Krugman on The Economic Narrative

Paul Krugman tackles the problem of the economic narrative today:

The way the right wants to tell the story — and, I’m afraid, the way it will play in November — is that the Obama team went all out for Keynesian policies, and they failed. So back to supply-side economics!

The point, of course, is that that is not at all what happened. A straight Keynesian analysis implied the need for a much bigger program, more oriented toward spending, than the administration proposed. And people like me said that at the time — we’re not talking about hindsight.

You can argue that nothing bigger and better was politically feasible; we’ll never know about that. But what we do know is that (1) senior administration officials, even in internal arguments, claimed that half-measures were the right thing to do, based on … well, invented doctrines that certainly weren’t basic Keynesian. And (2), the administration has never said that it had to make do with an underpowered plan; on the contrary, to this day it maintains that what it did was just right. And this just feeds the false narrative.

As Ronald Brownstein noted in the National Journal back in April, the Republicans' narrative about Obama's economic agenda has been straightforward and unrelenting. Brownstein writes "in their telling, Obama is transforming the United States into a sclerotic European social-welfare state; forcing the strained middle class to fund both a "crony capitalism" of bailouts for the powerful (the charge McConnell leveled against the financial bill) and handouts for the poor (through health care reform); and impeding recovery by smothering the economy beneath stultifying federal spending, taxes, and regulation."

The GOP's distorting narrative has been so successful that there are even those on the left who believe that the Troubled Asset Relief Program was some sort of optional exercise, a safety net for Wall Street. There are certainly valid criticisms to be made of the TARP, which is a George Bush/Hank Paulson policy to begin with, but the necessity of preventing a collapse of the banks should be quite clear to everyone. The TARP provided the necessary liquidity to keep the credit markets afloat when the danger was very really of a wider systemic collapse. In December 2009, the Oversight Panel headed by Elizabeth Warren concluded:

There is broad consensus that the TARP was an important part of a broader government strategy that stabilized the U.S. financial system by renewing the flow of credit and averting a more acute crisis. Although the government’s response to the crisis was at first haphazard and uncertain, it eventually proved decisive enough to stop the panic and restore market confidence.

More recently, I covered the Blinder Zandi Report which detailed what would have happened had we not acted. The report, authored by Mark Zandi, Moody's chief economist and a former adviser to both the McCain and Obama campaigns, and Alan Blinder, a Princeton economist who has served as vice chairman of the Federal Reserve's Board of Governors, offers the first comprehensive estimate of our full response to the crisis: Absent the TARP and the fiscal stimulus, "GDP in 2010 would be about 6 ½ percent lower, payroll employment would be less by some 8 ½ million jobs, and the nation would now be experiencing deflation." The TARP worked; the fiscal stimulus worked but should have been $1.3 trillion in size with fewer tax cuts and more actual investment spending.

I'm not sure if the Obama Administration is salvageable to be quite honest. The President and his team may win re-election or they may not depending on the caliber of the GOP opposition and how unemployment tracks between now and 2012. There's not much we can do about the former but there is still much that the Administration can do about the latter.

The GOP has since 1960 demonstrated a tendency to nominate a conservative as their standard bearer after an electoral loss. Thus a Nixon loss in 1960 begot Goldwater in 1964, a Ford loss in 1976 lead to Reagan in 1980, and Dole loss in 1996 brought Bush in 2000. I'm pretty confident that whoever the GOP nominee is 2012, it is going to be someone to the right of John McCain. Still that leaves a lot of ground to cover and dozens of shades of insanity with which to contend. There is a big difference between Mitch Daniels and Sarah Palin, between John Thune and Rick Santorum, between Tim Pawlenty and Mike Huckabee, between Mitt Romney and Newt Gingrich. And while Mitch Daniels may be the sanest of the bunch, he's still quite to the right of John McCain.

Nonetheless, as of now and noting that in politics 26 months is an eternity, I think Mitch Daniels represents probably the toughest challenge for Obama among the potential 2012 Republican nominees. But I don't think that Mitch Daniels can win the GOP nomination as things stand now.

