclaim ideology in general? The problem afflicting America is not "ideology." It's the hegemony of rightwing ideology. And given presidential leadership, most working Americans -- most voters -- identify with the progressive view of how the world works, especially in an era where conservative ideology has produced financial collapse.
Obama's latest refinements on the politics of common ground make for a pretty pose, but they are too clever by half.
Now, if we are very sanguine, we can read efforts like these as prologue to a stiffening of Obama's spine. This is all a grand design -- he's playing chess, we're playing checkers. Along about March, he will pivot and finally deliver a tough speech declaring that he bent over backwards to accommodate the Republicans. But now, no more Mr. Nice Guy.
But I am increasingly skeptical that he will ever get there. It's just not who he is. So the obstructionism will likely continue, except in cases where Obama makes all the concessions.
Obama may think he is modeling a higher form of leadership. He isn't. If he wants to be loved by voters, it's time for some toughlove directed at Republicans.
]]>Mixed Signalstag:www.huffingtonpost.com,2010:/theblog//3.4348322010-01-24T22:30:26-05:002010-01-25T17:22:46-05:00Robert Kuttnerhttp://www.huffingtonpost.com/robert-kuttner/
As so many of us writing for Huffington Post have been arguing for the past year, if President Obama did not cease behaving as the ally of Wall Street, the right wing would emerge as populist champion of the forgotten American. The election results in Massachusetts have now provided the exclamation point.
The loss of Ted Kennedy's former senate seat seems to have gotten the president's attention. Obama is belatedly getting in touch with his anger, as it were. He has turned up the rhetorical heat against the banks. But will he walk the talk?
Are we seeing a true shift in the Obama presidency where he revises his theory of change and discovers that political progress sometimes requires confrontation before you reach consensus? Or are these simply gestures of expediency and desperation?
So far, the signals are mixed. With the State of the Union Address getting drafted and re-drafted, debates are still raging inside the White House: Should Obama, after the Massachusetts wake-up call, be more conciliatory, or more feisty; more progressive or more centrist?
On the banking front, Obama has begun signaling a welcome populism. First, even before the Massachusetts vote, he called for a surtax on bank profits -- a relatively small and symbolic gesture than neither brings in a lot of money nor alters the banks' toxic business models, but a start.
Next, he intervened with Senate Banking Committee Chairman Chris Dodd to prevent Sen. Dodd from compromising away the House-passed consumer financial protection agency, one of the few provisions of the House version of financial reform that has some teeth. Literally the day before the president acted, Dodd had put out the word that he would have to throw the proposed agency under the bus in order to get Republican support for other provisions.
The agency has been a favorite of Obama's since last June, when it became part of the administration's June 17th White Paper on financial reform, despite skepticism from Geithner and Summers, only because Obama personally insisted on it. What's interesting about Obama's move last week is not just that he is supporting tough reform legislation, but that he got involved personally, calling Dodd to the White House and extracting his support. Until now, Obama has been mostly hands-off when it comes to financial reform, leaving the details to Tim Geithner and Larry Summers.
Even more significantly, Obama resurrected Paul Volcker as a senior adviser and embraced a Volcker proposal to revive the Glass-Steagall Act, an idea that Summers and Geithner have been resisting all year.
The 82-year old Volcker turns out to be one of the best organizers in Washington. In addition to forcefully speaking out about the need for a new Glass-Steagall, to keep commercial banks out of the business of speculating in securities, Volcker enlisted several other financial Brahmins to add their voices of support, including the Republican former chair of the SEC, Bill Donaldson, and the former CEO of Citigroup, John Reed.
Though Obama's public embrace of Volcker and Glass-Steagall was unveiled as part of the post-Massachusetts damage control, it has been in the works since before Christmas.
Geithner, who is again in political trouble because of investigations about his role in insisting that the government's bailout of AIG flow through to Goldman Sachs and other banks at 100 cents on the dollar, had his office quickly put out the word that Geithner had really been in support of Volcker's plan all along. But that's total malarkey.
The support for Volcker came mainly from Vice President Biden and from chief political adviser David Axelrod. In the White House debates, it was often Obama against most of his economic team, which has done its best all year to keep Volcker far away from Obama. Some dissenters on the economic team, such as Austan Goolsbee, sided with Volcker.
So Obama seems to get that he needs to be more populist both in tone and substance when it comes to the banks, though it remains to be seen how hard he'll fight. But banking reform is only one piece of the battle. Obama went the other way when it came to trying to salvage the re-nomination of Ben Bernanke to chair the Fed for a second term.
By the middle of last week, it looked as if the same popular revolt that gave Republicans Ted Kennedy's senate seat could take down Bernanke, who has emerged as a lightening rod for populist anger. Rejecting Bernanke's confirmation is an easy vote for senators who want to whack Wall Street, and there were murmurings of mass defections in the Senate Democratic caucus.
But with Bernanke's support crumbling, the White House pulled out all the stops. By Saturday, both Harry Reid and Dick Durban, the top two Democrat leaders in the senate, who have been wavering, pledged to vote aye. It now looks like Bernanke will survive, with more Republicans voting no than Democrats, and Democrats again looking like the party of high finance. The White House concluded that another political defeat for the president would be worse than the association with the unpopular Bernanke, who epitomizes the Obama alliance with Wall Street.
Even more ominously, Obama thus far is on the wrong side of the deficit-versus-jobs debate. Budget Director Peter Orszag and other deficit hawks in the administration have long been urging Obama to support a proposed fast-track commission that would bypass usual legislative procedures and compel an up-or-down vote on a compulsory deficit-reduction package designed to slash Social Security and Medicare spending.
This is, of course, appalling politics. It signals: we had to spend a ton of taxpayer money to rescue the banks and prop up the ruined economy. Now, gentle citizen, though you have paid once through the reduced value of your retirement plan and your house, you will pay again through cuts in Medicare and Social Security.
Since Christmas, Obama has been negotiating with the two key sponsors of the commission, Senators Judd Gregg (R-NH) and Kent Conrad (D-ND). Last week, it looked as if they were close to a deal to have the White House appoint a more moderate version of such a commission, but after signaling support for the deal Gregg went out of his way to disparage that idea. Mercifully, it now appears that the deficit hawks in the Senate don't have the votes, since it would require some tax hikes as well as spending cuts, and most Senate Republicans won't touch anything that raises taxes. But on Friday, Obama himself said that he'd support a legislated commission, reversing his earlier position. The only hopeful sign is that he doesn't seem prepared to spend much political capital on it.
The politics of the deficit commission are all tangled up with the politics of how much to spend on a new jobs bill. In December, the House, with no assistance from Obama, narrowly passed a $154 billion jobs will, which also provides fiscal relief to the states and extends unemployment and health benefits for jobless workers. But the word from the White House is that Obama will not support that high a number, and will give more prominence to deficit reduction. So despite the rhetoric about Obama getting past the health-bill morass and emphasizing jobs, jobs, jobs, he hasn't yet put his money (ours, actually) where his mouth is.
Then there is the matter of the carcass of health reform, and the related question of whether Obama is willing to get tough with Republicans as well as bankers. The early signs are not encouraging. In a Wednesday interview with ABC's George Stephanopoulos, Obama said that he'd look for areas of common ground, and by week's end, it appeared that the White House would be trying to get some kind of face saver that stopped far short of even the weak Senate bill.
With 59 votes in the Senate, the Democrats have more senators than the Republicans have had at any time since the 1920s. If Obama has discovered the virtues of leadership and occasional anger, he should be pummeling the Republicans for their sheer obstructionism, and asking the Senate leadership to enact key legislation with a simple majority of 51 votes through the budget reconciliation process. But on this front, Obama's conciliatory side still seems to be winning.
A little populism here and a little conciliation there is no game-changer. The worst strategy of all would be for Obama to be a populist on Mondays and Wednesdays, and a conciliator on Tuesdays and Thursdays. That would signal pure mush.
Democrats, unfortunately, default to this habit, because of an excessive reliance on a shallow reading of polls. You could see this tacking back and forth in the losing Gore campaign of 2000 and Kerry's failed run in 2004, where the candidate and his handlers oscillated between a progressive stance and a New Democrat one.
If Lincoln had based his decisions on polls, we'd still have slavery. Polls show that Americans resent corporate excesses, but value corporations as sources of jobs; that they are worried about the deficit but also frightened about unemployment; and that they are fearful of losing their health coverage but also anxious about the Obama version of health reform.
These, of course, are somewhat contradictory positions. It's normal for citizens to hold views that are not totally consistent. The job of a president is to fashion a coherent narrative and strategy of reform, even if some of it is momentarily unpopular, and to persuade the people to embrace it. A president who bases his posture mainly on a tactical reading of the polls is the opposite of a leader, and will be rejected for his weakness -- even if every one of his positions tracks majority support in the polls.
