Thursday, October 28, 2010

Defending Obama II: A Response To Dean Baker

My last post prompted a strong response from Dean Baker, Co-Director of the Center for Economic and Policy Research, on TPM Café. This is my answer.

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.


Potter said...

(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?)

Paul Krugman has not exactly endorsed Republicans because he has criticized Obama and Democrats for not being strong and courageous enough. This morning again he warns Divided We Fail ending with “So if the elections go as expected next week, here’s my advice: Be afraid. Be very afraid.”

But I still don’t understand how you can blame where Obama and the Democrats are at this point- poised to lose big in this Congressional election- this being also a referendum on the President’s leadership- on the critics who are off in a corner, making their arguments and observations. Obama indicated that he wanted this conversation. But he seems not to have embraced it. He has defended himself from it. Still this criticism is a very small part of those who are generally disappointed. And dare I say also, these critics on the left are smart enough to know that Republican rule is not preferable. All along I have felt that Obama could be saying to himself "where are they going to go?" Correct. They will be out voting, and not for the other side.

It's too plain in the poll out yesterday at the NYTimes:

Critical parts of the coalition that delivered President Obama to the White House in 2008 and gave Democrats control of Congress in 2006 are switching their allegiance to the Republicans in the final phase of the midterm Congressional elections, according to the latest New York Times/CBS News poll.
Republicans have wiped out the advantage held by Democrats in recent election cycles among women, Roman Catholics, less affluent Americans and independents. All of those groups broke for Mr. Obama in 2008 and for Congressional Democrats when they grabbed both chambers from the Republicans four years ago, according to exit polls.
If women choose Republicans over Democrats in House races on Tuesday, it will be the first time they have done so since exit polls began tracking the breakdown in 1982.
The poll provides a pre-Election Day glimpse of a nation so politically disquieted and disappointed in its current trajectory that 57 percent of the registered voters surveyed said they were more willing to take a chance this year on a candidate with little previous political experience. More than a quarter of them said they were even willing to back a candidate who holds some views that “seem extreme.”
On the issue most driving the campaign, the economy, Republicans have erased the traditional advantage held by Democrats as the party seen as better able to create jobs; the parties are now even on that measure. By a wide margin, Republicans continue to be seen as the party better able to reduce the federal budget deficit.

Obama ‘s been saying we are moving slowly in the right direction- but people don’t see that, don’t feel it. And some have even been demagogued into thinking we have been going in the wrong direction. For me this means that the President was not willing to be bold enough to push for what he said he wanted, but has been practicing what seems a vulgar pragmatism, trying to gain support where there was none to be had and compromising away. Seeking bi-partisanship has been an utter failure, thus the perception ( Cokie) is weakness. He did not/does not connect with the people who took a chance on him- those in the coalition, the multitudes mentioned above. Where things are now, is not the fault of loyal critics, off in a corner, harsh though they may be.

Potter said...

Sorry. Here are my links which do not work above :

Divided We Fail/Paul Krugman

Critics off on a corner- Obama No Longer Bothering to Lie Credibly

On the New York Times/CBS Poll just out:
Obama Coalition is Fraying, Poll Finds

Kloppenberg on two kinds of pragmatism

In Writings of Obama, A Philosophy is Unearthed

Potter said...

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?

Didn't Obama appear nervous about their nervousness? Wasn't he anyway humiliated?

He could have taken his case to the American people. Wow could he have done that! There is more than a shred of evidence that he could move people. And he could have demonstrated that he tried hard, that he was, for God's sake, audacious. Instead he calculated and conceded behind the scenes. if anything he humiliated himself by backing away from a more public fight.

More than anything, people want, no they need, ( never mind what they want) to hear the conviction, the vision ( again) and to feel, to see, a strong leader working for them.

Where does the disappointment come from?

Obama presented himself in his campaign as someone quite different. Almost from the beginning, there was disappointment as he shifted to the contrast of his governing style.

But the issue is not that those who criticize think he is not better than Nixon, Reagan and the Bushes.

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