Republicans have consequences

I guess the market's response to the debt ceiling deal means we are all Krugmans today. Even our Gaultian overlords appear to have suddenly realized that the prospect of double dip recession and no promise of stimulus or action by the Federal Reserve may be worse than a small increase in their marginal tax rates.

And just remember: Republicans now control the government's reaction to economic upheaval, Obama owns the (awful) consequences, and the Washington press corps is in charge of the play by play.

The chart that should accompany any discussion of the debt ceiling

Fallows explains that these represent policy changes, not events forced on the president, such as a massive terrorist attack or a massive worldwide liquidity crisis.

Republicans own the debt. Never let them forget that.

He should have just focused on "Midnight Basketball" programs, I suppose

Jonathan Chait pushes back on the latest piece of Conventional Wisdom Inside the Beltway (CWIB), that if only Obama hadn't tried so hard to (successfully) pass so many big policy initiatives he'd be as popular as he was on election day.

Politico's big news analysis yesterday made a similar point. As this appears to be a new conventional wisdom -- Obama's big policy agenda has driven down his popularity -- it's worth considering a counterfactual: what if Obama didn't have an ambitious domestic agenda? Some downsides spring to mind immediately: he'd be abandoning his campaign platform, he'd be seen as weak and ineffectual, his base would be in full revolt. Would Republicans be less wild-eyed with rage? They were no less apoplectic at Bill Clinton even after Clinton abandoned his ambitious agenda. The conservative mood is like the sound system in Spinal Tap, always set at 10 on a scale of 1 to 10, but occasionally cranked up to 11.

He then goes on to revisit the one term of George H.W. Bush who, in the midst of a much milder recession than we have today, was attacked for lacking a domestic agenda.

Even if Obama had the political space with Democrats to abandon his campaign platform, and even if he could have enacted some non-controversial stimulus without any economic ill effects, voters would still be upset over the economy. The accusation would simply be that he's an impotent bystander to the crisis. It's certainly true that voters disapprove of the stimulus. But that's no reason to assume that Obama had any more politically expedient course of action at hand. Different world leaders have tried all sorts of domestic approaches during the economic crisis, and pretty much all of them have seen their popularity fall.

That's pretty much spot on, but I take exception with his implication that somehow a smaller stimulus package would have avoided "any economic ill effects." Truth is, the stimulus that was enacted was too weak, but it did keep the unemployment rate from rising any higher. A larger one -- a more controversial one -- likely would have helped much, much more, particularly in aid to state governments.

Anyway, I'd go further than Mr. Chait. Ever since Obama first announced his candidacy, the media has underestimated he and his team's relentless focus on the long view, and I think they're underestimating that now. The Washington press also has consistently misunderstood Obama's approach. I'm sure they think he's bullshitting them when he says he'd rather be a successful one-term president then a two-term president who fails to get anything meaningful accomplished. I don't think he is bullshitting when he says that. He and his team were also keenly aware, from the morning following that wonderful night in Grant Park, that they had an extremely limited window in which to work. Only a fool would have expected that in this economy and with a history of the president's party losing seats in midterms, that they could take their time in rolling out their agenda. They understood that momentum is all and that the largest majorities in 40 years was not going to be permanent (though I doubt they understood just how lock-step Republican opposition to...anything...would be).

The fact that within 18 months or so the administration has helped (with all props to Pelosi and Reid) push through Congress major stimulus, Lily Ledbetter, the hugely successful "cash for clunkers" program, the 60 year old dream of health care reform, the most comprehensive reform of the financial system since FDR's administration all point to indications of a very impressive first term.

But yes, that is all BIG political accomplishments. BIG, at at time when the CWIB keeps reminding us that we don't do BIG anymore. At a time when the opposition party can take advantage of the size and scope of the accomplishments and cynically manipulate ignorant voters, and that getting 61 votes for a bill is "bludgeoning." At a time when the press does little to push back on rhetoric about "socialism," "job-killing," "bank bailouts," and "death panels." At a time -- let's face it -- when the racism and unhinged hatred that had been bubbling just at the surface during the campaign, has bloomed like red algae in August.

At a time when unemployment stubbornly remains at over 9% even as the business climate steadily improves.

At a time for chrissakes, when Republicans stroke claims that Obama's very presidency is unconstitutional.

And come the August congressional recess, when the campaign season finally begins in earnest, I think much of that misrepresentation is going to start getting pushed back on in a big way. Maybe that push back doesn't prove successful, but to say that Obama's policy achievements are political failures because of poll numbers in July or because Dems may lose a seat or two in the Senate and a few more in the House is short sighted indeed.

But. Oh. Shit. I'm on the same page as Krauthammer?

More good news for Republicans

GM may reopen factories to meet rising demand.