The administration's response to the twin loss of the 60th senate seat and a justifiably unpopular health bill could be a turning point in the redemption of Obama's presidency. So far, we've only seen a bare beginning.
Robert Kuttner is co-editor of The American Prospect, a senior fellow at Demos, and author ofObama's Challenge.]]>A Wake Up Calltag:www.huffingtonpost.com,2010:/theblog//3.4264672010-01-17T23:09:17-05:002010-01-18T09:23:23-05:00Robert Kuttnerhttp://www.huffingtonpost.com/robert-kuttner/Polls show that the public now opposes it by margins averaging ten to fifteen points, and widening. It is hard to know which will be the worse political defeat -- losing the bill and looking weak, or passing it and leaving it as a piñata for Republicans to attack between now and November.
The measure is so unpopular that Republican State Senator Scott Brown has built his entire surge against Coakley around his promise to be the 41st senator to block the bill -- this in Ted Kennedy's Massachusetts. He must be pretty confident that the bill has become politically radioactive, and he's right.
It has already brought down Senator Byron Dorgan of North Dakota, a fighter for health care and other reforms far more progressive than President Obama's. Dorgan championed Americans' right to re-import cheaper prescription drugs from Canada, a popular provision that the White House blocked. Dorgan, who is one of the Senate's great populists, began the year more than twenty points ahead in the polls of his most likely challenger, North Dakota Governor John Hoeven. By the time he decided to call it a day, Dorgan was running more than twenty points behind. The difference was the health bill, which North Dakotans oppose by nearly two to one. The fact that Dorgan's own views were much better than the Administration's cut little ice. He was fatally associated with an unpopular bill.
So, how did Democrats get saddled with this bill? Begin with Rahm Emanuel. The White House chief of staff, who was once Bill Clinton's political director, drew three lessons from the defeat of Clinton-care. All three were wrong. First, get it done early (Clinton's task force had dithered.) Second, leave the details to Congress (Clinton had presented Congress with a fully-baked cake.) Third, don't get on the wrong side of the insurance and drug industries (The insurers' fictitious couple, Harry and Louise, had cleaned Clinton's clock.)
But as I wrote in Obama's Challenge, in August 2008, it would be a huge mistake to try to get health care done right out of the box. Obama first needed to get his sea-legs, and focus like a laser on economic recovery. If he got the economy back on track, he would then have earned the chops to undertake more difficult structural reforms like health care.
Deferring to the House and Senate was fine up to a point, but this was an issue where the president needed to lead as only presidents can -- in order to frame the debate and define the stakes.
Cutting a deal with the insurers and drug companies, who are not exactly candidates to win popularity contests, associated Obama with profoundly resented interest groups. This was exactly the wrong framing. This battle should have been the president and the people versus the interests. Instead more and more voters concluded that it was the president and the interests versus the people.
As policy, the interest-group strategy made it impossible to put on the table more fundamental and popular reforms, such as using Federal bargaining power to negotiate cheaper drug prices, or having a true public option like Medicare-for-all. Instead, a bill that served the drug and insurance industries was almost guaranteed to have unpopular core elements.
The politics got horribly muddled. By embracing a deal that required the government to come up with a trillion dollars of subsidy for the insurance industry, Obama was forced to pursue policies that were justifiably unpopular -- such as taxing premiums of people with decent insurance; or compelling people to buy policies that they often couldn't afford, or diverting money from Medicare. He managed to scare silly the single most satisfied clientele of our one island of efficient single-payer health insurance -- senior citizens -- and to alienate one of his most loyal constituencies, trade unionists.
The bill helped about two-thirds of America's uninsured, but did almost nothing for the 85 percent of Americans with insurance that is becoming more costly and unreliable by the day -- except frighten them into believing that what little they have is at increased risk of being taken away.
All of this made things easier for the right, and left people to take seriously even preposterous allegations such as the nonsense about death panels. It got so ass-backwards that the other day Ben Nelson, who successfully held out for anti-abortion language and a sweetheart deal for Nebraska's Medicaid as the price of his vote, found himself facing a wholesale voter backlash.
Nelson began running TV spots assuring Nebraska voters that the Obama health plan is "not run by the government." That's one hell of a slogan for a party that relies on democratically elected government to offset the insecurity, inequality and insanity generated by private commercial forces. If not-run-by-government is the Democrats' credo, why bother?
So we went from a politics in which government is necessary to provide secure health insurance -- because the private insurance industry skims off outrageous middlemen fees and discriminates against sick people -- to a politics in which Democrats, as a matter of survival, feel they have to apologize for government. Thank you, Rahm Emanuel.
The budget-obsessives around Obama also insisted that most of the bill not take effect until 2013, so that all of the scary stuff gets three years to fester before most people see any benefit. Call it political malpractice.
Finally, the health insurance battle sucked out all the oxygen. When Obama made time to work the phones personally, it wasn't to enact serious financial reform (this was left to the tender mercies of Tim Geithner) or to fight for a real jobs program (deficit hawks Peter Orszag and Larry Summers got to blunt that one). No -- Obama got on the phone and met with legislators to round up the last vote or two for a sketchy health reform that crowded out far more urgent issues.
As a resident of Massachusetts, in the last two days I've gotten robo calls from Barack Obama, Joe Biden, Bill Clinton, Martha Coakley, and Angela Menino, the wife of Boston's mayor -- everyone but the sainted Ted Kennedy. In Obama's call, he advised me that he needed Martha Coakley in the Senate, "because I'm fighting to curb the abuses of a health insurance industry that routinely denies care." Let's see, would that be the same insurance industry that Rahm was cutting inside deals with all spring and summer? The same insurance industry that spent tens of millions on TV spots backing Obama's bill as sensible reform?
If voters are wondering which side this guy is on, he has given them good reason.
Looking forward, one can imagine several possibilities. Suppose Coakley loses. Obama and the House leadership may then decide that their one shot to salvage health reform after all this effort is for the House to just pass the Senate-approved bill and send it to the president's desk. They can fix its deficiencies later. This is an easy parliamentary move. But the bill passed the House by only five votes; many House members are dead set against some of the more objectionable provisions of the Senate bill; a Coakley loss would make the bill that much more politically toxic; there will be Republican catcalls that Congress is using dubious means to pass a bill that has just been politically repudiated; and the House votes just may not be there this time.
Alternatively, let's say Coakley narrowly wins, the Democrats have a near death experience, and the House and Senate stop squabbling and pass the damned bill.
Either way, the Massachusetts surprise should be a wake-up call of the most fundamental kind. Obama needs to stop playing inside games with bankers and insurance lobbyists, and start being a fighter for regular Americans. Otherwise, he can kiss it all goodbye.
Robert Kuttner is co-editor of The American Prospect, a senior fellow at Demos, and author of Obama's Challenge.]]>The Case Against Bernanketag:www.huffingtonpost.com,2010:/theblog//3.4179842010-01-10T23:00:11-05:002010-01-11T10:33:25-05:00Robert Kuttnerhttp://www.huffingtonpost.com/robert-kuttner/Boston Globe, for example, recently profiled Sanders and his case against Bernanke under the remarkable headline, "Sanders a Growing Force on the Far, Far Left." (I've always thought of the far, far left as Chairman Mao and Che Guevara. Bernie is a European style social-democrat.)
In fact, when the Senate votes on Bernanke, Sanders will have a lot of company -- and he should. Bernanke's high-profile speech to the American Economic Association in Atlanta, January 3, was his latest effort to redeem himself. But it provides ample evidence for why the Senate should deny him a second term.
Bernanke devoted most of a remarkable abstruse speech to a straw man. "Some observers have assigned monetary policy a central role in the crisis," he said. "Specifically, they claim that excessively easy monetary policy by the Federal Reserve in the first half of the decade helped cause a bubble in house prices in the United States."
There are such critics, but of course it wasn't cheap money that caused the bubble. It was easy money combined with the complete abdication of the Federal Reserve's role as a regulator that allowed Wall Street to go nuts, creating a financial house of cards. Low interest rates can be good for an economy. The post-World War II boom was built on low interest rates -- combined with tight financial regulation so that the low cost of capital would enhance real economic growth and not foment risky speculation.
Bernanke's speech passed up the opportunity to confess any error or personal learning curve. He was appointed to the Fed by President Bush in October 2005, and elevated to chairman in February 2006. During the run-up to the collapse, the Fed possessed ample authority to deal with the abuses that caused the bubble in sub-prime loans. The Fed was specifically tasked with enforcing a 1994 law, the Home Ownership Equity Protection Act, which required all mortgage lenders to use sound underwriting standards, even if they were covered by no other federal regulation. No less than a fellow member of the Fed's Board of Governors, the late Ned Gramlich, an expert in mortgage finance, begged his colleagues to crack down on mortgage abuses, but first Greenspan and then Bernanke refused.
