Friday, September 09, 2011

Obama finally stops acting like a wimp ... up to a point

Some quick reactions to President Obama's "jobs speech" Thursday night (transcript here). First, one has to put it in context.

=> The federal government just spent months embroiled in a manufactured crisis over raising the debt ceiling that brought the US government to the edge of default, undermined the financial credibility of the US in ways that will probably have long-term consequences, and did further damage to our already dysfunctional political system by validating the Congressional Republicans' strategy of reckless and irresponsible political hostage-taking and extortion—which, as Senate Republican leader Mitch McConnell openly boasted, they intend to employ routinely for the indefinite future. Aside from the immediate damage generated by this debacle, the fact that public discourse has been so totally consumed by the long-term problem of dealing with the federal deficit has been a gigantic distraction from addressing much more urgent economic problems: namely, that the economy remains stuck in a major recession, with considerable danger that the anemic recovery of the past year and a half will run out of steam and give way to a renewed decline, and that unemployment has remained stuck at appallingly high levels and shows no signs of going down.

A single-minded focus on cutting government spending is not just irrelevant to dealing seriously with these problems; cutting government spending prematurely will almost certainly make matters worse. During a major recession, the federal government should be running a deficit. (If nothing else, this is necessary just to counteract the cumulative effects of spending cutbacks by state and local governments. But counter-cyclical spending in response to an economic crash should go well beyond that.) The idea that the federal government should respond to an economic slump and rising unemployment by tightening its belt and balancing the budget might have been intellectually respectable, though incorrect, before the Great Depression of the 1930s and the writings of John Maynard Keynes. But seventy years later, that kind of position demonstrates either a quasi-theological commitment to certain pre-Keynesian economic dogmas or, more frequently, some combination of economic illiteracy, mindless sloganeering, and/or pure partisan demagoguery.

Unfortunately, Obama and his administration have not pushed back hard enough against these dangerously misleading notions, and in some ways their rhetoric has even encouraged these delusions. Furthermore, on a wide range of issues Obama has been far too willing accommodate the Republicans and to waste time in futile efforts to seek compromises with them, as though they were willing to negotiate in reasonable and constructive ways, whereas it has been clear since the beginning of 2009 that the Congressional Republicans are committed to a strategy of unremitting, indiscriminate, and monolithic obstructionism—which has actually been working out pretty well for them in terms of partisan advantage. By offering too many pre-emptive concessions and giving the Republicans too much of a free ride for their historically unprecedented levels of routine sabotage and obstructionism, Obama has often just played into their hands.

I know that some intelligent analysts like Jonathan Chait, who is usually right about most things, have argued that at least some of the criticisms of Obama for being too timid and for caving in too readily are unfair and unrealistic, because the the critics ignore the genuinely difficult constraints under which Obama is operating. I appreciate that this defense makes sense in some cases, and up to a point. But it's also too indulgent to Obama, who really has acted in ways that help make the problem worse.

Furthermore, when it comes to economic issues, it's not just a matter of Obama's being too unwilling to challenge the Republicans and right-wing economic sloganeering (and being too accommodating to big business and the financial sector, which have been shamefully coddled, cosseted, indulged, and reassured—with the absurd-but-unsurprising result that the Obama administration is ludicrously accused of being anti-business and even anti-capitalist). To an uncomfortable degree, these mistaken policies often seem to accord with the perspectives and policy preferences of important tendencies within the administration itself. Bill Maher recently quipped that Obama has been accused of being a secret Muslim, a secret terrorist, a secret Kenyan, and so on, but the the reality turns out to be even worse—he's a secret Republican. Again, this is a bit unfair if you take it literally (and, anyway, Maher was probably thinking more of an Eisenhower Republican than a contemporary hard-right Republican) ... but based on the record, it's not totally unfair.

=> Given this context, Obama's speech on Thursday was, on balance, a welcome departure in both tone and substance. It's clear that he and his advisers now realize how urgent it is to give the economy a further "jolt" of stimulus before it goes into another downward spiral. And his proposal was serious and substantive—probably not bold enough or big enough, and not without other problems, but a lot better than the main alternatives, which start with doing nothing and get worse from there.