Little Acorns

The pulp edition of this story in The Times, regarding potential higher interest rates on U.S. debt, had this sub-headline:

At $700 Billion a Year, Cost Will Top Budgets for 2 Wars, Education and Energy

Fascinating, but a couple of things:

1. Isn't the budgets for Education and Energy dwarfed by the budget for 2 wars?
2. Isn't the budget for 2 wars (and massive Bush tax cuts -- not to mention prescription drug benefits that didn't require drug companies to negotiate or allow seniors to purchase their drugs from other countries, i.e., free trade) the significant source of our current U.S. debt?

Just sayin'.

And then there's this little bit of folksy wisdom from Bill Gross, all-around genius:

“What a good country or a good squirrel should be doing is stashing away nuts for the winter,” said William H. Gross, managing director of the Pimco Group, the giant bond-management firm. “The United States is not only not saving nuts, it’s eating the ones left over from the last winter.”

There haven't been any "nuts" to save since George W. Bush took a projected budget surplus and drove it into the basement, taking out the water heater and the sump pump. And no mention by Gross of how he and his funds benefited from TARP, or how he has tried to influence Treasury in the lackluster idea of the "Public-Private Investment Fund."

But remember, Gross seems to be saying, the problem lies in your curls.



The headline of one of the NYT stories linked to above has as its headline, "Bill Gross of Pimco Is on Treasury's Speed Dial." He seems to be on NYT reporters' speed dial as well.

But beyond that, the shoddiness of this story is exemplified by this, the implication that the U.S. has been a sub-prime borrower:

“The government is on teaser rates,” said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates lower deficits. “We’re taking out a huge mortgage right now, but we won’t feel the pain until later.”

Please. Dean Baker, reliably, has more.

The paranoid style

If you're looking for clear-eyed analysis if yesterday's election results, LGM's your spot. If you're looking for the item that best anticipates the craziness that we can expect at least through 2010, this is it.

The thing that worries me about yesterday's results is that Dems will misguidedly follow the typical Beltway analysis of this being 1.) all about Obama's lefty agenda; 2.) a warning to Dems on going "too far" on health care, climate change legislation etc.,; 3.) the electorate is swerving rightward.

All utter nonsense.

On #1, Obama's favorability is still plenty high in VA and NJ. I mean, look to New York City for a read on how a bad economy combined with an uninspired campaign ("He's capable!") left Bloomberg both $142 million less wealthy and almost out of a job despite a 20-1 advantage on spending and an equally uninspiring opposition.

On #3, turnout for off-year elections is generally low and dominated by older, wealthier, more conservative voters.

And on #2, Dems had better start delivering on progressive health care and cap & trade legislation as well as other issues meaningful to younger, more liberal voters or we'll really be lamenting the results a year from now. The voters who were energized in 2006 and propelled Obama to the White House in 2008 are not going to be inspired to vote by half-measures and compromises with Joe Lieberman.

War. What is it good for? Consult your doctor.

Obama's speech did not give Bill Kristol an erection.

This was not the speech of a man who even contemplates the possibility of using force within the next year to prevent Iran from acquiring nuclear weapons. This was not the speech of a man who thinks America needs to be reminded about the dangers out there in the world, because Americans might have to be summoned to deal with them. This was not the speech of a man who thinks of himself as a war president.

Funny, Bobby J. didn't mention the war either.

More of this, please

Yeah, but isn't that what they said in 1929?

Brad DeLong sees a glass decidedly half full, arguing that the sub-prime panic/housing bubble will have little effect on "the real economy."

The unwinding of the dot-com bubble in 2000-2002 went remarkably well: no significant macroeconomic distress, and less financial panic and distress than I believed possible. The unwinding of the real estate bubble in 2007-2009 is so far not going well. There is, by contrast, more financial distress than I believed possible. Who thought that quantitatively sophisticated hedge funds would have enormous unhedged exposure to subprime risk? Who would have thought that highly-leveraged investment banks with an originat-and-sell business model would keep lots of the securities they had originated in their own portfolios--and kept them because they were high yield for their rating, i.e., because the market did not believe they were as low risk as the investment banks had bamboozled the ratings agencies into claiming? Who would have thought that those buying subprime mortgage securities from the likes of Countrywide had done no investigation into how Countrywide was screening out borrowers?

But so far--look: In the dot-com boom of the 1990s we were the winners. The rich investors of America built out a huge amount of fiber-optic cables and conducted an enormous amount of experimentation in business models from which we all benefit. In the real-estate boom of 2000s the rich investors of America and the world built an extra four million houses and loaned the rest of us money at remarkably low interest rates for five years. Those who moved into newly-built houses with teaser-rate mortgages wish those teaser rates would continue--but they won't, and in the meantime they got to live in a nice house for quite a low rent. Those of us who took out big home equity loans wish the low interest rates would continue--but they won't. And those of us who felt rich because our house values have appreciated wish we still could think of ourselves as sleeping on a pile of gold--but we can't.