The abusive off-balance sheet maneuvers that led to the financial house of cards were done largely through the holding companies of the biggest Wall Street banks. These are the regulatory responsibility of the Fed -- which, under Bernanke, displayed an appalling incuriosity and instead trusted the genius of markets and financial "innovation." In his testimony before the Senate Banking Committee on December 3, Bernanke went through the motions of contrition. "In the area where we had responsibility, the bank holding companies, we should have done more," he said. "That is a mistake we won't make again."
But in his Atlanta speech, the closest he came to accepting responsibility was a few lines such as:
Stronger regulation and supervision aimed at problems with underwriting practices and lenders' risk management would have been a more effective and surgical approach to constraining the housing bubble than a general increase in interest rates.
But he followed this with defensive assertions of the actions that the Fed did take in 2006 and 2007, which proved to be woefully inadequate. Bernanke also contended that the crisis "revealed not only weaknesses in regulators' oversight of financial institutions, but also, more fundamentally, important gaps in the architecture of financial regulation around the world." But the fact is that the Fed and other regulatory institutions had plenty of power -- they just refused to use it.
Bernanke reiterated his call to give the Fed even more power as a kind of super-regulator. But both the Fed's record and its structure as a partly industry-owned hybrid make the Federal Reserve the last agency that should be entrusted with new regulatory powers. Bernanke himself was repeatedly behind the curve in his bland reassurances during 2007 that nothing was seriously amiss with housing markets or the financial system.
So one reason to reject Bernanke for a second term is that he really hasn't learned much from his earlier mistakes. A second, even more compelling, reason is that he refuses to tell Congress who in the private sector has been subsidized by the Fed, subject to what ground rules. Bernanke hides behind the widely-shared premise that Congress should not "politicize" monetary policy.
But the Federal Reserve really has three distinct roles, of which monetary policy -- whether to loosen or tighten money generally -- is the most straightforward. Arguably, if Congress got into the act, the majority party could pressure the Fed to deliver cheap money to stimulate the economy prior to elections. But that's not what this argument is really about. The Fed's other two responsibilities are regulatory policy and emergency infusions of credit and capital during severe crises -- a role sometimes known as "lender of last resort." In these two areas of the public's business, Congress has every right to demand far greater transparency of the Fed than Bernanke has been willing to deliver.
For the first time in history they said to the big investment banks, you can come and get direct lending from the Federal Reserve Board. We're trying to find out from the Fed, who'd you give the money to, how much money did you give? My point is, what did you do with our money? And the Federal Reserve Board says "none of your business." Well, I tell you what, it is our business, and I'm not going to let the Bernanke nomination to head the Fed for another term go through until he tells, what did he do with our money, the American people's money.
Six weeks ago, Bernie Sanders was agonizing over whether to try to kill Bernanke's confirmation. He resisted pressure from the White House, and finally announced on December 2 that he was putting a hold on Bernanke's confirmation. Since then, Sanders has been clear that his goal is not to slow down the nomination but to kill it, and six other senators have joined him, meaning that it will take 60 votes for Bernanke to be confirmed. Bernanke's nomination was reported out of the Senate Banking Committee with a majority of the Committee's Republicans opposed, and Chairman Chris Dodd supporting Bernanke personally but rejecting a larger regulatory role for the Fed.
With the disappointing job numbers for December just released, and the rising populist rage against the favoritism shown to Wall Street over Main Street, the opposition to Bernanke will only grow. And it would be a severe mistake to read this as senators needing a scapegoat or a sacrificial lamb. The Fed's policies are deplorable, Bernanke shows no sign of learning from his mistakes, and the Fed continues to hide behind its semi-secret status as not quite a public agency.
As recently as mid-December, when the House Oversight Subcommittee, chaired by Dennis Kucinich, was trying to figure out whether the Treasury was letting shaky banks exit the TARP program early so that they could resume paying exorbitant bonuses, Treasury Assistant Secretary Herb Allison hid behind the Federal Reserve (which is not obligated to explain itself to Congress.) Huffington Post's Ryan Grim reported this exchange:
Kucinich: "So it's the Federal Reserve that decides when to exit the TARP and the Federal Reserve does it at their choosing, or who chooses? How do we know who makes the choice whether to exit the TARP? How do we know if it's the banks that are deciding or the Federal Reserve? Do you know?"
Allison: "The regulators decide, Mr. Chairman, on when it's appropriate for a bank to repay the Treasury."
Kucinich: "Is that a transparent process, Mr. Allison, or is that pretty much done over at the Fed without any report to you?"
Allison: "That's a matter for the regulator, that's --"
Kucinich: "Well, they're the regulator, but we're the shareholder. When do we find out? When do you find out? Do you find out when you read about it in the newspaper?"
Allison: "When the regulator informs us...
This claim is complete malarkey. Treasury, since the program began, has been the prime agency supervising the distribution of the TARP money. And the negotiations over when the banks are strong enough to quit the TARP program (and escape its limits on executive pay) have been with the Treasury. But the ease with which Treasury officials have hidden behind the non-transparent Federal Reserve is a prime example of why the Fed needs both a complete overhaul and new leadership.
In October 2008, when Republican Treasury Secretary Hank Paulson's TARP legislation was railroaded through Congress, it was Republicans more than Democrats who nearly killed it, and the Democrats who saved it. Now, many Democrats are having second thoughts. In this climate, Republicans are playing the preposterous role of the more populist of the two parties. And, as the fight over a badly flawed health bill shows, Obama's policies are making their jobs easier.
With a majority of Republican senators apparently ready to vote against Bernanke, Democratic senators risk finding themselves on the wrong side of another populist backlash. If half of the Democrats decide to vote against him, his nomination could go down.
I have argued in this space, along with such good progressive friends as Peter Dreier, that Democratic legislators ought to hold their noses and vote for a badly flawed health bill. To kill the bill would hand a huge victory to the Republican right.
But the Bernanke re-nomination is another story. It is not a signature, make-or-break initiative of the administration. Bernanke's defeat would be a repudiation of President Obama's close alliance with Wall Street -- but it would be extremely salutary for him and for us. It might even get the president's attention for the proposition that his presidency and America's economic future depend on an entirely different strategy of economic recovery. Bernanke is not just the symbol of everything that's wrong with Wall Street's dominance of economic policy, but the substance.
Robert Kuttner is co-editor of The American Prospect, a senior Fellow at Demos, and author of the book, Obama's Challenge: America's Economic Crisis and the Power of a Transformative Presidency.]]>New Year's Resolution: Clean Housetag:www.huffingtonpost.com,2010:/theblog//3.4098472010-01-03T23:00:45-05:002010-01-03T23:57:10-05:00Robert Kuttnerhttp://www.huffingtonpost.com/robert-kuttner/
But Obama is under immense political pressure from the center and the right, and from some of his own top aides such as OMB Director Peter Orszag, to put deficit reduction ahead of job creation. Last month, the House Democratic leadership decided to jump the gun on the administration to create some salutary pressure from the left, and put forward a $154 billion jobs package, which included $50 billion in public works plus emergency aid to the states and extension of unemployment benefits.
On December 16, the bill just barely passed, 218-214 -- with several defections of conservative Democrats, and no help whatever from the White House. Had the bill failed, that would have doomed any Obama jobs program as politically unrealistic. Why didn't the president weigh in with wavering Dems?
We will soon find out, in the State of the Union Address, whether Obama will deliver on his promises to do something more about jobs, or whether his more conservative economic advisers will prevail.
If you are a congenital optimist about this president, your story goes something like this: Now that health care is almost wrapped up, and the decision about how to proceed in Afghanistan has been made (like it or not), Obama can turn more of his laser-like attention to the economy. As time passes, the health bill will look better than it does now, because at least it represents the beginning of federal regulation of the insurance industry, and the beginning of the end of employer-provided insurance.
Also, say the optimists, Obama may be losing some public support, but just look at the lunatic Republicans; they have even less support. Finally, some of the greatest presidents looked pretty feeble after just a year. Lincoln was losing the Civil War. John Kennedy couldn't get Congress to act and Nikita Khrushchev had adjudged him a weakling. Give the guy a little more time.
