David Brooks today hammers the Republican Party for its wholly inadequate response to the Great Recession and to President Barack Obama's plans for economic recovery:
The Democratic response to the economic crisis has its problems, but let’s face it, the current Republican response is totally misguided. The House minority leader, John Boehner, has called for a federal spending freeze for the rest of the year. In other words, after a decade of profligacy, the Republicans have decided to demand a rigid fiscal straitjacket at the one moment in the past 70 years when it is completely inappropriate.
The G.O.P. leaders have adopted a posture that allows the Democrats to make all the proposals while all the Republicans can say is “no.” They’ve apparently decided that it’s easier to repeat the familiar talking points than actually think through a response to the extraordinary crisis at hand.
If the Republicans wanted to do the country some good, they’d embrace an entirely different approach.
If Republicans were to treat this like a genuine emergency, with initiative-grabbing approaches, they may not get their plans enacted, but voters would at least give them another look. Do I expect them to shift course in this manner? Not really.
Instead of offering reasonable policy choices, Republicans argue that we shouldn't do anything other than try to change a couple banking rules to restore lending. This, and many of Brooks' proposals, shows a deep misunderstanding about the causes of the Great Recession. There were fundamental problems in the American economy long before the financial meltdown, including the stagnation of wages and incomes for everyday Americans, despite strong productivity and GDP growth. This wage-productivity gap had never been seen before in American economics, and, unless policymakers move to create a 21st century economy, recovery will not come the way we'd like. This necessitates, unlike Brooks argues, bold action to restructure much of what was not working.
As an example of the backwards response that Republicans are exhibiting on the economy, enjoy U.S. Rep. Jack Kingston of Georgia on Morning Joe:
Sam linked to it this morning, but this new essay by Martin Wolf, the first in a new series about the future of capitalism in the FT, is worth revisiting (and reading):
In the west, the pro-market ideology of the past three decades was a reaction to the perceived failure of the mixed-economy, Keynesian model of the 1950s, 1960s and 1970s. The move to the market was associated with the election of Reagan as US president in 1980 and the ascent to the British prime ministership of Margaret Thatcher the year before. Little less important was the role of Paul Volcker, then chairman of the Federal Reserve, in crushing inflation.
Yet bigger events shaped this epoch: the shift of China from the plan to the market under Deng Xiaoping, the collapse of Soviet communism between 1989 and 1991 and the end of India's inward-looking economic policies after 1991. The death of central planning, the end of the cold war and, above all, the entry of billions of new participants into the rapidly globalising world economy were the high points of this era.
Today, with a huge global financial crisis and a synchronised slump in economic activity, the world is changing again. The financial system is the brain of the market economy. If it needs so expensive a rescue, what is left of Reagan's dismissal of governments? If the financial system has failed, what remains of confidence in markets?
It is impossible at such a turning point to know where we are going. In the chaotic 1970s, few guessed that the next epoch would see the taming of inflation, the unleashing of capitalism and the death of communism. What will happen now depends on choices unmade and shocks unknown. Yet the combination of a financial collapse with a huge recession, if not something worse, will surely change the world. The legitimacy of the market will weaken. The credibility of the US will be damaged. The authority of China will rise. Globalisation itself may founder. This is a time of upheaval.
In today's Wall Street Journal, Michael J. Boskin, former Chair of the Council of Economic Advisors for President George H.W. Bush and a Senior Fellow at the aptly named Hoover Institution, lays out a list of conservative talking points against the President’s budget. Dr. Robert Shapiro laid out a pretty compelling analysis of the problems with this type of thinking, but the real issue with the column is that, preceding the talking points, Boskin says this:
Obama's Radicalism Is Killing the Dow
A financial crisis is the worst time to change the foundations of American capitalism.
It's hard not to see the continued sell-off on Wall Street and the growing fear on Main Street as a product, at least in part, of the realization that our new president's policies are designed to radically re-engineer the market-based U.S. economy, not just mitigate the recession and financial crisis.
The column proceeds with the list of conservative complaints about the budget, and provides no substantive reason why President Obama’s allegedly flawed budget blueprint is specifically making the Dow tank.