The dot-com bubble and the real-estate bubble were bad news for the investors in Webvan, WorldCom, Countrywide, FNMA, and securitized subprime mortgages. But they were, by and large, good news for the rest of us. And investors are supposed to take care of themselves.

Now we are not yet out of the woods. If the tide of financial distress sweeps the Fed and the Treasury away--if we find ourselves in a financial-meltdown world where unemployment or inflation kisses 10%--then I will unhappily concede, and say that Greenspanism was a mistake. But so far the real economy in which people make stuff and other people buy it has been remarkably well insulated from panic at 57th and Park and on Canary Wharf.

Similarly, I've always read that the Crash of '29 did not reflect "the real economy" at the time, either. Indeed, I'd be curious to know if even fewer people are today affected by sub-prime mortgages than owned stock in 1929. But the U.S. and world economies slide into a grinding depression in the 1930s nonetheless.

And at least they had Woody.

Happy story time

David Leonhardt illuminates and (further) depresses.

The common thread in these myths is that they serve to minimize the scope of the economy’s weakness. They make it sound as if the problems are acute — job cuts, oil speculation, a little real estate overexuberance — rather than fundamental.

Of course, Leonhardt is using the popular usage of the word "myth," not its academic definition: a sacred story. What he really means is we're being bullshitted into thinking that prosperity is just around the corner. Go buy stuff, we're told, or we'll make young George Washington cry.

Change, change, chaaaaange

Oh, this is sweet.

John McCain takes great pride in saying that he’s a fiscal conservative, and he’s already signaled that he will try to define me with the same old tax-and-spend label that his side has been throwing around for decades. But let’s look at the facts.

John McCain once said that he couldn’t vote for the Bush tax breaks in good conscience because they were too skewed to the wealthiest Americans. Later, he said it was irresponsible to cut taxes during a time of war because we simply couldn’t afford them. Well, nothing’s changed about the war, but something’s certainly changed about John McCain, because these same Bush tax cuts are now his central economic policy. Not only that, but he is now calling for a new round of tax giveaways that are twice as expensive as the original Bush plan and nearly twice as regressive. His policy will spend nearly $2 trillion on tax breaks for corporations, including $1.2 billion for Exxon alone, a company that just recorded the highest profits in history.

Think about that. At a time when we’re fighting two wars, when millions of Americans can’t afford their medical bills or their tuition bills, when we’re paying more than $4 a gallon for gas, the man who rails against government spending wants to spend $1.2 billion on a tax break for Exxon Mobil. That isn’t just irresponsible. It’s outrageous.

If John McCain’s policies were implemented, they would add $5.7 trillion to the national debt over the next decade. That isn’t fiscal conservatism, that’s what George Bush has done over the last eight years. Not only can working families not afford it, future generations can’t afford it. And we can’t allow it to happen in this election.

I’ll take a different approach. I will reform our tax code so that it’s simple, fair, and advances opportunity instead of distorting the market by advancing the agenda of some lobbyist or oil company. I’ll shut down the corporate loopholes and tax havens, and I’ll use the money to help pay for a middle-class tax cut that will provide $1,000 of relief to 95% of workers and their families. I’ll make oil companies like Exxon pay a tax on their windfall profits, and we’ll use the money to help families pay for their skyrocketing energy costs and other bills. We’ll also eliminate income taxes for any retiree making less than $50,000 per year, because every senior deserves to live out their life in dignity and respect. And while John McCain wants to pick up where George Bush left off by trying again to privatize Social Security, I will never waver in my commitment to protect that basic promise as President. We will not privatize Social Security, we will not raise the retirement age, and we will save Social Security for future generations by asking the wealthiest Americans to pay their fair share.

Now, contrary to what John McCain may say, every single proposal that I’ve made in this campaign is paid for – because I believe in pay-as-you-go. Senator McCain is right that there’s waste in government, and I intend to root it out as President. But his suggestion that the earmark reforms that we’re both interested in implementing will somehow make up for his enormous tax giveaway indicates that John McCain was right when he said that he doesn’t understand the economy as well as he should. Either that or he’s hoping you just won’t notice. Whatever it is, it’s not the kind of change we need in Washington right now.

He's good. He's really good.

As John Cole writes, McCain and his proxies will whine that Obama promised he wouldn't be mean, but his shots at McCain are facts, and told in a way that people can understand.

Of course, countering the logical appeal of "A real American leader America needs," or whatever the hell McCain's slogan is, will be very difficult.

Too close to call

I, too, would like the Clinton campaign to fold up their tent and throw their full-throated support behind Barak Obama, but that's not likely to happen in the next week or so. But in looking at Drum's patched together results of two months of Gallup polls we learn a startling fact: both candidates are evenly matched with very committed supporters.