As Obama famously said when Senator McCain tried to use the financial crisis as a pretext to back out of the debate scheduled for Oxford, Mississippi, a president needs to be able to do more than one thing at a time. This president did not lift a finger as Congress gutted his bill on financial reform. That was the same week that Obama gave a rather calculated interview to Sixty Minutes, in which he blasted the bankers for not doing more about mortgage relief. But he didn't walk the talk. Despite brave rhetoric, the administration's mortgage program is a failure.
A financial industry that is alive thanks only to taxpayer bailouts continues to use its political influence to block reform and the president takes it while his Treasury Department keeps spooning out the help.
One problem is Obama's own penchant for consensus and compromise. As Matt Bai observed in Sunday's Times, Obama's line in the Sixty Minutes interview, "I did not run for office to be helping out a bunch of far cat bankers" just didn't sound like Obama. It "gave the impression of a man trying on an ill-fitting suit." But the next day, when the president sat down for an amiable chat with the same bankers, opined Bai, that was the real Obama.
True enough. But where Bai has it totally wrong is to insist that Obama would be ill-advised to strike a more populist set of rhetoric or policies. Bai contrasts failed "populists" such as Huey Long and William Jennings Bryan with successful "progressives" such as the Roosevelts. But of course FDR sided with the people against the banks. His entirely populist brand of progressivism delivered for regular people. Bankers hated FDR. Obama has yet to earn Wall Street's enmity.
Obama's professorial caution, Bai insists, reflects a leader who is "serious and methodical" about reforming the banks, and that beats hot rhetoric. If only Bai's fantasy were true. All that Obama's conciliatory caution has produced so far is legislation that sells out to the bankers.
What will it take for Obama to recover his footing? Some key personnel changes might be a start. As investigative reporters did deeper into the mess that Larry Summers made of Harvard's finances, you have to be thankful that the man isn't running the nation's economy (oh, whoops, he is.)
Summers reinforces all of Obama's conservative instincts and none of his progressive ones.
Tim Geithner, who was in charge of relations with Congress for Obama as the House deliberated the financial reform bill, weighed in mostly on the wrong side. If Obama is truly to signal a change of course and mean it, one constructive sign would be replacements for Summers and Geithner.
Fed Chairman Ben Bernanke may pay for these sins. Bernanke, needlessly appointed by Obama to a second term, has become the lightening rod for popular frustration at the Wall Street bias of this administration, and there could easily be 35 or 40 Senate votes against his confirmation -- the most in the history of a Fed chairman. A majority of Republicans on the Banking Committee voted no and most Republicans, attuned to this backlash, will likely vote no on the floor. Democrats must decide whether to save him. You can bet Obama will be personally be working this vote.
Thus far at the Obama White House, unfortunately, it's only progressives who get thrown under the proverbial bus. White House Counsel Greg Craig was forced out for the sin of taking Obama seriously when the president promised to close the prison at Guantanamo and end CIA complicity in torture. This could have opened several former top CIA people to acute embarrassment.
Sources tell me that CIA chief Leon Panetta, who as Clinton chief of staff saved Rahm Emanuel's bacon when Emanuel was nearly fired, called in an IOU.
But isn't prolonging the recession by propping up insolvent banks rather than emphasizing jobs and mortgage relief as serious a sin as embarrassing the CIA?
To replace Summers, how about his old nemesis, Joe Stiglitz, author of the superb new book Freefall? And to succeed Geithner, maybe Geithner's most astute critic, Elizabeth Warren of the Congressional Oversight Panel? Or the courageous FDIC Chair who keeps standing up to Geithner, Sheila Bair?
Let's not give up on the promise of Barack Obama. There is just too much at stake, and there is a part of him that has decent progressive instincts. But he is being led to ruin both by the insularity of a circle of advisers too wired to Wall Street, and by his own habitual temporizing. It will take a lot for Obama to change his operating style. Turning to a broader circle of advisers would help.
]]>Learning from Liebermantag:www.huffingtonpost.com,2009:/theblog//3.3987052009-12-20T22:00:04-05:002009-12-21T19:18:50-05:00Robert Kuttnerhttp://www.huffingtonpost.com/robert-kuttner/
What an excruciating dilemma! Some of my friends argue that this flawed, incremental reform will lead inexorably to more reform. It does, after all, increase regulation of the insurance industry and prohibits denials based on pre-existing conditions, as well as providing coverage to over 30 million uninsured. Others contend that it tightens the drug and insurance industry's grip and leads to the wrong kind of cost containment, as the basic inefficiency of the system is preserved and costs are gradually shifted to families mainly through higher deductibles and co-pays. It's no accident that insurance stocks soared as word of the Senate deal spread.
I debated this issue on Bill Moyers' show Friday with Matt Taibbi. I came down narrowly on the side of hold-your-nose-and-vote-for-the-bill. But the real fight will be in House-Senate conference, and the Senate should not be allowed to dictate the terms of the measure.
My main reason for saying that I hoped that even a flawed bill would pass was that both the Republicans and the White House have framed this as a make-or-break vote for the Obama administration. If the bill goes down, the far right will add another notch to their belt, the media will paint Obama as a loser, and Obama will be even more cautious and pro-corporate going forward. If he wins, maybe he'll be a little bolder and maybe progressives can call in some IOUs.
But that doesn't mean progressives in the House should just roll over and back the Senate bill. For starters, they should get rid of the taxation of workers' collectively bargained health insurance benefits. These plans are misleadingly termed "Cadillac Plans," but in fact they are Chevrolets with high sticker prices that cost a lot because of the system's broader inefficiency. This proposed tax violates Obama's pledge not to raise taxes on working families.
Some 180 House Democrats have signed a letter organized by Rep. Joe Courtney* insisting that this provision be dropped, and they should hang tough. (How would you like to run for re-election in 2010 and defend a vote to tax workers' health premiums?) The House bill, by contrast, raises the same amount of money with a highly progressive income surtax, of 5.4 percent of income exceeding $1 million for couples and $500,000 for individuals.
The bill should also demand that employers who fail to offer decent health coverage pay more than a token tax, as in the House version. And more of its provisions should take effect before 2013. The tax increases take effect before the benefits -- mainly to reduce the short term budget impact. Politically, how stupid can you get?! Lyndon Johnson's far more sweeping Medicare law was delivering benefits within a year.
The way the issue played out on the Senate, any single senator could get his or her way by threatening to defeat the entire bill. So Joe Lieberman got to block (an already enfeebled) public option; Ben Nelson got more abortion restrictions; Mary Landrieu got more money for Louisiana Medicaid, and so on. Why can't progressives play this game, too?
The health bill passed the House November 7 by just five votes. Today, Democratic progressives are in a really sour mood not just because Obama got rolled on the Senate bill, but because the White House and the Treasury are doing nothing to promote a jobs bill, and were mostly on the wrong side of key amendments on the recently enacted financial reform bill. That bill narrowly passed the House earlier this month, but some progressive Democrats, such as Marcy Kaptur and Dennis Kucinich, were so disgusted that they voted no.
Progressive House Democrats would be wise to learn from the Senate's centrists. Certain provisions should be non-negotiable -- and progressives shouldn't limit their leverage to health care. They might come in with a whole package of needed reforms that the president should commit to work for -- not just with empty rhetoric as in his carefully staged moment of tough talk about bankers on CBS's Sixty Minutes, but by walking the talk and working Congress hands on.
For instance, where was Obama last week when the House barely passed a $154 billion jobs bill, by a margin of 217-212, and many centrist Democrats deserted it out of fear of attack from deficit hawks? Answer: the White House was playing footsie with the fear-mongers and signaling support for a budget commission that would almost certainly lead to a gutting of Social Security and Medicare.
How about mortgage relief? Eight million Americans stand to lose their homes. Treasury Secretary Tim Geithner and HUD Secretary Shaun Donovan have been boasting that 750,000 homeowners have received "trial modifications" averaging monthly savings of $550 under the Obama administration's voluntary program for mortgage relief, but the Treasury's own December numbers reveal that fewer than 32,000 homeowners got permanent reductions. Independent experts say most of these trial modifications go back into default.
At his recent testimony before the Congressional Oversight Panel, Geithner resisted a call for reductions in principal and interest, citing "fairness." Funny, but fairness didn't come up when Treasury funneled hundreds of billions to big banks.
What the mortgage program lacks is authority for a bankruptcy judge to order reductions in principal and interest. Back when the program was enacted, the White House nominally supported that measure, but cynically let key Democratic legislators know that it wasn't a priority and 12 Senate Democrats voted against the measure.
So House progressives need to play the same kind of legislative hardball as turncoats like Joe Lieberman. And if the final conference bill comes back lacking key provisions, don't kill it but trade support for a badly flawed bill for ironclad commitments on other progressive goals and future improvements to the health plan. Obama might even find that helping regular people rather than bankers and insurance executives is winning politics.