Details aside, the central message of Obama's speech was that the federal government can and should do something significant to prevent a further economic slide and to reduce the level of unemployment. The situation is not hopeless, and efforts to improve it with positive action are not inevitably futile. Delivering this message was necessary and important. The central point, as Mark Schmitt put it, is "that we have it in our means to rescue the economy and to restore the promise of a middle-class country." People want to hear that, and I believe that it also happens to be true.

In the process, Obama made a bid to wrench the focus of public discussion away from a narrow and distracting obsession with deficit-cutting to concerns that most Americans clearly find much more pressing: "to put more people back to work and more money in the pockets of those who are working." His tone was appropriately combative and even, by Obama standards, confrontational. He challenged his opponents not only in terms of specific policies, but also in terms of larger political visions at stake. All that was admirable and heartening.

On the other hand, a closer look at the details leaves me with mixed feelings, though I have to emphasize that these are just preliminary impressions. Although Obama did come out swinging, the speech still included too many rhetorical concessions to Republican priorities and ideas. The package of actual proposals, as presented in the speech and in an outline of the “The American Jobs Act”, is too heavily weighted toward tax cuts and credits (including an extension of temporary payroll tax relief for workers and various tax breaks for employers). But there may be tactical justifications for this approach, and the proposal also includes serious amounts of valuable spending, above all for infrastructure and other construction—which we urgently need in substantive terms, and which can easily be funded by borrowing right now, with interest rates on US government debt so low. (For an overview of what the proposal involves, see this piece by Ezra Klein.)

As the outline of the proposal gets fleshed out in various ways, and as we see where it goes in terms of practical politics, there will be more basis for an overall assessment. Meanwhile, I wanted to register two related qualms I had as I listened to the speech.

(1) Deficit Spending. Obama and his advisers clearly decided that it was impossible for him to state a central truth about the situation clearly and explicitly (perhaps, in part, because it takes two sentences to state it): (a) In the long run, the federal government and the country as a whole need to find ways to live within their means (a process that will have to include rolling back the Bush tax cuts and further reform of the health care system). But on the other hand, (b) in the short run, until the economy has genuinely recovered from the economic crash of 2007-2009 and unemployment has been significantly reduced, cutting federal spending and trying to eliminate the federal deficit are very bad ideas that can only hamper economic recovery and will almost certainly make matters even worse.

I can see some reasons why Obama and his team felt it was too dangerous to address this central issue head-on. But the fact that they felt this way is a bad sign in itself. Since it is a central issue, trying to avoid facing it won't make it go away.

What Obama did was to insist that "The American Jobs Act will not add to the deficit. It will be paid for." Indeed, "everything in this bill will be paid for. Everything. (Applause.)" But Obama avoided saying anything concrete about how it would be paid for. Instead, the Congressional super-committee that's supposed to be finding ways to cut the long-term deficit will be charged with finding additional savings that to cover the cost of this proposal. Presumably, some of Obama's suggestions will be included in the "more ambitious deficit plan" he intends to release in a week and a half—"a plan that will not only cover the cost of this jobs bill, but stabilize our debt in the long run."

I will hope for the best, but I can see both practical and public-relations problems ahead. If Obama's promise that "The American Jobs Act will not add to the deficit" turns out to mean, in practice, that its costs will be offset by future savings over the long run, then in substantive terms that will be fine. In fact, it would make excellent sense in terms of substantive policy. But that rhetorical maneuver may offer a vulnerable target for right-wing propaganda. On the other hand, if the costs are supposed to be offset by other spending cuts in the relatively short run, then that would wipe out many of the positive effects of the whole initiative. And if Republicans do agree to pass any of the measures included in Obama's proposal (the business tax cuts, for example) we can expect them to demand that the costs should be balanced by other spending cuts immediately. (Otherwise these measures might actually, God forbid, reduce unemployment between now and the November 2012 election!)