I have another reason in mind why the Dow might be tanking. Let's try it on for size:
The economy is in the tank.
That's right, the actual state of the economy, including the massive financial and housing crises, is the actual force driving down the stock prices of the large companies that comprise the Dow Jones Industrial Average. It's not that Obama is some sort of radical. (Take a look at David Brooks today, who comes around on the notion that Obama and his people are pragmatists, even if he’s not fully on board with their brand of pragmatism.) Rather, it's that the American economy is in its worst shape since the Great Depression.
The causation (more on causation from Mankiw today) Boskin implies (and he's by no means the only one, the media – especially business media – is obsessed with attributing the ups and downs of the Dow to various policies or how confidently the President is speaking, or how much the budget weighs or quickly it can be deep fried), is largely misplaced, and ultimately dangerous. There are times when markets react to government policy, and that's been happening somewhat lately too, but, right now, the Dow is in the tank because that's where the economy is, and its not getting fixed by today's closing bell.
The leaders of the Republican Party, reeling from their painful string of defeats, seem stuck in two of the classic stages of grief, denial and anger. This week, Rush Limbaugh replaced Bobby Jindal as the leading and most colorful example. Limbaugh may seem like too easy a target, since talk radio always tends toward hyperbole. Nonetheless, the essence of the message from the presumptively addled Mr. Limbaugh is that Americans would be better off if the President’s economy program failed. Even if their homes slip into foreclosure and their kids have to drop out of college, American families would at least escape the degradations of “socialism” or, as another popular conservative pundit put it, “left fascism” (that’s from the hard-right blogger and historian, Ron Radosh).
The rhetorical excesses of talk radio and the Web would hardly be noteworthy, if the same strain of non-thinking didn’t also dominate the Republican Party’s current economic positions. Let’s set the stage: of the three natural sources of demand in a market economy, consumers have stopped spending, businesses have stopped investing, and exports have fallen off the proverbial cliff. That leaves government stimulus as the only possible source of new demand to at least slow the accelerating downward momentum of the economy and most of the people in it. Perhaps the best explanation, then, for why every Republican in the House and all but three GOP senators voted “no!” on the President’s stimulus is, well, denial and anger.
To be sure, economic ideology almost certainly plays a role here, too, on top of their denial (about the consequences) and anger (about no longer calling the shots). This came through vividly at a conference I attended earlier this week for the National Chamber Foundation. My panel was asked to talk about whether the Administration’s plans foreshadowed a permanent change in the relationship between the public and private sectors. Set aside the fact that the leaders of the central private institutions in this drama, big finance, have begged Washington to amend that relationship long enough to preserve their jobs and the assets of their bond holders.
At the panel, a well-turned-out executive from a major private equity company (and former Bush Treasury official) laid out what once could have been the reasonable conservative position -- stimulus weighted to tax cuts, a banking rescue that avoids taking over anybody (or dictating anybody’s compensation), and tax-based measures to reduce foreclosures. As a matter of economics, he got his targets right, even if his approaches are weaker than those favored by the Administration. But at least his response suggested that he wants the economy to recover, regardless of who gets the credit.
Not so from the other member of the panel, Brian Westbury, who on top of being an economist with a Midwestern financial advisory is also the economics editor of the American Spectator and a frequent writer for the Wall Street Journal. He provided an economic-cum-ideological gloss for the denial and anger expressed by the flamboyantly-frustrated Mr. Limbaugh. Westbury’s prescription was no stimulus, no banking rescue and no program for foreclosures. The only constructive government action he could imagine was to jettison current “mark-to-market” rules. Those rules say that the balance sheets of banks and public companies have to reflect the actual market value of their assets and liabilities. So, for example, when a mortgage-backed security goes bust, you have to write down its value while preserving the liability of the money borrowed to purchase it and still owed.
In this view, none of what seems so important to the rest of us -- collapsing demand, investment and trade, huge job losses, rising bankruptcies -- matters for government policy. The only thing Washington should do here is to change how the financial losses from these events are reported. This isn’t economics; it’s a prescription that follows from a hard-edged ideological view that government can do nothing of value for an economy, regardless of conditions.