*This post originally credited the letter to Rep. Connolly. The letter was authored by Rep. Courtney.
]]>A Tale of Two Obamastag:www.huffingtonpost.com,2009:/theblog//3.3820612009-12-06T22:00:16-05:002009-12-07T22:22:31-05:00Robert Kuttnerhttp://www.huffingtonpost.com/robert-kuttner/
I was pleasantly surprised to be invited to the White House jobs summit last Thursday, where I got to watch President Obama engage with about 130 people off the cuff. And I was reminded, first hand, what drew so many of us to the promise of this remarkable outsider -- the decency, the intellect, the idealism, and the evidently progressive impulses. I came away even more bewildered and dismayed at the reality that this president, who could have been such an insurgent at a moment demanding insurgency, has been so utterly captured by the Wall Street elite, the health insurance industry elite, and the military elite.
As a friend said, "I so wanted to be supportive of a great progressive president this time instead of being back in opposition."
At the jobs session, Obama began with a ceremonial introduction, then sent the summiteers into six working groups for about two hours. He circulated among them, and concluded with an extended on-the-record plenary session leading a discussion of the jobs challenge. He was absolutely masterful, with a fine grasp of detail, and values that one could only applaud. What a contrast with George W. Bush!
All afternoon, people put forward thoughtful ideas for getting unemployment down. The elephant in the room, however, was the question of whether to increase the deficit, especially with the White House under pressure to back the scheme for a deficit-reduction commission.
So, when my turn came to ask a question, I pressed President Obama on the issue, and he did not disappoint me.
Robert Kuttner: You know, most of the things that have been proposed today cost money. And there is this concern about the federal deficit. I hope that your administration will recognize, as I know you will, that it's possible, first of all, to reduce the deficit over time and sometimes in the short run realize that you need to increase the deficit. I hope the concern about the deficit in the long run doesn't crowd out the need for additional spending in the short run.
And I also think that some of these programs that increase jobs and increase GDP are probably the fastest way to get the economy back on a track that will reduce the deficit over time. It's certainly a better way to reduce the deficit than putting ourselves into a debtor's prison, and assume we can deflate our way to recovery.
President Obama: Well, I think this is an important point. We have been talking a lot about specific initiatives. There is a macroeconomic element to this whole thing, and so let me just amplify what was just said. We have a structural deficit that is real and growing, apart from the financial crisis. We inherited it. We're spending about 23 percent of GDP and we take in 18 percent of GDP, and that gap is growing, because health care costs -- Medicare and Medicaid in particular -- are growing, and we've got to do something about that.
You then layer on top of that the huge loss of tax revenue as a consequence of the financial crisis, and the greater demands for unemployment insurance and so forth. That's another layer. Probably the smallest layer is actually what we did in terms of the Recovery Act. I think there is a misperception out there that somehow the Recovery Act caused these deficits. No. I mean, we had -- we've got a 9-point-something trillion-dollar deficit. Maybe a trillion dollars of it can be attributed to both the Recovery Act as well as the cleanup work that we had to do in terms of the banks.
It turns out, actually, TARP, as wildly unpopular as it has been, has been much cheaper than any of us anticipated. So that's not what's contributing to the deficit. We've got a long-term structural deficit that is primarily being driven by health care costs and our long-term entitlement programs. All right, so that's the base line.
Now, if we can't grow our economy, then it is going to be that much harder for us to reduce the deficit. The single most important thing we could do right now for deficit reduction is to spark strong economic growth, which means that people who've got jobs are paying taxes, and businesses that are making profits have taxes, are paying taxes. That's the most important thing we can do. We understand that in this administration. That's not always the dialogue that's going on out there in public, and we're going to have to do a better job of educating the public on that.
The last thing we would want to do in the midst of a -- what is a weak recovery, is us to essentially take more money out of the system either by raising taxes or by drastically slashing spending. And frankly, because state and local governments generally don't have the capacity to engage in deficit spending, some of that obligation falls on the federal government.
Having said that, what is also true is that unless businesses and global capital markets have some sense that we've got a plan, medium and long term, to get the deficit down, it's hard for us to be credible, and that also could be counterproductive.
So we've got about as difficult a economic play as is possible, which is to press the accelerator, in terms of job growth, but then know when to apply the brakes in the out-years, and do that credibly. And we are trying to strike that balance, but we're going to need help from all of you who oftentimes are more credible than politicians in delivering that message, because we want to leverage whatever public dollars are spent, and we are under no illusion that somehow the federal government can spend its way out of this recession. But it is absolutely true that any of the ideas that have been mentioned here are still going to require some public dollars, and those are actually good investments to make right now.
This response was pitch-perfect. Let's see how hard the president fights for more deficit spending to put Americans back to work, and whether his State of the Union Address is as good as this impromptu answer.
It was the same week that Obama decided to buckle to the pressure from his generals on Afghanistan. For several weeks, Gen. Stanley McChrystal has been taking his case for escalation public. You wonder why Obama didn't say to McChrystal, "General, you work for me and I expect your advice to be confidential. If you want to go public, you are free to resign." President Harry Truman, when the war hero Gen. Douglas MacArthur went public with his campaign during the Korean conflict for war with China, simply fired the popular general.
It was also this week that key House Democrats caved in to Goldman Sachs on the issue of derivatives regulation, and Treasury Secretary Tim Geithner backed the industry's efforts to weaken the measure rather than urging Congress to hang tough. Late in the week, Barney Frank, chairman of the House Financial Services Committee, reached agreement with Collin Peterson, the conservative Democrat who chairs the Committee on Agriculture on the key details. In their draft, Wall Street won all of the key points -- big loopholes for derivatives involving foreign exchange, and even bigger ones for derivatives involving non-financial "end users." Bottom line: the industry's lucrative and high-risk practices of creating and trading most derivatives outside regulated exchanges will likely continue.
"This is an orchestrated, well-funded effort by the banks to manipulate our legislation and leave no fingerprints," says a congressional staffer involved in drafting the legislation. The staffer, who would speak only on condition of anonymity, passed on to Newsweek nine pages of proposed changes in the legislation intended to protect trading from open scrutiny -- all of it on paper without a letterhead -- that she says came from Goldman Sachs.
Where was Obama in all of this infighting? The kindest interpretation is that he was distracted by the health insurance bill, and by Afghanistan, and simply letting Geithner run the show.
Many of us in the progressive committee play a little game with ourselves called, "If the Czar only knew ..." We don't want to believe that this attractive leader is fully aware of some of the things being done in his name. If only President Obama knew, he would set things right.
Well, the Czar knows. He certainly knew who he was appointing, even if he lacks the time to parse every provision of a complex bill on financial derivatives.
Time for a pop quiz.
President Obama has turned out to be disappointingly centrist because:
A. Wall Street has immense power, and you have to be at least as radical as Roosevelt to even partially dislodge it.
B. As a consummate outsider, he concluded that he needed the blessings and the expertise of the establishment -- the financial establishment, the military establishment, the medical-industrial establishment.
C. He never really was that much of a progressive on economic issues.
D. He really believes what he says about building bridges and finding consensus -- which defaults to making accommodations with the powerful.
]]>Recovery And Debt: Squaring The Circletag:www.huffingtonpost.com,2009:/theblog//3.3732382009-11-29T18:23:17-05:002009-12-01T00:01:18-05:00Robert Kuttnerhttp://www.huffingtonpost.com/robert-kuttner/
He is holding a White House Jobs Summit next Thursday to signal concern for the high rate of unemployment while he is being lobbied by the deficit hawks. His economic team is parsing the tradeoff between these two goals. But a tradeoff is the wrong way to think about it. Recovery is a short term imperative, while the debt is a long term challenge. There are, however, important choices to be made.
Obama's team underestimated the degree of stimulus that the economy would need, and prolonged the period of payout. Council of Economic Advisers Chair Christina Romer estimated that the unemployment rate would peak at 8.9 percent. Today, unemployment is 10.2 percent and rising -- and over 17 percent if you include discouraged and involuntary part time workers.
On paper, the stimulus, at $787 billion, was about 2.7 percent of GDP over two years. But in fact, it is being paid out over three years, with about 30 percent of the money not being spent until 2011. Meanwhile, the loss of state and local revenues, now projected at more than $450 billion over three years, undermines about two-thirds of federal stimulus spending. So the real net stimulus is well under one percent of GDP per year.
We need about half a trillion dollars in new stimulus spending in 2010 alone, and more if that doesn't do the trick. There is no shortage of worthy things deserving of public funds.
