“This Is On Congress”: The Debt Ceiling Isn’t President Obama’s Problem, It’ The GOP’s Problem
Obama and Dems have vowed not to negotiate with the GOP over the debt ceiling. This morning, I asked what “not negotiating” would look like in the real world, and whether it’s even possible. But another question may be even more relevant: Do Republicans really have the leverage in the debt ceiling fight they think they have?
Some Republicans are now coming out and acknowledging that the GOP may not be in a strong position in the debt ceiling battle, after all. Here’s Newt Gingrich, on Morning Joe today, telling Republicans that a debt ceiling fight is a “loser” for them:
“They’ve got to find, in the House, a totally new strategy. Everybody’s now talking about, ‘Oh, here comes the debt ceiling.’ I think that’s, frankly, a dead loser. Because in the end, you know it’s gonna happen. The whole national financial system is going to come in to Washington and on television, and say: ‘Oh my God, this will be a gigantic heart attack, the entire economy of the world will collapse. You guys will be held responsible.’ And they’ll cave.”
And here’s the Wall Street Journal editorial page, warning against it in similar terms:
Mr. Obama will say Republicans are risking national default and recession, most of Wall Street will echo him, and the Treasury will maneuver to apply maximum political pressure — for example, by claiming it can’t pay Social Security benefits. We’ll support efforts to cut spending and reform entitlements, but the political result will be far worse if Republicans start this fight only to cave in the end. You can’t take a hostage you aren’t prepared to shoot.
This gets right to the heart of the matter, which is this: Are Republicans really prepared to let the country go into default and take the blame for crashing the economy? Sure, maybe some Tea Party Republicans are, but if GOP leaders aren’t, and the next compromise can be passed through the House with mostly Democratic votes, then all of a sudden the GOP position doesn’t look so strong, after all.
And so maybe the question of what “not negotiating” on the debt ceiling looks like has a simpler answer than you might think: The White House just treats this as Congress’ problem. You can see that framing already in this comment from the White House today (emphasis mine): ”It is quite clear that the economy will be better if Congress does its job and does what it routinely has done historically which is raise the debt limit without problem.”
It’s true that in one way, the White House will inevitably be negotiating on the debt ceiling, in the sense that it will be engaged in talks over the sequester, tax reform, and spending cuts that Republicans will insist must be resolved before they agree to raise it. But as Ezra Klein notes, this doesn’t necessarily mean the White House has to be held hostage over the debt ceiling, and it’s really quite possible that in the end, Republicans will opt to agree to a somewhat balanced deal rather than risk taking the blame for cratering the economy.
After all, John Boehner is already on record saying that not raising the debt ceiling will cause financial disaster. The pressure on Republicans not to let this happen will be intense. For the GOP, blowing up the economy will mean nothing short of political Armageddon. Can you name a single prominent Republican in any position of influence who is willing to say the GOP should allow the country to default, rather than accept a deal that doesn’t gut entitlements?
I understand the pessimism on the left that the White House will ultimately give away too much. But things seem to be shifting: Now even prominent Republicans are giving away the game, admitting that the GOP doesn’t have the leverage here that it claims to have.
This is on Congress. If Republicans are willing to force a choice between destroying the economy and gutting popular social programs, let them wallow in that winning message. If they’re willing to tank the economy to get what they want — after taking a shellacking in the election and proving so dysfunctional that they could not pass tax cuts for everyone but the ultra-wealthy without substantial Democratic help — then it’s on them. Just leave it there.
BY: Greg Sargent, The Plum Line, The Washington Post, January 4, 2012
“The Secret Of Our Non-Success”: Mitt Romney Will Make Policy Based On Fantasies Rather Than Grappling With Reality.
The U.S. economy finally seems to be recovering in earnest, with housing on the rebound and job creation outpacing growth in the working-age population. But the news is good, not great — it will still take years to restore full employment — and it has been a very long time coming. Why has the slump been so protracted?
The answer — backed by overwhelming evidence — is that this is what normally happens after a severe financial crisis. But Mitt Romney’s economic team rejects that evidence. And this denialism bodes ill for policy if Mr. Romney wins next month.