Unhappily, this cramped understanding isn’t limited to the pages of the American Spectator and the Wall Street Journal op-ed page. Bobby Jindal put the Republican Party on record for much the same view in his awkward response to the President’s address to Congress. He even cited the colossal inadequacies of the Bush Administration’s response to Katrina as proof that the private sector is always the best answer to any problem or catastrophe -- even if it’s under water at the time.
I honestly can’t believe that they’re really so dull-witted. A better explanation for Jindal and Limbaugh, along with commentators like Westbury and Radosh, is that they’re still grappling with the grief of losing the support of the American people -- and the power that came with it. They’re stuck in denial and anger. And that’s a very bad position from which to consider the best policies for a nation and world economy in crisis.
Across the upper five percent of America, there's some sense that this Great Recession, as NDN's Dr. Robert Shapiro labeled it in December, just isn't really that bad. Sure, stocks are taking a hit and the financial sector is hurting, but we've been there before. In the New York Times, David Leonhardt lays out how bad this Great Recession really is, and who it has hurt the most, to this point.
What does the worst recession in a generation look like?
It is both deep and broad. Every state in the country, with the exception of a band stretching from the Dakotas down to Texas, is now shedding jobs at a rapid pace. And even that band has recently begun to suffer, because of the sharp fall in both oil and crop prices.
Unlike the last two recessions — earlier this decade and in the early 1990s — this one is causing much more job loss among the less educated than among college graduates. Those earlier recessions introduced the country to the concept of mass white-collar layoffs. The brunt of the layoffs in this recession is falling on construction workers, hotel workers, retail workers and others without a four-year degree.
The Great Recession of 2008 (and beyond) is hurting men more than women. It is hurting homeowners and investors more than renters or retirees who rely on Social Security checks. It is hurting Latinos more than any other ethnic group.
Leonhardt tells us that could all soon change:
You often hear that recessions exact the biggest price on the most vulnerable workers. And that’s true about this recession, at least for the moment. But it isn't the whole story. Just look at Wall Street, where a generation-long bubble seems to lose a bit more air every day.
In the long run, this Great Recession may end up afflicting the comfortable more than the afflicted.
He points out that the collapse of the financial sector will hurt the wealthy and ultimately lead to a smaller Wall Street. (The same dynamic will ultimately help young families, allowing them to buy into the financial and housing markets at the bottom.) Government policy will reduce inequality. And, most importantly for expanding the economic pie, the nation's unemployed will turn to education, if they can. Community colleges are already feeling budget crunches across the country, especially in the areas where they’re most needed.
There seems to be, amongst conservatives in Congress and the Rick Santellis of the world, a sense that the Great Recession just isn't that bad. They shout "Moral Hazard" as we try and stabilize the housing market, and they cry about deficits that didn't matter to them when the last Administration launch an optional war and ideological tax cuts. But Leonhardt tells us that they're about to start feeling it.
And, even if they aren't big fans of some of the President's plans, let's hope they can work with him to do the one thing we know will grow the economy for everyone in the long term – build a 21st century education system to create the workforce for the next great expansion.
I’d imagine that everyone has seen Rick Santelli’s absolutely absurd tirade on CNBC yesterday, but in case you haven't:
Santelli's tirade is remarkable for his anger about (amongst many other things) the idea that the Obama mortgage plan throws the concept moral hazard to the wind. According to Santelli's line of argument, people are now going to make irresponsible decisions about their housing and general economic behavior because of this government policy. And he’s getting cheered by a bunch of stock traders behind him.
The irony (as if there's only one) is that much of his cheering section had long ago thrown caution to the wind, as they took tremendous risks, many of which were premised on the notion that, if things got really bad, government salvation was a foregone conclusion. Big banks knew they were too big to fail; the financial world felt invulnerable. And I didn't hear them complaining about moral hazard when now more than a trillion dollars has been thrown at these banks, which makes the Obama housing plan, which will affect 8-10 million Americans and cost $75 billion, look cheap.
In the current economic climate, moral hazard has become a convenient piece of poorly understood economic theology that critics of any given government plan use to oppose it. The economy is in such shape that being overly concerned with this theology is folly. Policymakers need to focus on pragmatic solutions that fix these incredibly serious problems with the economy, including the housing market, in large part because figuring out the incentives that will nudge Americans’ behavior in the proper direction in incredibly complex markets is not going to happen by tonight’s closing bell.