The other moving part on Obama's re-election prospects are how the Administration handles the economy and in particular the vexing issue of unemployment. In this regard, I would like to see the following personnel changes in the Administration: Laura Tyson replacing Lawrence Summers as Director of the White House National Economic Council, Austan Goolsbee taking over for the departing Christina Romer as chair of the White House Council of Economic Advisers, Jon Corzine taking over as Secretary of the Treasury for the hapless Timothy Geithner and John Podesta returning to White House as Chief of Staff. I'd also find a role for Joseph Stiglitz, Simon Johnson and Dean Baker. It should go without saying that Elizabeth Warren needs to be named as the head of new Bureau of Consumer Financial Protection. 

I'll nip in the bud the push back on Corzine as Treasury Secretary: if you want to reign in Wall Street, you'll need someone who knows the major players intimately and who can make some of the more obtuse, like say Dan Loeb and Jamie Dimon, understand that it is in Wall Street's best interest to return to the pre-Reagan regulatory environment. That's going to be a hard sell because these titans of capital now seen themselves as political gatekeepers to a degree that we have not seen since the days of J.P. Morgan a full century ago.

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Obama's Failure of Leadership

The White House healthcare proposals, the attempt to bridge the gap between the House and Senate versions, did not include a public option. On this omission, Ezra Klein writes in the Washington Post that this demonstrates "a complete and utter failure of White House leadership."

They need to give this effort their support, or they need to kill it by publicly stating their opposition. But they can't simply wait for someone else to make the decision for them, which has been their strategy until now.

If the White House decides that reviving the public option is a good idea, there's reason to believe the Senate would follow them on that. It would make some sense, after all: The public option is popular, its death was partly the product of industry pressure, and the sudden spate of high-profile rate increases offers a nice rhetorical pivot for anyone who wants to argue that individuals should be able to choose an insurer who's not a profit-hungry beast. Plus, Democrats need an excited base going into the 2010 election, and this may be the only way to get it.

While the death of the public option may have partly been a result of industry pressure, the onus lies squarely with the White House. After all, where does the buck stop? Who is willing or unwilling to fight the powers that be? Some fights are worth having but we have a President and a Chief of Staff who would rather cut a deal than fight the good (and hard) fight. It has been a complete and utter failure of White House leadership.

To be sure the White House has paid lip service to the idea of a public option now and again most recently earlier this week when they trotted out HHS Secretary Kathleen Sebelius to suggest that if the Senate wanted to push for a public option via the reconciliation process then Majority Leader Harry Reid was free to do so. Such a suggestion is a passing of the buck. Corralling 51 votes on this was always going to be arduous task but nonetheless 23 Senators had stepped forward until Senator Jay Rockefeller rained on the parade.

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The Obama Narrative: The Fierce Urgency of Now

In his New York Times op-ed, Thomas Friedman is on the mark when he notes that President Obama's agenda while comprehensive lacks a "compelling narrative."

Mr. Obama won the election because he was able to “rent” a significant number of independent voters — including Republican business types who had never voted for a Democrat in their lives — because they knew in their guts that the country was on the wrong track and was desperately in need of nation-building at home and that John McCain was not the man to do it.

They thought that Mr. Obama, despite his liberal credentials, had the unique skills, temperament, voice and values to pull the country together for this new Apollo program — not to take us to the moon, but into the 21st century.

Alas, though, instead of making nation-building in America his overarching narrative and then fitting health care, energy, educational reform, infrastructure, competitiveness and deficit reduction under that rubric, the president has pursued each separately. This made each initiative appear to be just some stand-alone liberal obsession to pay off a Democratic constituency — not an essential ingredient of a nation-building strategy — and, therefore, they have proved to be easily obstructed, picked off or delegitimized by opponents and lobbyists.

So “Obamism” feels at worst like a hodgepodge, at best like a to-do list — one that got way too dominated by health care instead of innovation and jobs — and not the least like a big, aspirational project that can bring out America’s still vast potential for greatness.

Friedman's point isn't much different from the view expressed by John Podesta earlier this month when he complained of a "lost narrative."

The President would do well to package it all together and sell a vision. It's not that he doesn't have one, he certainly offered a compelling vision when running for office. It is that he has failed to articulate that vision day in and day out, never weaving the disparate threads of policies coherently into an overarching and easily comprehensible narrative.

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