About the evidence: The most famous study is by Harvard’s Carmen Reinhart and Kenneth Rogoff, who looked at past financial crises and found that such crises are typically followed by years of high unemployment and weak growth. Later work by economists at the International Monetary Fund and elsewhere confirmed this analysis: crises that followed a sharp run-up in private-sector debt, from the U.S. Panic of 1893 to the Swedish banking crisis of the early 1990s, cast long shadows over the economy’s future. There was no reason to believe that this time would be different.
This isn’t an after-the-fact rationalization. The Reinhart-Rogoff “aftermath” paper was released almost four years ago. And a number of other economists, including, well, me, issued similar warnings. In early 2008 I was already pointing out the distinction between recessions like 1973-5 or 1981-2, brought on by high interest rates, and “postmodern” recessions brought on by private-sector overreach. And I suggested that the recession we were then entering would be followed by a prolonged “jobless recovery” that would feel like a continuing recession.
Why is recovery from a financial crisis slow? Financial crises are preceded by credit bubbles; when those bubbles burst, many families and/or companies are left with high levels of debt, which force them to slash their spending. This slashed spending, in turn, depresses the economy as a whole.
And the usual response to recession, cutting interest rates to encourage spending, isn’t adequate. Many families simply can’t spend more, and interest rates can be cut only so far — namely, to zero but not below.
Does this mean that nothing can be done to avoid a protracted slump after a financial crisis? No, it just means that you have to do more than just cut interest rates. In particular, what the economy really needs after a financial crisis is a temporary increase in government spending, to sustain employment while the private sector repairs its balance sheet. And the Obama administration did some of that, blunting the severity of the financial crisis. Unfortunately, the stimulus was both too small and too short-lived, partly because of administration errors but mainly because of scorched-earth Republican obstruction.
Which brings us to the politics.
Over the past few months advisers to the Romney campaign have mounted a furious assault on the notion that financial-crisis recessions are different. For example, in July former Senator Phil Gramm and Columbia’s R. Glenn Hubbard published an op-ed article claiming that we should be having a recovery comparable to the bounceback from the 1981-2 recession, while a white paper from Romney advisers argues that the only thing preventing a rip-roaring boom is the uncertainty created by President Obama.
Obviously, Republicans like claiming that it’s all Mr. Obama’s fault, and that electing Mr. Romney would magically make everything better. But nobody should believe them.
For one thing, these people have a track record: back in 2008, when serious students of history were already predicting a prolonged slump, Mr. Gramm was dismissing America as a “nation of whiners” experiencing a mere “mental recession.” For another, if Mr. Obama is the problem, why is the United States actually doing better than most other advanced countries?
The main point, however, is that the Romney team is willfully, nakedly, distorting the record, leading Ms. Reinhart and Mr. Rogoff — who aren’t affiliated with either campaign — to protest against “gross misinterpretations of the facts.” And this should worry you.
Look, economics isn’t as much of a science as we’d like. But when there’s overwhelming evidence for an economic proposition — as there is for the proposition that financial-crisis recessions are different — we have the right to expect politicians and their advisers to respect that evidence. Otherwise, they’ll end up making policy based on fantasies rather than grappling with reality.
And once politicians start refusing to acknowledge inconvenient facts, where does it stop? Why, the next thing you know Republicans will start rejecting the overwhelming evidence for man-made climate change. Oh, wait.
By: Paul Krugman, Op-Ed Columnist, The New York Times, October 21, 2012
“Hating On Ben Bernanke”: Mitt Romney Takes Up Residence In The Right’s Intellectual Fever Swamps
Last week Ben Bernanke, the Federal Reserve chairman, announced a change in his institution’s recession-fighting strategies. In so doing he seemed to be responding to the arguments of critics who have said the Fed can and should be doing more. And Republicans went wild.
Now, many people on the right have long been obsessed with the notion that we’ll be facing runaway inflation any day now. The surprise was how readily Mitt Romney joined in the craziness.
So what did Mr. Bernanke announce, and why?
The Fed normally responds to a weak economy by buying short-term U.S. government debt from banks. This adds to bank reserves; the banks go out and lend more; and the economy perks up.