With the economic recovery plan on the verge of final passage, please find some of NDN's best and latest thinking on the plan, the great recession, and the financial system:
The Fallout of the Great Recession for Trade by Dr. Robert Shapiro, 2/11/2009 - Shapiro argues that the world is currently experiencing the economic symptoms of protectionism without actual protectionist measures being put in place, which could have dangerous consequences for the global economy.
Optimism and Hope by Michael Moynihan, 2/11/2009 - Moynihan points out that an optimistic message is the best way for the Obama Administration to lead the country through these difficult economic times.
Stabilizing the Financial System by Michael Moynihan, 2/10/2009 - Moynihan examines the reaction to Treasury Secretary Tim Geithner's speech and the necessary next steps for the financial system.
Recovery Without E-verify and Buy American by Simon Rosenberg, 2/10/2009 - Rosenberg advocates for the removal of "Buy American" and E-verify provisions from the stimulus, provisions that will not stimulate the economy and will do more harm than good.
Politics and the Economic Crisis by Dr. Robert Shapiro, 1/9/2009 - Shapiro argues that, for an economic recovery plan to be effective, we must also address the underlying causes of the "Great Recession," including the housing crisis.
A Stimulus for the Long Run by Simon Rosenberg and Dr. Robert Shapiro, 11/14/2008 – This important essay lays out the now widely agreed-upon argument that the upcoming economic stimulus package must include investments in the basic elements of growth for the next decade, including elements that create a low-carbon, energy-efficient economy.
Back to Basics: The Treasury Plan Won't Work by Dr. Robert Shapiro, 9/24/2008 - As the financial crisis unfolded and the Bush Administration offered its response, Shapiro argued that, while major action was needed, the Treasury's plan would be ineffective.
Keep People in Their Homes by Simon Rosenberg and Dr. Robert Shapiro, 9/23/2008 – At the beginning of the financial collapse, NDN offered this narrative-shaping essay and campaign on the economic need to stabilize the housing market.
During the Clinton Administration, Judd Gregg fought hard to deny the Commerce Secretary the ability to use the latest techniques to ensure the most accurate Census count. The goal of this effort was to make it harder for the Census to count minorities, young people and the poor, groups the Republicans do not view as part of their coalition.
This history should disqualify him from ever serving in a Democratic Administration. In this last election, the American people rejected the politics of the Southern Strategy once and for all, and those leaders who have a history of exploiting race for political gain have no place in an Obama Administration.
We at NDN are glad to see Senator Gregg go. His withdrawal says much more about the inability of the modern Republican Party to let go of its failed and anachronistic politics than it does about the vetting capacity of this young Administration.
"Dear America, please remember how you got to be the wealthiest country in history. It wasn't through protectionism, or state-owned banks or fearing free trade. No, the formula was very simple: build this really flexible, really open economy, tolerate creative destruction so dead capital is quickly redeployed to better ideas and companies, pour into it the most diverse, smart and energetic immigrants from every corner of the world and then stir and repeat, stir and repeat, stir and repeat, stir and repeat."
A New York Times op-ed today by Tom Friedman - quoted above - brings up some interesting points. Enjoy.
The U.S. Senate’s “Dr. No,” Republican Judd Gregg of New Hampshire, best captured the need for political leadership in this time of crisis in accepting his nomination by President Barack Obama to be U.S. Secretary of Commerce: "Now is not the time for partisanship. Now is not the time to stand in our ideological corners and shout at each other. Now is the time to govern and govern well."
Unfortunately, many in Congress, including much of the leadership of both parties, still don't understand that the United States has entered a new civic political era, demanding new rules of behavior in response to our dire economic circumstances. Even as President Obama expresses the "fierce urgency of now," pointing out that if government does not act soon and vigorously it "will turn a crisis into a catastrophe," Congress still seems unable to put aside the ideological arguments and constant efforts to win partisan advantage that characterized American politics in the era the country has just left.
