Tucked away in Dean Baker’s rejoinder to my post on Krugman’s column is this (remarkable) aside: “He [Krugman] even has repeated the nonsense about preventing a second Great Depression.” Baker meant to seal the point that Krugman has been fair, even generous, to Obama at times. Presumably, my posts have been wrong (half-again-more-than-completely wrong) to question whether Krugman, and Baker for that matter, have been reckless in depicting Obama as “deserving much of the blame” for the state of the economy. The stimulus was too small, says Baker. Case closed. And that’s Obama’s fault.
But was Krugman’s conclusion that Obama prevented a Great Depression really “nonsense”? (It was not.) And, if not, isn’t Krugman’s complaint about the size of stimulus (and a week before the election, to boot) disproportionate, if not irresponsible? What urgent considerations, other than the size of the stimulus, did Obama have to navigate during those tight-rope months of Winter, 2009?
To restart a recovery, didn’t any amount of government spending have to be dwarfed by trillions in investment coming from CEOs, pension fund managers, sovereign fund managers, private entrepreneurs, etc., in America and around the world? Who, after all, were the people that government spending was aiming to “stimulate”? How, on the other hand, might such people have been spooked?
And is Baker right that sustainable businesses in the US might really have been engendered with a one-time hike in “demand” to make up for a good part of what demand lost; not just cash for clunkers, but cash for consumption of all kinds. Obviously, job formation was urgent; eight million jobs were ultimately lost. But does this mean more spending per se by American consumers was the answer? Does it not matter what kinds of jobs--and where?
Baker talks about stimulus as if the American economy were not global; as if the demand of American workers for basic things through the decade before the big recession had not created disproportionate business formation in Korea, China, Brazil and Japan, where many of the products (or products’ components) Americans buy at Walmart and car dealers are made.
Of course, emergency spending as a radical answer to recession had a role—Krugman supposes unemployment might well be at 12 percent were it not for what Obama did get. But the economy is not a national closed loop. It is not the case that, if American workers consume, job-making American businesses start up. And at some point your spending gets you a crisis like Greece. (Remember near 20 percent interest rates in 1979?)
Come to think of it, what if not the crisis in Greece, and the EU's bailout, seriously interrupted the recovery over the past summer? What could Obama do about that? Nor could the federal government jump-start an expanded rail system, university system, and smart grid overnight. (Need I add that it won’t at all if Obama continues to be discredited by his own people and Republicans wind up running things?)
NONE OF THIS seems to matter to Baker, at least not here, in his eagerness to put me in my place. But anyway, his defense of more stimulus is tangential to Krugman’s point, which is not that the state of the economy is actually Obama’s fault, but rather that Obama is to blame for the Republican resurgence. Why? Because people are angry—implicitly, about high unemployment. Obama is responsible for (what Cokie Roberts calls) the perception out there that his presidency has been a failure, or anyway not on the side of common people.
And why is that? Because—and here Baker’s argument circles back on itself—the stimulus wasn’t big enough to “restore the economy to full employment.” Arguably, 9.5 percent means anger; 7 percent or under, relief. As for investors, the rich, why care about their perceptions? Wasn’t so much of their money made in unspeakable ways? Don’t you have to be Larry Summers, a step-child of Goldman Sachs, to care?
But could Obama ever have gotten more, for God's sake? Is there a shred of evidence that doesn’t demonstrate the opposite: that he got as much as he could against Republicans determined to humiliate him and Blue Dogs nervous about spending? “Perhaps not,” Baker concedes. But he has a story and is sticking with it. Like Krugman, he implies that Obama is losing now because he should have fought for more then, “told the truth,” had a “coherent story,” not spoken of “green shoots of recovery.” Presumably, the President of the United States should have issued dire warnings of an impending “goddamn disaster”: nothing to fear but confidence itself.
Obama, so the argument goes, should have demanded the Congress come up with (if I am doing the math correctly) another 700 billion in spending. Then, presumably, the independents who are now deserting Obama would be trusting him. Republicans would not be surging. His “brilliant” advisors were wrong to count votes. The really brilliant thing to do was tell Baker’s story without flinching.
This story usually has two other wrinkles, incidentally, though Baker only alludes to the second here. The first is that the fear of deficit growth, which Obama has echoed, and which seems the real public anxiety fanning a pro-Republican backlash, the Tea Party, etc., is what we used to call in the Sixties a case of “false consciousness.” The deficit is not yet close to what it was during and just after World War II.
But doesn't the trade deficit prove America no longer dominates world markets as after World War II? Yes, but American manufacturing will revive if only the RMB can be prompted to rise, or the dollar can be prompted down. “In the long-term,” Baker glibly adds, “we have to get the dollar down so that our trade deficit gets closer to balance.”
AS IF THE manufacture of any product or component that, say, has over 25 percent labor in its cost structure (e.g., engine harnesses) will ever be built in the US again. As if products that scale up with smart automation (e.g., battery cells) will ever need enough unskilled laborers to bring unemployment down to where it was—as if the problem for an increasing number of American is not chronic unemployability in an economy that has been transformed.
Look, we are all with Baker in wishing HAMP worked more effectively; that it helped 2 million homeowners renegotiate, not just 500,000. I am all for taxing financial speculation. But how about we start with getting high incomes taxed, or at least with giving Obama credit at this crucial time for being in that “neighborhood”?
For the cumulative effect arguments like Baker’s post, along with Krugman’s various shots across Obama’s bow (about Larry Summers, and so forth), has been to create this weird environment in which educated people have decided, sighing knowingly, that Obama is not really worth defending, that he’s surrounded himself with people who can’t be trusted, because they hang out with Harvard arrogance and Wall Street money.
Gee, give us a real Republican, so I can know my enemy. It all started with TARP and then Geithner’s plan for the banks. Baker, March 2009: “The core problem is that many of the largest banks are bankrupt…These geniuses [Geithner, et al]… subsidize the bankrupt banks and keep them breathing a little bit longer, while offering opportunities for other Wall Street actors to get hugely wealthy,” etc.) Just watch Jon Stewart’s questioning of Obama last night and you get the idea.
So sorry about Obama, we say. That campaign was so promising, wasn’t it? (You know, the campaign in which the guardians of “the coherent story” started with John Edwards.) Stewart’s audience gives us a mandatory chuckle when the name of Larry Summers comes up. So do the talking heads on Sunday morning. And what do less well educated people hear?
I can tell you what my handyman in New Hampshire hears, with periodic prompting from Rush and Beck, though he had voted for Obama in 2008. That these elites who screwed us, these “geniuses” who think they’re so smart—these people who think they are know better than us, but can’t add two and two (or $700 billion to $700 billion),who tax us to tell us what to do and how to live and make their friends rich—well, they are all a bunch of phonies.
Baker can have the last word if he wants it. Obviously, it would take a book to explore the arguable, anachronistic economic assumptions that get progressive democrats this sanctimonious. As for me, I am on nobody's payroll, but am enjoying something better than Nixon, Reagan, and the Bushes just now. I fear the enjoyment will be short-lived if Democrats do not get past the year of magical thinking.