I look around my home town of Boston. I see crumbling bridges and subways, social programs being shut down for lack of funds. Our progressive Democratic governor, Deval Patrick, just increased the regressive sales tax -- in a recession! Our pioneering near-universal health program is running in the red and cutting coverage. All of this is just nuts. Let's get some emergency fiscal relief to the states.
And let's also remember the WPA writers project and theatre project. Here in greater Boston, where Equity actors qualify for food stamps, two regional theatre companies have closed for lack of funds. How about one percent of the next stimulus program for the arts? And how about an emergency direct federal jobs program?
The usual suspects are making the usual noises about the long term debt. President Obama recently met with North Dakota Senator Kent Conrad, who is planning to hold the next routine vote to increase the debt hostage for a deficit commission. The idea is that a commission would create a budget balance plan that would be subject to little debate and an up-or-down vote. The supporters of this idea are also big promoters of the idea that Social Security and Medicare need to be cut back.
The fact is that Social Security will be in surplus for at least another generation. It is not contributing to the deficit. Medicare is heading for earlier deficits, but the cure for that is to shift to a more efficient health system across the board, otherwise known as national health insurance. Obama's health insurance plan, though far from ideal, actually reduces the net deficit.
It also misleading to blame the enlarged deficits mainly on the stimulus. The prime culprits are the recession itself (which reduces tax revenues), compounded by the legacy of Bush tax cuts and a war that was financed mostly off-budget. On the list of causes of the rising deficits, the spending of the American Recovery and Reinvestment Act (the stimulus) comes in fourth.
It's reasonable to worry that this recession will increase the long term public debt, and that this could be a problem down the road. But a deficit commission is anti-democratic. We elect Congress to make the laws. And the sponsors of the commission and their outside supporters, such as the Peter G. Peterson Foundation and the Concord Coalition, begin with an animus against social insurance and use the current crisis as a pretext to take whacks at our already threadbare welfare state. For an antidote to the hysteria and social insurance bashing of the Peterson Foundation, have a look at fiscalhighroad.org.
We do need to reduce the ratio of debt to GDP. But we need to do it after the economy is back in recovery. And we need to do it using the normal legislative process. And above all we need to use progressive taxation rather than program cuts.
Two good candidates as revenue raisers are a tax on all financial transactions, and a serious program of tax enforcement aimed at wealthy investors and corporations who use offshore tax havens. Supposedly, we are helpless in the face of the ability of capital to move offshore. And we dare not tax financial transactions for fear of driving the business to Caribbean tax havens. But this is just self-serving rationalization.
Congress could easily pass a law requiring any financial transaction where the investor does business, lives, or holds assets in the United States to be subject to U.S. tax law. We could harmonize our tax enforcement with nations that currently cooperate in the exchange of tax data. Right now, other so called advanced nations in the G-20 are more willing to tax financial transactions than we are.
Congress could also prohibit financial institutions that do business in the U.S. from doing business with ones based in tax havens. Does this sound draconian? After 9/11, we got very creative about cracking down on cross-border money laundering for purposes of terrorism. Now, we need to get equally smart about financial terrorism.
The national debt will be a challenge in the years after about 2013, but that is no reason to give up on the recovery. On the contrary, it should force us to get more serious about the recovery to get economic growth back on track so that the debt is less onerous.
Why is a debt approaching 100 percent of GDP a problem at all? It was larger after World War II, on the eve of a 25-year economic boom. When I was studying economics, we were taught that the national debt was no big deal because "we owe it to ourselves."
That was then, back when China was not a global financial power. Today, the debt is a lot more serious because we owe it to China and other nations that are not exactly democracies. You could feel the tectonic shift in President Obama's recent trip to China. Our creditors had the upper hand. As our friend Jeff Faux writes, a large foreign debt is a problem because our friendly creditors could loose confidence in the dollar.
But the answer is not to sentence ourselves to debtors' prison. We need, once again, to finance most of our own national debt. In the World War II years, my parents, who were barely middle class, put some of every paycheck into War Bonds. How about a surtax on windfall Wall Street profits, with the proceeds invested in U.S. Treasury Recovery Bonds? Normal people, who don't have access to insider trades, are earning about two or three percent on their savings. Turnabout is fair play. It would be salutary if the high rollers who caused the crash were made to put some of their wealth into Recovery Bonds, at two percent.
When John McCain rather pitifully proposed to suspend his campaign and duck a presidential debate so that he could help persuade Congress to enact Hank Paulson's Wall Street bailout legislation, candidate Barack Obama lethally quipped that a president needs to be able to do more than one thing at a time. Now, President Barack Obama needs to demonstrate that it's possible to do economic stimulus in the short run and the right kind of deficit reduction over the long term.
]]>Don't Mess With Mariatag:www.huffingtonpost.com,2009:/theblog//3.3671182009-11-22T23:05:35-05:002009-11-23T14:13:05-05:00Robert Kuttnerhttp://www.huffingtonpost.com/robert-kuttner/
Cantwell, a big booster of Barack Obama, is bewildered by the question of why his administration has not pushed for more fundamental reforms to the financial system. "If there are people at the Treasury and the White House who think that the way to get the economy going again is not to close these loopholes," she told me in an interview, "that's disgusting."
Cantwell, who just turned 51, tends to win arguments not with bluster or horse-trading but with deep knowledge of her subject and a refusal to be bluffed or to back down.
Read the full feature piece from The American Prospect. ]]>A Wake Up Call on Jobstag:www.huffingtonpost.com,2009:/theblog//3.3585822009-11-15T22:30:24-05:002009-11-16T18:45:11-05:00Robert Kuttnerhttp://www.huffingtonpost.com/robert-kuttner/
This spells political catastrophe for Democrats in the 2010 mid-term election, as foreshadowed by the recent losses in the New Jersey and Virginia governors' races. But Obama's top economic advisers, such as Larry Summers, don't seem to get it. They continue to resist the idea of a second stimulus package.
"I think we got the Recovery Act right," Summers recently told the Washington Post's Alec MacGillis, adding, "We always recognized that America's problems were not created in a week or a month or a year and that they were not going to be solved quickly. We designed the Recovery Act to ramp up over time, through 2010, and to make sure that the investments we made were important for the country's future."
And other senior Obama officials such as White House Chief of Staff Rahm Emanuel and Office of Management and Budget Chief Peter Orszag are more concerned with cutting the deficit than spending more money to reduce joblessness. According to theWall Street Journal, Orszag is sympathetic to the idea of a commission to cap government spending and Emanuel is floating the idea of spending some of the money that has been repaid from TARP bank bailouts on deficit reduction.
But this is putting the cart before the horse. We need larger deficits now, in order to get a real recovery going, so that a healthy economy will allow us to pay down public debt later. Specifically, we need to focus on three big things:
State and Local Fiscal Relief. You often hear that outlays on public infrastructure are not a good source of stimulus because they take too long to plan. But emergency revenue sharing to states and localities takes effect almost instantly because it prevents cuts in existing programs and layoffs of existing workers. Today, states and localities are not only cutting back outlays because their constitutions require balanced budgets; they are raising taxes, usually regressive taxes. According to the Center on Budget and Policy Priorities, the three year state fiscal gap 2010-2012, will be at least $470 billion. So more than half of the federal stimulus is undermined by state and local belt tightening.
Accelerated Spending on Public Works. The Roosevelt administration, in an era before computers, got a lot of public works spending going in less than a year. There are massive unmet needs in public infrastructure. The Obama administration needs a short term and a long term strategy. Projects such as school repair and expansion, which can get underway in a few months, should get fast-tracked funding commitments right away. Longer term needs, such as smart electrical grids and modernization of water and sewer systems, expanded mass transit, and green energy, should be targeted for funding in 2011, so that plans can get on the drawing boards now.
Wage Subsidies. It is fashionable among American conservatives to make fun of the "rigidity" of European labor markets. But Germany today has a flexible and creative program of wage subsidies. The result is that the German unemployment rate has pealed at around 8 percent while ours has crashed through 10 percent. German companies suffering a downturn because of recession can get wage subsidies for their workers. Workers can also be put on reduced working time (kurzarbeit) and the German unemployment office will make up most of the loss in their take-home pay. According to the German government, a worker cut to 40 percent of his or her normal hours will end up with about 85 percent of usual take-home pay. Today, some 1.4 million German workers have been able to keep their jobs and most of their earnings thanks to the kurzarbeit plan. German firms keep their workers connected to the company, workers hold on to their jobs, and there are also incentives for workers on reduced time to use their spare hours to get additional training.
All told, we need additional federal spending in the range of at least $500 billion. But won't this increase the deficit? Yes it will, and that is the whole point. We are in a classic downward spiral of reduced household income and wealth, and a weakened financial sector. Many businesses face reduced consumer demand, compounded by a reluctance of banks to advance to any but the most blue chip borrowers.