(2) The 2009 "Economic Stimulus". This brings us to a somewhat different but related point. It has become a standard right-wing talking-point to claim that the "stimulus" bill passed in 2009, the American Recovery and Reinvestment Act, was a complete flop, did no good at all, was a huge waste of money, and so on. Constant repetition has helped lodge this claim in the public mind, even though it's quite wrong, and the fact that economic conditions are still miserable helps make it sound plausible. The right-wing propaganda machine has been remarkably successful in turning "economic stimulus" into a dirty word that politicians avoid even mentioning—even though 85% of the current House Republicans who were in office three years ago voted quite happily for the Economic Stimulus Act of 2008 when Bush II was President. So the right-wing line on Obama's latest initiative, especially the spending proposals, will be that it simply continues the alleged "failed stimulus policies" of the Obama administration.

There is a straightforward response to this line of attack, and one which happens to be correct. The American Recovery and Reinvestment Act of 2009 definitely
did work—in the sense of helping to pull the economy out of what looked like a self-reinforcing downward spiral, save millions of jobs, and prevent the Great Recession from turning into another Great Depression. No doubt it could have been better designed in various ways—though one has to bear in mind the urgent need to act quickly and forcefully in early 2009, in the context of a less-than-efficient Congressional budget process and in the face of almost unanimous Republican obstructionism. But if the ARRA hadn't been passed at all, we would be in much worse shape right now, and that's the appropriate criterion.

So why has the recovery been so anemic, and why is unemployment still so high? Well, in retrospect it's clear that the stimulus wasn't big enough (as a number of economists argued at the time) and that the severity of the economic crash in 2007-2009 was more massive than most analysts realized (and, perhaps, hoped). So it has been clear for a while that a major jolt of further economic stimulus is necessary. It's a pity that this wasn't done already, but better late than never. This isn't a matter of repeating a policy that has (supposedly) failed already, but of reinforcing a policy that has clearly had beneficial results, but which turned out to be inadequate in size and is still necessary. If you take two aspirins and your headache doesn't disappear immediately, do you throw away your aspirin bottle in disgust or take more aspirin a few hours later?

I would have been happier if Obama and his speech-writers had found an artful way to make some of these points in the course of his speech. Instead, Obama avoided using the word "stimulus" and said nothing at all about the ARRA. I can appreciate why he might have wanted to get bogged down in that controversy. But, once again, trying to avoid facing the issue won't make it go away. As I noted, Republicans are bound to charge that Obama's current proposals are simply a continuation of his "failed stimulus policies". Sen. Mitch McConnell began singing this tune even before Obama gave his speech. And ordinary people might honestly wonder why we should try another economic stimulus after the first one (supposedly) "failed". So Obama and his supporters will have to find some effective way to make the point that the 2009 stimulus did not fail (except in the sense of being too small). There's no avoiding it. If Obama and the other Democrats don't find an effective way to that, I suspect they will lose the struggle for public opinion.

=> Despite those reservations and qualifications, I do think that on balance Obama gave a very good speech, a surprisingly good speech under the circumstances, and that the initiative announced in his speech is also a good one. Both will have to be judged on the basis of practical results, which may take a while to work themselves out. But at least Obama decided to put up a serious fight, which is a Good Thing.

What happens next? Hard to predict, but right now I'm inclined to agree with Paul Krugman's assessment:
First things first: I was favorably surprised by the new Obama jobs plan, which is significantly bolder and better than I expected. It’s not nearly as bold as the plan I’d want in an ideal world. But if it actually became law, it would probably make a significant dent in unemployment.

Of course, it isn’t likely to become law, thanks to G.O.P. opposition. Nor is anything else likely to happen that will do much to help the 14 million Americans out of work. And that is both a tragedy and an outrage. [....]