Who knew?

Over at Sadly Know, Brad listens to the bitter contempt of Clinton supporters (and Obamas) who will not, no, never, ever vote for the other candidate in the general election because their votes weren't counted or whatever and he responds, "shut the fuck up."

Meanwhile, Krugman looks at the economic musings of the three candidates and is none too happy. I quote, in full.

We’re now in the midst of an epic financial crisis, which ought to be at the center of the election debate. But it isn’t.

Now, I don’t expect presidential campaigns to have all the answers to our current crisis — even financial experts are scrambling to keep up with events. But I do think we’re entitled to more answers, and in particular a clearer commitment to financial reform, than we’re getting so far.

In truth, I don’t expect much from John McCain, who has both admitted not knowing much about economics and denied having ever said that. Anyway, lately he’s been busy demonstrating that he doesn’t know much about the Middle East, either.

Yet the McCain campaign’s silence on the financial crisis has disappointed even my low expectations.

And when Mr. McCain’s economic advisers do speak up about the economy’s problems, they don’t inspire confidence. For example, last week one McCain economic adviser — Kevin Hassett, the co-author of “Dow 36,000” — insisted that everything would have been fine if state and local governments hadn’t tried to limit urban sprawl. Honest.

On the Democratic side, it’s somewhat disappointing that Barack Obama, whose campaign has understandably made a point of contrasting his early opposition to the Iraq war with Hillary Clinton’s initial support, has tried to score a twofer by suggesting that the war, in addition to all its other costs, is responsible for our economic troubles.

The war is indeed a grotesque waste of resources, which will place huge long-run burdens on the American public. But it’s just wrong to blame the war for our current economic mess: in the short run, wartime spending actually stimulates the economy. Remember, the lowest unemployment rate America has experienced over the last half-century came at the height of the Vietnam War.

Hillary Clinton has not, as far as I can tell, made any comparably problematic economic claims. But she, like Mr. Obama, has been disappointingly quiet about the key issue: the need to reform our out-of-control financial system.

Let me explain.

America came out of the Great Depression with a pretty effective financial safety net, based on a fundamental quid pro quo: the government stood ready to rescue banks if they got in trouble, but only on the condition that those banks accept regulation of the risks they were allowed to take.

Over time, however, many of the roles traditionally filled by regulated banks were taken over by unregulated institutions — the “shadow banking system,” which relied on complex financial arrangements to bypass those safety regulations.

Now, the shadow banking system is facing the 21st-century equivalent of the wave of bank runs that swept America in the early 1930s. And the government is rushing in to help, with hundreds of billions from the Federal Reserve, and hundreds of billions more from government-sponsored institutions like Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

Given the risks to the economy if the financial system melts down, this rescue mission is justified. But you don’t have to be an economic radical, or even a vocal reformer like Representative Barney Frank, the chairman of the House Financial Services Committee, to see that what’s happening now is the quid without the quo.

Last week Robert Rubin, the former Treasury secretary, declared that Mr. Frank is right about the need for expanded regulation. Mr. Rubin put it clearly: If Wall Street companies can count on being rescued like banks, then they need to be regulated like banks.

But will that logic prevail politically?

Not if Mr. McCain makes it to the White House. His chief economic adviser is former Senator Phil Gramm, a fervent advocate of financial deregulation. In fact, I’d argue that aside from Alan Greenspan, nobody did as much as Mr. Gramm to make this crisis possible.

Both Democrats, by contrast, are running more or less populist campaigns. But at least so far, neither Democrat has made a clear commitment to financial reform.

Is that simply an omission? Or is it an ominous omen? Recent history offers reason to worry.

In retrospect, it’s clear that the Clinton administration went along too easily with moves to deregulate the financial industry. And it’s hard to avoid the suspicion that big contributions from Wall Street helped grease the rails.

Last year, there was no question at all about the way Wall Street’s financial contributions to the new Democratic majority in Congress helped preserve, at least for now, the tax loophole that lets hedge fund managers pay a lower tax rate than their secretaries.

Now, the securities and investment industry is pouring money into both Mr. Obama’s and Mrs. Clinton’s coffers. And these donors surely believe that they’re buying something in return.

Let’s hope they’re wrong.

I don't understand why the Democratic candidates are not screaming about this each and every day. We just witnessed what was essentially a run on an unregulated bank while our president dances on the South Lawn. Senator Clinton has a more difficult time with this, as the Clinton administration did little to halt the deregulation of financial markets that were flying high at the time, but she and Senator Obama can surely remind voters that four more years of flying monkeys running the White House will have yet more disastrous consequences, and that it is, truly, time to restore adulthood to our political institutions. McSame can't say that.