Unfortunately, the scale of the financial crisis, which left behind a huge overhang of consumer debt, depressed the economy so severely that the usual channels of monetary policy don’t work. The Fed can bulk up bank reserves, but the banks have little incentive to lend the money out, because short-term interest rates are near zero. So the reserves just sit there.
The Fed’s response to this problem has been “quantitative easing,” a confusing term for buying assets other than Treasury bills, such as long-term U.S. debt. The hope has been that such purchases will drive down the cost of borrowing, and boost the economy even though conventional monetary policy has reached its limit.
Sure enough, last week’s Fed announcement included another round of quantitative easing, this time involving mortgage-backed securities. The big news, however, was the Fed’s declaration that “a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.” In plain English, the Fed is more or less promising that it won’t start raising interest rates as soon as the economy looks better, that it will hold off until the economy is actually booming and (perhaps) until inflation has gone significantly higher.
The idea here is that by indicating its willingness to let the economy rip for a while, the Fed can encourage more private-sector spending right away. Potential home buyers will be encouraged by the prospect of moderately higher inflation that will make their debt easier to repay; corporations will be encouraged by the prospect of higher future sales; stocks will rise, increasing wealth, and the dollar will fall, making U.S. exports more competitive.
This is very much the kind of action Fed critics have advocated — and that Mr. Bernanke himself used to advocate before he became Fed chairman. True, it’s a lot less explicit than the critics would have liked. But it’s still a welcome move, although far from being a panacea for the economy’s troubles (a point Mr. Bernanke himself emphasized).
And Republicans, as I said, have gone wild, with Mr. Romney joining in the craziness. His campaign issued a news release denouncing the Fed’s move as giving the economy an “artificial” boost — he later described it as a “sugar high” — and declaring that “we should be creating wealth, not printing dollars.”
Mr. Romney’s language echoed that of the “liquidationists” of the 1930s, who argued against doing anything to mitigate the Great Depression. Until recently, the verdict on liquidationism seemed clear: it has been rejected and ridiculed not just by liberals and Keynesians but by conservatives too, including none other than Milton Friedman. “Aggressive monetary policy can reduce the depth of a recession,” declared the George W. Bush administration in its 2004 Economic Report of the President. And the author of that report, Harvard’s N. Gregory Mankiw, has actually advocated a much more aggressive Fed policy than the one announced last week.
Now Mr. Mankiw is allegedly a Romney adviser — but the candidate’s position on economic policy is evidently being dictated by extremists who warn that any effort to fight this slump will turn us into Zimbabwe, Zimbabwe I tell you.
Oh, and what about Mr. Romney’s ideas for “creating wealth”? The Romney economic “plan” offers no specifics about what he would actually do. The thrust of it, however, is that what America needs is less environmental protection and lower taxes on the wealthy. Surprise!
Indeed, as Mike Konczal of the Roosevelt Institute points out, the Romney plan of 2012 is almost identical — and with the same turns of phrase — to John McCain’s plan in 2008, not to mention the plans laid out by George W. Bush in 2004 and 2006. The situation changes, but the song remains the same.
So last week we learned that Ben Bernanke is willing to listen to sensible critics and change course. But we also learned that on economic policy, as on foreign policy, Mitt Romney has abandoned any pose of moderation and taken up residence in the right’s intellectual fever swamps.
By: Paul Krugman, Op-Ed Contributor, The New York Times, September 16, 2012
“Do Republicans Really Want To Compare?”: America Is Definitely Better Off Under Obama
Republicans seem to have hit on a question that has Team Obama fumbling, or at least squirming: Are you better off now than four years ago? Judging by my E-mail inbox yesterday, it’s a question Republicans seem genuinely interested in pursuing. Please do, GOP. It’s a trap.
I say this for two reasons. The first is factual, the second political.
On the matter of facts, when President Obama took office in January 2009, the economy was shedding 800,000 jobs per month. Stop for a second and read that again: 800,000 jobs lost per month. The economy has now added private sector jobs for 29 months running.
Does that mean that things are good? Not at all. The topline unemployment figure has worsened even as the overall economy has improved, and we still haven’t emerged from the jobs crater wrought by the Great Recession. But middling job growth is indisputably better than economic free fall.