O.K., about the Obama plan: It calls for about $200 billion in new spending — much of it on things we need in any case, like school repair, transportation networks, and avoiding teacher layoffs — and $240 billion in tax cuts. That may sound like a lot, but it actually isn’t. The lingering effects of the housing bust and the overhang of household debt from the bubble years are creating a roughly $1 trillion per year hole in the U.S. economy, and this plan — which wouldn’t deliver all its benefits in the first year — would fill only part of that hole. And it’s unclear, in particular, how effective the tax cuts would be at boosting spending.

Still, the plan would be a lot better than nothing, and some of its measures, which are specifically aimed at providing incentives for hiring, might produce relatively a large employment bang for the buck. As I said, it’s much bolder and better than I expected. President Obama’s hair may not be on fire, but it’s definitely smoking; clearly and gratifyingly, he does grasp how desperate the jobs situation is.

But his plan isn’t likely to become law, thanks to Republican opposition. And it’s worth noting just how much that opposition has hardened over time, even as the plight of the unemployed has worsened. [....]

The good news in all this is that by going bigger and bolder than expected, Mr. Obama may finally have set the stage for a political debate about job creation. For, in the end, nothing will be done until the American people demand action.
And perhaps it's not even impossible that Obama's proposal, or a significant portion of it, might even get passed. But, if so, that will take a long and ferocious political struggle. Those are the key points made by Jonathan Cohn. His analysis is intelligent, and I hope his (very guarded) optimism turns out to be on-target, so I'll close by passing on the highlights of his discussion:
Two years and one very long summer into the Obama presidency, many progressives have gotten tired of watching their would-be hero trying to appease the Republicans. On Thursday night, Obama made it clear he’s tired of it, too.

In one what was certainly his most impassioned -- and maybe even his most consequential -- speech since taking office, he proposed something bold and specific, demanded that Congress pass it, and promised to take his case directly to the people. As Greg Sargent noted, "The tone of urgency bordered on overkill — which is a good thing. ... Aides had promised he would challenge, rather than beseech, Congress to act. That turned out to be an understatement."

Indeed, the message seemed clear. The inside game is over. The outside game begins now.

And not a moment too soon. [....]

The proposal isn’t exactly what any expert would recommend for fixing the economy, in part because even relatively like-minded experts have some different notions about which initiatives work best. But virtually every mainstream economist I’ve seen or read in the past twelve hours thinks the plan has enough good ideas to reduce unemployment significantly.

And in a normal political world, it would actually have a chance of passing, because most of the ideas have a genuinely bipartisan pedigree. The infrastructure bank proposal, for example, comes straight from a bill co-sponsored by Senator Kay Bailey Hutchison, the Republican from Texas [JW: and Democrat John Kerry of Massachusetts]. The single biggest element of the proposal is a payroll tax cut, which Republicans have historically supported.

Of course, Republicans have already indicated they may not support it this time around. Which brings us to the real issue here: What now? Most seasoned observers doubt meaningful legislation can pass. I'm not quite so sure. Republicans, particularly in the House, may have some extreme views on the economy. And they may be determined to oppose anything that Obama endorses. But they still have to win elections next year. And they may already be feeling some pressure to relent.

After this speech, House Speaker John Boehner issued a statement indicating that Obama’s proposals “merit consideration.” No, that doesn’t mean he, or his party, intends to give the proposal consideration. (Republicans were simultaneously blasting it as more "failed stimulus," after all.) But it does mean they feel compelled to pretend they will. And that means they might eventually feel compelled to vote for something – not as ambitious as the president proposed, for sure, but something that could still make some difference in the economy.

And if they don’t? Then Obama has at least given the public a clear sense of who stands for what. And make no mistake: That’s a worthwhile endeavor. The approaching presidential election will offer voters stark choices about the country’s future. The best thing Obama can do – not only for the sake of his own candidacy but for the sake of the public discourse – is to make sure the voters understand those choices.

But it will take more than one speech. It will take a sustained campaign – one Obama cannot wage alone, but one only he can lead. As a senior Democrat on Capitol Hill told TNR last night, “It was a strong speech. It’s what comes next that matters. Will he stay tough and keep hammering the Republicans, or will he go back to staying 'above the fray'?"
Stay tuned.

—Jeff Weintraub