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Tuesday, July 26, 2011

Economic uncertainty as a political weapon

You have to hand it to the House Republicans: they have outplayed President Obama in almost every respect on the deficit-ceiling debate, but primarily in their use of economic uncertainty as a political weapon.  Republicans have set the terms of the debate, while Obama did not respond, analyze, anticipate, and attack months ago.

The president did not try to frame the debate, or lead the country to set the terms of the debate.  He did not anticipate how sophisticated, yet simple, the Republican plan against him was, and he did not counteract it before it blossomed into the near-fiasco we are facing now.

Consumer confidence and business confidence are key to uplifting an economy burdened by recession and shock.  This was the state of the U.S. economy at the end of 2008, when George W. Bush left an economic mess for Obama to clean up.  This confidence is invisible, but if it is eroded over time, people and businesses don’t invest, don’t create jobs, and don’t take risks, even if they have the money.  They hoard their cash.

After we weakly climbed out of recession with the emergency measures adopted by Obama immediately after he took office (some of these measures had been initiated by the Bush administration), I knew we were at the point where the economy would either gain momentum, or lose steam and fall back to some version of the disaster at the end of the Bush administration.

If we gained momentum, we would create more jobs, and the temporary measures which added to the deficit would be a historical footnote since the economy would grow fast enough to reduce the deficit in relation to the size of our economy.  But if we didn’t, then we would be saddled with the ‘temporary deficit,’ and a lack of jobs, and a weak economy, and Obama would surely not be re-elected.  Since I voted for Obama, I was rooting for the economy to improve, and expand, over the past two-three years.

During these past two-three years, however, I noticed something interesting.  I’ve read the New York Times and Wall Street Journal every day for decades.  I want different perspectives; I want to consider different voices.  But whereas the editorial page of the Journal has always been conservative, at least fiscally, if not socially, the front page and news pages have been a mix.  But in my opinion, not anymore.

With every slight uptick in the economy over the past two-three years, whether it was on jobs, or corporate profits, the front-page Journal articles were relentlessly negative.  Sometimes on the same story, it seemed as if I were living in two realities: what the Journal reported —the economy is awful under Obama, we are going nowhere, these corporate profits are illusory— and what the Times reported— we may be turning the corner, banks have recapitalized, companies are flush with cash.  Was the Journal being too pessimistic, or the Times too optimistic?

You could pick your facts to support either side, and that’s my point.  But why would anyone want to ‘talk down’ the economy?  I even imagined that perhaps the new Journal owner, Rupert Murdoch, had placed the kind of editors who would undermine confidence in the American economy under Obama.  But perhaps I was being too paranoid, I thought.  But I also knew such a relentlessly negative spin on anything that might improve the economy would also have an effect on whether individuals and companies spend money, even modestly, to grow us out of the deficit we incurred after we cleaned up the mess Bush left behind.  Most people in business read the Journal.

Obama didn’t help himself by focusing on healthcare reform, instead of jobs, eighteen months ago.  He didn’t help himself by not recognizing that House Republicans, after last November’s election, did not trust him absolutely, assumed he was a traditional, even radical liberal, and would not work with him.  They want him out.  Period.

As an old friend pointed out to me this summer, perhaps Obama was too young when he became president.  Too inexperienced.  Too much in belief of himself, instead of recognizing what effect he had on others, particularly on a white middle-class seeing the livelihoods slip away for their children, while this country becomes more Latino, more Asian, more Muslim, while American corporations react to globalization by shipping jobs overseas, for more profits which their investors (often ourselves) demand.

If Obama had recognized the unique ways in which he would never be trusted by House Republicans, and perhaps a great swath of the American electorate, he would have ‘triangulated,’ à la Bill Clinton, before or certainly after last year’s election.  That just means Obama would have acted as a fiscal conservative to counteract the (reasonable and unreasonable) prejudices of these Republicans and that part of the American electorate that would never trust him.  In that way, Obama would have positioned himself for reelection, in the middle of the road, which is how you win elections in this country.

When Obama ordered our Navy Seals to kill Bin Laden, that was a perfect moment of ‘triangulation’: the quasi-Muslim American president, who may or may not have been born in Hawaii, killed one of America’s greatest enemies.  You could sense when that happened that Obama’s harshest critics even tipped their hats to him, and perhaps for a moment reconsidered their zealous opposition to everything Obama.  That moment put Obama in a new light.  The problem is that Obama did not have, or aggressively pursue, enough of these ‘triangulation moments.’

If he had done that, if Obama had recognized that a significant portion of the American electorate and these adamant, inflexible House Republicans were already painting him as a stick-figure liberal who will only explode the deficit any chance he gets, Obama would have acted differently, and set the terms of the debate.  He would have gotten out of Afghanistan and Iraq, and pointed out the huge waste of hundreds of billions of dollars on defense spending, while our allies spend so little and ride our coattails.  He would have attacked government waste seriously, and closed unnecessary departments (but not the ones helping the disadvantaged or the needy).  He would have repeatedly pointed out how certain American companies pay so little in taxes, because they have sweetheart tax breaks from Congress.  He would have recognized that Fannie Mae and Freddie Mac played an important role in the housing bubble that led to the financial crisis at the end of the Bush administration, and how Republicans and Democrats both benefited from their political and economic ties to these companies.  Everybody in Congress was greedy when it came to Fannie and Freddie.

But Obama didn’t do any of the above, relentlessly, day after day, ahead of the curve, so that he wouldn’t be boxed in later.  He allowed House Republicans to set the terms of the debate, and responded only to what they wanted, and simply kept giving in to their demands.  And they have just kept saying no.

What I think is rarely pointed out is this: by passing this temporary, short-term increase in the debt ceiling, with deep spending cuts and another vote in early 2012 on the debt ceiling, House Republicans are using economic uncertainty as a political weapon.  The more uncertainty there is in and about the American economy, the fewer jobs will be created.  The more economic uncertainty there is in and about the American economy, the more the stock market will languish, or even decline.  And of course, the more the government is contracting before the election, the fewer jobs and services will exist in 2012.  The fewer jobs in the American economy, and the worse off Americans feel about their economic prospects, the better the 2012 elections will be for the Republicans.

They have outplayed Obama, and now here we stand on the brink of default.  We will all pay a huge price for these selfish political games.  When we ‘talk down’ the economy, when we lose our AAA credit rating, and when the dollar’s role as a reserve currency erodes, we all lose.  What happened to ‘us’?  Why are we not a ‘we’ anymore?  Who could be that transformative, adaptive figure who can still lead us to change for the better, while still making us believe we belong together as a country?

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