In this climate, GDP growth can turn positive but companies are reluctant to hire. Full recovery will not resume spontaneously based on household or business demand, and the only source of increased demand to break the cycle is the government.
One of the most widespread and mistaken assumptions is that this bleak future is just baked into the cake. Because of the legacy of the financial collapse, and the limits of deficit spending, supposedly, we are just stuck with it. You hear that in testimony from Federal Reserve Chairman Bernanke, and it is repeated mindlessly by the media.
This fatalism is just plain wrong, and history's great counter-example is World War II. In 1939, unemployment was stuck around 16 percent. GDP growth after 1933 was solid -- 6 to 10 percent a year with the exception of 1937 -- but the wounded economy was just not generating net jobs. Many expert commentators of that era concluded that there was something about the maturity of capitalism, or the replacement of human workers by machines, that consigned the economy to a chronic structurally high, rate of unemployment.
Then World War II broke out. The US government borrowed huge sums to recapitalize US industry and re-employ and retrain US worker in war production, to employ 12 million men and women in the armed forces, and to invest massively in science and technology to develop advanced weapons and substitutes for materials in short supply. The unemployment rate dropped to 2 percent by 1943. Deficits were enormous, as high as 29 percent of GDP in 1942 (this year they will be about 10 percent) but the economy grew at 12 percent a year for the four years of the war, and the high unemployment of the 1930s never returned.
The deficit hawks of that era worried that the very large national debt would be a millstone around the economy. At the end of 1945, the debt was 122 percent of GDP, compared to about 55 percent today, but of course the end of 1945 was the beginning of the 25 year postwar boom -- the longest sustained boom in US history. GDP grew at 3.8 percent a year. The average deficit was about 1.1 percent, and with the economy growing much faster than the debt, the debt to GDP ratio declined to about 30 percent by the 1970s. So, we can grow our way out of debt -- but we need to get a real recovery going first.
If past Obama White House Summits are any guide, this one will invite a broad cross section of people: trade unionists and deficit hawks, investment bankers and labor economists, industrialists and Republicans; and everyone will speak of the importance of their pet project for job creation. That's not good enough. This is not a moment for another White House gab fest. It's a time for progressive leadership.
Robert Kuttner is co-editor of The American Prospect, a senior fellow at Demos, and author ofObama's Challenge.]]>The Audacity to Changetag:www.huffingtonpost.com,2009:/theblog//3.3501932009-11-08T19:44:56-05:002009-11-09T11:08:00-05:00Robert Kuttnerhttp://www.huffingtonpost.com/robert-kuttner/
We need a radical break with Wall Street, and we got the politics of prop up and bail out -- with the result that most Americans don't think the program is benefiting them.
We needed President Obama to focus like a laser on economic recovery, and instead we got the distraction of a barely-worth-it health insurance patch. We needed the president to go to the country and win support for fundamental health reform, and instead we got Rahm Emanuel's deal with the drug and insurance industries that won House support by the barest of majorities and managed to frighten senior citizens -- the most satisfied customers of our one public option -- Medicare.
We needed a recovery program that held down unemployment, and instead we got a stimulus that even the Obama team considered too small at the time of its enactment, according to the reporting of The New Yorker's Ryan Lizza.
And now we are on the verge of Barack Obama's very own Vietnam, in an escalating Afghanistan entanglement.
The 2009 off-year elections were a repudiation of incumbents -- only now the incumbent party is the Democrats. Popular cynicism about government representing the interests of insiders and economic elites is even more extreme now than in November 2008, when the desire for drastic change thrust Obama into the White House. If present economic trends continue, the Democrats could lose control of the House in 2010, setting up a repeat of Bill Clinton's period of "triangulation," but with an even more lunatic-fringe obstructionist Republican Party.
So, can Barack Obama recoup, and can he recoup in time?
If you look at what most historians regard as Kennedy's finest hour, his leadership of the Cuban missile crisis of October 1962, you appreciate that Kennedy above all had to face down most of his own advisers. Most wanted a military confrontation with the Soviets. But the brothers Kennedy found an alternative to either war or surrender.
Obama, like Kennedy, needs to overcome the dubious counsel of his own advisers, this time both economic and military. With unemployment still rising to levels the administration did not anticipate, Messrs Summers and company are still opposed to a second stimulus, and the White House is mainly concerned with appeasing the budget hawks.
The president needs to listen to other voices, including his own. He needs to go to the country with a much stronger jobs program, to show people that his administration is on their side. He could take the TARP money that has been repaid by the banks and put it directly into mortgage foreclosure relief, as well as insisting that sub-prime bondholders take the same kind of write-down as auto-company bondholders. He could ask Congress for additional fiscal relief to the states, whose budget collapse is still worsening, undercutting the existing federal stimulus. Deficit reduction can come once the economy is back on track.
On Afghanistan, instead of the seemingly inevitable troop escalation that will please nobody and fail to alter events, he could pursue a policy of pressing the Karzai regime harder for reforms while helping Karzai keep the Taliban from taking control of Kabul and northern provinces -- and using a small troop presence of 20,000 or less to keep al Qaeda off balance. He could firmly reject getting dragged piecemeal into a war that will only be a quagmire. The Republicans would rattle sabers but most Americans would cheer.
Some of what Obama has faced was beyond his control. Nobody said digging out from the financial catastrophe would be easy, or that fashioning a viable policy for Afghanistan would be a cakewalk. Taming a Democratic majority that included Blue Dogs obsessed with fiscal balance and New Dems in bed with Wall Street was not exactly child's play either. But events did not require him to appoint an economic team headed by Larry Summers and Tim Geithner, or to reappoint Ben Bernanke as chairman of the Fed, or Rahm Emanuel as his chief of staff, or to favor the escalation faction in his Afghanistan advisers. Events did not require him to play an inside game with powerful industries instead of taking a case for radical reform directly to the people and offering a Rooseveltian program too popular to oppose.
From the day he declared for the presidency -- indeed, from the day he declared for the Illinois state senate -- Obama has displayed an audacity, a decency, an idealism, and an eloquence that gave us hope that here was a great president. But as chief executive, he has seemed buttoned up and damped down while a great crisis threatens to envelop the country and his presidency. He had the audacity to run and to win. Now, will he have the audacity to learn and to lead?
Robert Kuttner is co-editor ofThe American Prospectand a senior fellow at Demos. He is author of Obama's Challenge: America's Economic Crisis and the Power of a Transformative Presidency.]]>How to Abort the Recoverytag:www.huffingtonpost.com,2009:/theblog//3.3415402009-11-01T15:21:43-05:002009-11-02T22:18:11-05:00Robert Kuttnerhttp://www.huffingtonpost.com/robert-kuttner/
The latest ploy to promote such a commission is to use the upcoming vote on increasing the national debt, scheduled for late November. Democratic deficit hawks such as Sen. Kent Conrad of North Dakota are working with Republicans such as Judd Gregg of New Hampshire, to condition an increase in the debt on creation of a panel. They have some allies in the White House such as Office of Management and Budget Director Peter Orszag, who has intermittently signaled support for such a plan. The Senate Budget Committee will be holding hearings on this idea in mid-November, according to The New York Times.
The whole approach is bad economics and bad politics on several grounds. First, there is no evidence for the premise that financial markets are anxious about the rising debt. As Dean Baker observes, they keep buying the Treasury's long-term bonds at a low 3.5 percent interest rate. If there were worry that the increased debt would spike inflation, investors would be demanding higher interest rates.
Secondly, it is not "entitlements" that have caused the big increase in the deficit and the debt. The cause is plummeting tax collections as a consequence of the recession. Social Security will be surplus for another generation, and both the House and Senate versions of the health reform bill do not add to the deficit, but help cut costs.
Third, obsessing about debts and deficits when the economy is still losing jobs has it exactly backwards. We probably need bigger deficits for a year or two, to propel a strong recovery. Higher growth will then bring the debt back down to tolerable scale. In World War II, deficits averaged about 25 percent a year (compared to under 10% this year.) But all of that war spending rebuilt the economy and powered three decades of economic boom and the big wartime debt was soon paid off.
Finally, the idea that such a commission could be "above politics" is a deception. The politics--very conservative politics--would be baked into the cake. Republicans on it would resist higher taxes except perhaps for regressive ones such a national sales tax or value added tax. The skids would be greased for deep cuts in Social Security, Medicare, and Medicaid--even before health reform took effect. This would gut all the promises candidate Barack Obama made for a more just America.
Instead of being Mr. Consensus, and trying to please both sides, President Obama needs to weigh in strongly against the idea of a commission before it gains further traction. The House Democratic leadership, mercifully, thinks the commission is exactly the wrong medicine, and has told the White House so.
