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Jared Bernstein

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What Now?

Posted: 11/28/2011 9:10 am

OK. Thanksgiving's behind us, the 91% of the workforce with jobs are back to work, and in DC at least, there's a sense of "what happens next?" in the air.

Here's one man's answer:

Anatomy of a failure: It would be a pleasure to never hear the words "super" and "committee" in the same sentence again for a while but I'm afraid it's actually important to review what happened. The "both sides are to blame" meme is irresistible but doesn't hold up to even casual scrutiny. The Democrats on the committee went deep into Republican territory with spending cuts, putting hundreds of billions of cuts in Medicare and Medicaid on the table, and asked for less revenue in exchange than they should have. But the Republicans wouldn't really budge on taxes and that queered the deal from the start. (Their latest retort: "you can't raise taxes in a recession... even the president has admitted that"... is nonsense. This is a ten year deal, one that could easily have the tax increases phase in later.)

I'm really not sure how this story gets told and who'd even want to hear it. But it needs to get out there.

Where's POTUS? The president should not, in my opinion, take any heat at all for not playing along in the deficit reduction follies going on in Congress. The Republicans have made in clear that if he's for it, they're agin' it and I don't see what's gained for him getting burned again by them. If I thought his involvement would contribute to a more positive outcome, I'd argue differently, but I don't.

He needs to be doing whatever he can to either give the economy the lift it needs, or explain to the electorate why he's unable to do so. More on that below.

Republicans on parade: The weekly beauty contest has to end soon and a front-runner will likely emerge before long. At that point, things get ugly.

Slugfest: If Tolstoy had been a political consultant, he might have written, "Every happy election strategy is unique; every unhappy election strategy is the same: start negative and go down from there."

At 9% unemployment, the opposition's hand is dealt -- they'll obviously run against the incumbent's record.

Now, I'm no presidential historian, and I worked for the man, but I'm hard-pressed to think of a president who's done more and gotten less for it. The Recovery Act, saving the auto industry health care reform, financial reform -- all are landmark legislation. The first two demonstrably helped and the latter two have great potential, though they're far from reaching fruition. But none are popular. I'm not saying there haven't been large missteps -- the handling of the debt ceiling debacle, the precipitous shift to deficit reduction -- but the POTUS can be forgiven for feeling a little bit like "no good deed goes unpunished."

(BTW, one of the more dispiriting polls I saw when I was working for the administration was one showing that the auto bailout polled worse than the TARP. I get it -- people don't like bailouts, and they had a hard time sorting out one from the other. But the man made a tough decision -- a truly hard, courageous call -- that preserved the freakin' American auto industry! Can I get a witness here?!?)

Temperatures rising: All of the above is occurring while the electorate's temperature is rising... at least I hope it is. News accounts -- so this is at the level of anecdote for now -- suggest that the failure of the super committee may have been a dysfunctional bridge too far for a lot of people (which would imply something good actually came out of the process).

It's one thing to just throw your hands up and dismissively (and correctly) say "they're all crazy clowns down there in Washington." It's another, however, to get genuinely worried about our inability to self-correct. If so, that could motivate people to push aside the Tea Party, Norquist, take-no-prisoners-make-no-compromise group that has frozen our politics and rendered the nation unable to meet the increasingly serious challenges we face.

Europathy: Contagion fears increase as leaders continue to bumble along, slouching toward a solution when the world needs them to be sprinting. As I wrote the other day, the potential for a country to leave the Eurozone is real, and the magnitude of the disruption from that event is hard to exaggerate. Imagine you lent the Newman family across the street a couple of grand in dollars and they paid you back in "Newmans" and you'll get the flavor of what's going on here.

Still, the thing to keep in mind here is that the solution is known and within the realm of possibility -- a large backup fund for banks holding bad debt supported by the ECB (which needs to take a page from our Fed and start printing a lot of euros) and northern members of the zone, and a managed default for Greece. The politics are really tough, however, and after a week in the UK, I must say I'm more sympathetic.

Folks on this side of the pond need to appreciate how deeply the populaces of the richer countries disdain any bailout. Yes, true leadership at a time like this means doing things that are deeply unpopular (see note above re President Obama), but that kind of thing is a lot harder in parliamentary systems. But that's also why advanced economies have central banks -- they're politically insulated so that they can do the right thing at the toughest time. In that regard, the real failure here has been the ECB.

(I should note that I'm eating Greek yogurt -- made in Greece -- as we speak, so I'm trying to do my small part.)

Economy: Oh yeah... that. Well, retailers apparently had a kick-ass black Friday -- the American consumer just cannot be stopped. But I still don't see where self-sustaining growth comes from in the near term absent government measures to either boost demand or help revive the housing market.

And to the contrary, there's a real question as to whether the Congress can get it together to extend the expiring payroll tax holiday (over $100 billion) and extended unemployment benefits (about $60 bn). With multipliers, that's 1-2% less GDP next year.

So the slog continues. Absent Congress, the only idea I can think of to really move the needle is to seriously nudge Fannie and Freddie to get much deeper into the business of loan mods. More on that soon on these pages, but it probably involves replacing the acting director of Fan and Fred's regulator, the FHFA. The current holder, Ed DeMarco (a Bush appointee) has been a tough, responsible regulator. But he's not been nearly forthcoming enough regarding modifications and most people who've looked into this think that an Obama appointee might help get some things moving.

This isn't a lot to ask for given the depth of avoidable economic pain out there -- we're not talking about a major coop or firing a faithful ally. And I'm not saying it will solve everything, but it's a necessary step and the admin should either take it or explain why I'm wrong.

This post originally appeared at Jared Bernstein's On The Economy blog.

 

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