Congressional Republicans seem to believe that the economy can only be revitalized by tax cuts while Democrats say that only vast federal spending, some of it on the pet projects of Members, will produce economic recovery. As demonstrated by the recent House vote on final passage of the economic recovery bill, in which virtually all Democrats voted against all Republicans, working across party lines remains an elusive dream. Republican Members of Congress seem intent on following the strategy from their ideological battles with President Bill Clinton a decade ago in which the goal was to enforce party discipline in the hope that the President and his party would fail and Republicans could blame the Democrats in the next election. But with the stakes as high as they are now, the GOP should instead be listening to the author of that earlier strategy, Newt Gingrich, who has publicly made it clear that the country cannot afford for Obama’s economic recovery plan to fail.
Meanwhile, Democrats need to learn some new rules of behavior as well. While NDN's Globalization Initiative Chair Dr. Rob Shapiro has correctly noted that the recovery package now before the Senate contains only the "normal quotient of special interest subsidies on both the spending and tax sides -- think of it as a 'congressional tax,'" -- these clearly aren’t normal times. It may be true that, as Rob says, "they really can’t help themselves." But like others recovering from an addiction, Democrats will have to at least try to change their approach to building legislative consensus in this new era, one step at a time.
The American public clearly sees the distinction between Congress' approach and that of President Obama. A Pollster.com compendium of national surveys indicates that 70 percent of Americans have a favorable opinion of President Obama and 63 percent approve of his performance. By contrast, only 17 percent approve of the job Congress is doing, while 78 percent disapprove. More to the point, in a recent Rasmussen Reports survey, a plurality (42 percent) perceives Obama to be governing in a bipartisan manner. By contrast, only half that number believes the same of both congressional Democrats and Republicans (22 percent each).
Of course, there is a way out. Unlike the social issues that dominated American politics during much of the last four decades, the economic and fiscal issues that are the current focus can be bridged with a non-ideological, post-partisan, and pragmatic approach recognizing that each side may have something to offer. If properly targeted, the tax cuts advocated by Republicans should be useful. If aimed at the right mix of projects, the Democratic spending proposals should help the economy in the short run and provide the conditions for growth in the long run. Keeping people in their homes, as both parties seem to advocate, will help families, neighborhoods, and society.
In short, as Rob Shapiro points out the recovery package can be "a useful first step, and one for which NDN has long argued."
Unlike their legislative representatives, the public has moved on from the cultural wars of the last decade. In a late January Pew survey, more than eight in 10 named the economy (85 percent and jobs (82 percent) as top policy priorities for the federal government, significantly above the numbers saying this about any other issue. In a January Wall Street Journal/NBC News poll, only seven percent cited “social issues” as an area on which government should focus compared to 21 percent who cited such cultural issues a decade ago. Paul Helmke, The Republican former mayor of Fort Wayne, Indiana, summed up the historical nature of the shift, telling Naftali Bendavid of the Wall Street Journal, that in a time of war and financial crisis, "people tend to focus on pragmatic issues rather than what the framers meant in 1789."
Throughout our history, major transformations or civic realignments have occurred at a time of intense national crisis that threatens the viability or even existence of the Republic. One such crisis occurred in the mid-19th century when the nation, led by Abraham Lincoln, overcame secession and a civil war to preserve the Union and end the moral blight of slavery. Another took place in the 1930s as America, spurred by Franklin D. Roosevelt, created the governmental institutions that allowed it to overcome the greatest economic downturn in its history and later to overcome the threats of fascism and communism.
The makeovers stemming from these crises change almost everything about U.S. government and politics -- voting alignments, public policy, and the rules by which politicians are expected to act and are judged by the American people (as we recently wrote in our essay, New Rules for a New Era). In the idealist periods before these civic realignments political figures more often than not act as moralists bent on the uncompromising advancement of ideological positions across virtually every policy concern--economic, international, and cultural -- and, more often than not, the public applauds and rewards this behavior. But, after civic realignments, faced with overwhelming and severely threatening crisis, the behavioral expectations and evaluative standards of politicians are altered. The public wants politicians to work across party and institutional lines on a non-ideological basis to produce pragmatic policies that deal with the crisis facing the nation. It's time for the House and Senate to follow the lead of President Obama and the American people and adopt new rules for a new era.