I spoke with House Speaker Nancy Pelosi on Friday. She favors a plan to increase spending as necessary in the short run to fight the recession, and then significant deficit-reduction once recovery comes--but not via a commission. "Let's have a public conversation in the people's House and in the Senate. This is a very important debate, and is shouldn't be done behind closed doors," she told me, adding: "My responsibility is to protect Social Security and Medicare. If some of the people at the table are opposed to protecting Social Security and Medicare, I'd have big problems. Congress passed these programs in the 1930s, and the 1960s. Why should we give someone else the power to decide their future?"
Amen.
The press for a debt-reduction commission, promoted by scare-mongers such as the Peter G. Peterson Foundation, is really an attack on social insurance masquerading as principled concern for the public fisc. It wasn't entitlements that caused the crash--it was financial high rollers who pushed for deregulation and then exploited it, such as Peterson and his friends.
If you can believe it, the latest gimmick of the Peterson Foundation is an invitation to compose haiku on the alleged fiscal crisis. I kid you not. Here's what the foundation recently sent its supporters:
Hello,
As one of our most active supporters, you've proven your commitment to the Peter G. Peterson Foundation's work time and time again. We're grateful for all you've done -- and we're excited to offer you a sneak peek of our newest initiative, Fiscal Haiku.
The site doesn't officially launch for a few more days, but we're inviting you to take a look before the rest of the country. Below is a copy of the message we'll be sending out for Fiscal Haiku's formal debut -- please visit www.fiscalhaiku.com and start submitting your odes to the economy!
Thanks,
The Peter G. Peterson Foundation
Okay, Pete. Here is my own entry:
Spreading fiscal fear,
ideology parades
as principle. Shame!
]]>The Blair Projecttag:www.huffingtonpost.com,2009:/theblog//3.3253672009-10-18T22:12:00-04:002009-10-19T14:01:25-04:00Robert Kuttnerhttp://www.huffingtonpost.com/robert-kuttner/
The new constitution for the European Union, unlike its current set of basic laws, provides for a strong president. After much delay, the proposed constitution is now likely to take effect because the Irish recently reversed their "no" vote. (In the current crisis, aid from the EU is helping to keep their economy from going the way of Iceland.) The last holdout, Czech President Vaclav Klaus, who doesn't much like the treaty, said Saturday that he would not stand in its way.
Blair is in need of a high-profile job, and President of the EU suits his ambition. But there seems to be remarkable forgiveness for the fact that Blair helped launch the race to the bottom in financial regulation that helped produce the financial collapse. Under Blair, the British Labour Party decided that the best way to fight Thatcherism was to go it one better and cut a deal with the City of London, Britain's Wall Street. Britain would become the global capital of unregulated hedge funds, private equity, and casino products like credit default swaps. In the U.K., this was known as "light-touch regulation." The bankers, in turn, would give New Labour their financial support.
The unit of AIG that helped take down the world economy was based in London, where it could enjoy even more feeble supervision than in George Bush's United States. Early in the present decade, whenever Americans began warning that finance was becoming dangerously speculative, defenders of business as usual solemnly warned that if we began regulating the affair, the show would move offshore to London, finance's new wild west.
Blair's notion was that it didn't much matter if Britain was losing its manufacturing economy. The City of London, as the center of the world's deregulated money market, would carry Britain. Well, it carried Britain to collapse. The aftermath of Britain's bubble economy today is a bigger disaster even than its American counterpart.
Blair also helped wreck what was once a proud left-of-center party. Progressives have been systematically purged from New Labour. Under Blair's successor, the dour Gordon Brown, Labour's popularity is now at a postwar low, setting the stage for a Conservative comeback despite the fact that the Tories offer nothing more in the way of solutions than do the Republicans in the United States.
Much the same thing happened in Germany a few weeks ago, where a Social Democratic Party (SPD), which had abandoned social democracy a decade ago in favor of neo-liberalism, turned in its worst electoral performance in six decades. If you wonder why left parties are not making any gains from the worst crisis of capitalism since the Great Depression, you need only look to the British Labour Party and the German SPD. They have nothing to offer.
Why, then, is Blair likely to be the first President of Europe? Because he is just what Europe's ruling financial elite wants -- nominally a man of the center-left who can be trusted to continue business as usual.
There are alternatives to Blair, but they are long shots. One is Joschka Fishcher, the well-respected leader of Germany's Greens and Germany's former foreign minister in the late SPD-Green coalition government. Another is Poul Nyrup Rasmussen, the former Danish Social Democratic prime minister who is an actual social democrat as well as Europe's leading advocate of real financial reform.
Politically, however, the failure of nominally center-left parties that emulated the center right has undercut the appeal of genuine progressives. The more likely scenario that could spare us Blair is that leaders of several of Europe's smaller member nations are not quite sure that they want such a high-profile figure, and a compromise candidate could be a functionary or a less visible leader from a small country.
Despite the fact that modern Europe is generally friendlier to a managed form of capitalism than the US, the Blair project reminds us that real reform is not likely to originate in Europe any time soon. That puts even more pressure on Barack Obama to get financial reform right.
]]>It's the Unemployment, Stupidtag:www.huffingtonpost.com,2009:/theblog//3.3092052009-10-04T22:14:34-04:002009-10-05T15:06:22-04:00Robert Kuttnerhttp://www.huffingtonpost.com/robert-kuttner/
The most recent employment numbers were bad enough on their face -- 263,000 job losses in September, and a measured increase in payroll employment to 9.8 percent. But the real numbers are much worse. The nominal rate conceals the fact that the labor force is 615,000 workers smaller than it was a year ago, even though the working age population continues to grow. People who can't find jobs and quit looking are no longer counted as part of the labor force. If normal labor force growth had continued, the unemployment rate would be close to 12 percent. See the analysis of the numbers by the good people at the >Economic Policy Institute and the estimable Dean Baker. The administration's people know this reality, and they are aware of the political risks. So what are they doing? Precious little.
I had a conversation with a senior administration economic official last week and I asked him to suspend disbelief and consider a large increase in public spending to create more jobs. What would he spend the money on? We discussed the pro's and con's of emergency fiscal aid to the states versus a tax credit for job creation in the private sector, subsidized job-sharing, and direct public works employment. But it was clear that the administration considers a Stimulus II a non-starter. The view is shared by Fed Chairman Ben Bernanke, who testified last week that there was not much we could do about rising unemployment except wait it out.
This is economically deplorable and politically self-defeating. When the administration considered its $787 billion stimulus bill last winter, its projection was that unemployment would peak at 8.9 percent. It's clear that joblessness is going to be a lot worse, and nobody has a convincing story about where the new jobs are going to come from once economic growth turns positive. Time magazine recently ran a cover story suggesting that we might just have to get used to a new reality of persistently high joblessness, and compensate with other policies such as more heroic job training (but for non-existent jobs?)
But that view is malarkey. Economists were making the same argument in 1938 and 1939. The economy, supposedly, had reached a level of maturity and technological sophistication that there just weren't enough jobs. Unemployment was just stuck around 15 percent. Then along came World War II. The federal deficit rose to 29 percent of GDP (this year it will be about 11 percent) and unemployment disappeared.
The president should be making the case for increased deficit spending on job-creation in 2010 and 2011, followed by a program of deficit reduction financed by progressive taxation. Public opinion on these issues is not static, and in fact a recent poll done by Hart Research Associates for EPI shows that the public cares a lot more about joblessness than it does about the deficit. 53 percent of respondents said lack of jobs was the most important issue, but only 27 percent said the deficit was. Fully 83 percent sand that unemployment was a big problem, and just two percent said it was not a problem. Presidential leadership could make a huge difference in translating these attitudes into action.
The Blue Dog Democrats in Congress are opposed to larger deficits, but many of them would support a ten-year program of more public outlay now coupled with deficit reduction after recovery comes. Unfortunately, a lot of Washington's centrist savants are skipping directly to the deficit reduction, overlooking the fact that we are still a long way from recovery. As EPI was holding a conference releasing the results of its research, the more moderate Center for American Progress (CAP) was holding a big event on alarm about the national debt. CAP President John Podesta, former director of the Obama transition team, is an enthusiast of value-added taxes as deficit-reduction medicine.
My own view is that VAT's are highly regressive taxes on consumption. I could go along with them if they were part of a deal that included progressive taxes such as a tax on financial transactions and if some of the money went to expanding public services rather than just reducing deficits. But this is only half of the conversation, and the less urgent half. Unless we get a bigger recovery going, and get unemployment down well before the 2010 mid-term elections, all this center-left policy wonkery will be beside the point because the Republicans will be running the country.