More: As Time’s Michael Grunwald points out the economy shrank by an annual rate of 8.9 percent in the fourth quarter of 2008. At that rate, Grunwald writes, “we would have shed the entire Canadian economy in 2009.” Grunwald, who has written a book on Obama’s stimulus, goes on to make a pretty good thumbnail case about why that jobs plan did in fact work, as well as generally why Obama and his advocates have a lot to be proud of—the post is worth a read.
But it brings me to my second point—why the GOP is walking into a trap if they pursue the “better off” question. Look back at the figures quoted above: 800,000 jobs lost per month; an 8.9 percent annual contraction rate. Is that really the point of comparison to which Mitt Romney and the Republicans want to draw Americans’ attention? Please. Please!
Republicans constantly whine about President Obama pointing to the dreadful circumstances of his ascension to the Oval Office—but now they want to invite the comparison? Really? Really!
I understand that the president and his team have to toe this line carefully—we’re still digging out from George W. Bush’s recession. But Jon Favreau and the presidential speechwriting staff, are you paying attention? If the GOP wants to ask whether the country is better off than it was four years ago, then the answer is a no-brainer yes, and I can’t think of a better person or place to give that answer than Barack Obama on Thursday night.
By: Robert Schlesinger, U. S. News and World Report, Washington Whispers, September 3, 2012
“Taboo Ideas”: Regular People Could Use A Bailout Every Bit As Much As Wealthy Elites
Via Atrios, I see that the idea of just printing money and handing it out is gaining some elite traction. Here’s Anatole Kaletsky in Reuters:
Last week I discussed in this column the idea that the vast amounts of money created by central banks and distributed for free to banks and bond funds – equivalent to $6,000 per man, woman and child in America and £6,500 in Britain – should instead be given directly to citizens, who could spend or save it as they pleased. I return to this theme so soon because radical ideas about monetary policy suddenly seem to be gaining traction. Some of the world’s most powerful central bankers – Mario Draghi of the European Central Bank last Thursday, Eric Rosengren of the Boston Fed on Monday and Mervyn King of the Bank of England this Wednesday – are starting to admit that the present approach to creating money, known as quantitative easing, is failing to generate economic growth. Previously taboo ideas can suddenly be mentioned.
The nice thing about this is it wouldn’t rely on some second-order effects through the expectation channel. With a big cash windfall a major fraction of the population are sure to spend it or use it to pay down some debt. When you’re in a depression, as we are, that’s just what the doctor ordered. This is as opposed to normal quantitative easing, which relies on pushing on the economy through the rotten banking system. Like a sponge, the banks absorb most of the money before it seeps out into the real economy.
Probably the biggest obstacle with this is how ridiculous it sounds. “The money has to come from somewhere,” people say. Actually, no it doesn’t. That’s the whole idea behind fiat money. Nothing behind it. “It’ll create hyperinflation,” conservatives will say. Nope. Right now we’re in a depression: we have very low inflation from too few people with jobs and money buying not enough goods and services to run the economy at potential.
Therefore, more spending will just pull in more idle people and resources. Only when the economy is at capacity is serious inflation a possibility. If it starts to happen, the Fed can easily act to restrain it.
The least convincing counterargument is the moral hazard one. “Can’t give people free money,” people say, “otherwise they’ll lose their moral fiber. Success must be earned.” I suppose all other things equal that’s the case, but that argument sure didn’t stop the Treasury from stuffing $700 billion down the rotting throats of the banks back in 2008, and it hasn’t stopped the Fed from stuffing God knows how many more trillions in cheap loans after it.
Again, I agree that moral hazard should be a consideration, especially for the richest and most powerful people and corporations, but we recognize in a crisis sometimes it’s more important to keep the system from collapsing than make sure every person gets exactly what she deserves. When we had a banking crisis, everyone agreed on this. Elites everywhere panicked, and swooped in with “incredible speed and force to bail out the financial sectors in which creditors are invested, trampling over prior norms and laws as necessary.” We’re now in the fourth year of an unemployment crisis, and it’s high time we found some similar urgency.
Nothing I haven’t said before, and still probably little chance of happening, but here’s hoping. Regular people could use a bailout every bit as much, if not more, than wealthy elites.
By: Ryan Cooper, Washington Monthly Political Animal, August 9, 2012
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