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.

There's more...

Here Come the Witch Hunts

Politico reports in detail today what I have already touched on in brief weeks ago. Rep. Darrel Issa and the Republicans are planning a wave of committee investigations targeting the White House and Democratic allies if they win back the majority and regain the power of subpoena. 

Peter Daou states the obvious:

Republicans play hardball. Brazen hardball. Unscrupulous hardball. Yes, it’s couched in well-crafted soundbites about fighting “big government” and “judicial activism” and promoting “fiscal responsibility.” But in essence, it’s about no-prisoners political warfare. And when there’s a Democrat in the White House, it means total destruction of that presidency.

Nothing else will satisfy the GOP's lust for power than the wanton destruction of Obama's Presidency. From day one, this has been their game plan, obstruct, rant and rave, delay, obstruct some more, rant and rave, delay, repeat as necessary as to make the nation look ungovernable and the Administration as pathetic and dangerous if not criminal. Throw enough mud, maybe some will stick. And if nothing's there, invent something.

Starring in the role of chief inquisitor is California's Darrell Issa, the ranking Republican on the House Oversight and Government Reform Committee. Issa, we are told, would like Obama's cooperation. But it’s not essential.

"How acrimonious things get really depend on how willing the administration is in accepting our findings [and] responding to our questions," says Kurt Bardella, a spokesman for Rep. Issa who refers to his boss as "questioner-in-chief."

If this sounds like a re-run to you, it is. Issa will be reprising the role once played by Rep. Dan Burton of Indiana during the Clinton years. Also starring in a supporting role is Texas Rep. Lamar Smith.

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US Looking at Striking Pakistan

The Washington Post reports that the Obama Administration is reviewing options for a unilateral strike in Pakistan in the event that a successful attack on American soil is traced backed to Pakistan.

Ties between the alleged Times Square bomber, Faisal Shahzad, and elements of the Pakistani Taliban have sharpened the Obama administration's need for retaliatory options, the officials said. They stressed that a U.S. reprisal would be contemplated only under extreme circumstances, such as a catastrophic attack that leaves President Obama convinced that the ongoing campaign of CIA drone strikes is insufficient.

"Planning has been reinvigorated in the wake of Times Square," one of the officials said.

At the same time, the administration is trying to deepen ties to Pakistan's intelligence officials in a bid to head off any attack by militant groups. The United States and Pakistan have recently established a joint military intelligence center on the outskirts of the northwestern city of Peshawar, and are in negotiations to set up another one near Quetta, the Pakistani city where the Afghan Taliban is based, according to the U.S. military officials. They and other officials spoke on the condition of anonymity because of the sensitivity surrounding U.S. military and intelligence activities in Pakistan.

The "fusion centers" are meant to bolster Pakistani military operations by providing direct access to U.S. intelligence, including real-time video surveillance from drones controlled by the U.S. Special Operations Command, the officials said. But in an acknowledgment of the continuing mistrust between the two governments, the officials added that both sides also see the centers as a way to keep a closer eye on one another, as well as to monitor military operations and intelligence activities in insurgent areas.

Obama said during his campaign for the presidency that he would be willing to order strikes in Pakistan, and Secretary of State Hillary Rodham Clinton said in a television interview after the Times Square attempt that "if, heaven forbid, an attack like this that we can trace back to Pakistan were to have been successful, there would be very severe consequences."

Obama dispatched his national security adviser, James L. Jones, and CIA Director Leon Panetta to Islamabad this month to deliver a similar message to Pakistani officials, including President Asif Ali Zardari and the military chief, Gen. Ashfaq Kiyani.

Jones and Panetta also presented evidence gathered by U.S. law enforcement and intelligence agencies that Shahzad received significant support from the Pakistani Taliban.

The U.S. options for potential retaliatory action rely mainly on air and missile strikes, but could also employ small teams of U.S. Special Operations troops already positioned along the border with Afghanistan. One of the senior military officials said plans for military strikes in Pakistan have been revised significantly over the past several years, moving away from a "large, punitive response" to more measured plans meant to deliver retaliatory blows against specific militant groups.

The official added that there is a broad consensus in the U.S. military that airstrikes would at best erode the threat posed by al-Qaeda and its affiliates, and risk an irreparable rupture in the U.S. relationship with Pakistan.

We are already striking at Pakistan. Unmanned drone attacks have become so commonplace that they are not even reported anymore or at best reported in passing as if incidental. As of the end of April there had been 34 missile strikes, at least two every week, according to figures compiled by the New America Foundation. This compares to 53 for all of last year and 30 during the last year of the Bush Administration. In terms of fatalities, the New American Foundation reports that only seven of the 247 people in killed in strikes up until the end of April have been classified as militants or enemy combatants. If that number is accurate, that's a 2.8% hit rate.

UPDATE: Spencer Ackermann of the Washington Independent points to a new study on the efficacy of predator drone attacks in Pakistan. The forthcoming study, led by Brian Glyn Williams, an associate professor at the University of Massachusetts, finds that the civilian death toll from the drones is lower than most media accounts present. The Williams study which runs through the end of February 2010 finds that there have been a total of 127 confirmed CIA drone strikes in Pakistan, killing a total of 1,247 people. Of those killed only 44 (or 3.53 percent) could be confirmed as civilians, while 963 (or 77.23 percent) were reported to be “militants” or “suspected militants.” Clearly the hit rate, and thus the efficacy of the predator drone attacks, is now a matter of intense study and debate. But what also should not be lost is the deletoroius effect that the drone attacks are having on Pakistani public opinion and ultimately on US-Pakistani relations.

The New York Times also has an editorial today on the subject of US-Pakistani relations. While the whole editorial is well worth the read, its conclusion is particularly striking. The Times editorial board concludes that "changing Pakistani attitudes about the United States will take generations." Generations.

Emanuel Asked Bill Clinton to Talk to Sestak

Greg Sargent of the Washington Post has the scoop:

Senior White House advisers asked former President Bill Clinton to talk to Joe Sestak about whether he was serious about running for Senate, and to feel out whether he'd be open to other alternatives, according to sources familiar with the situation.

But the White House maintains that the Clinton-Sestak discussions were informal, according to the sources. The White House, under pressure to divulge the specifics of its interactions with Sestak, will release a formal statement later today outlining their version of events, including Clinton's involvement.

According to the sources, White House chief of staff Rahm Emanuel asked Clinton and his longtime adviser, lawyer Doug Band, to talk to Sestak about the race. It's unclear right now whether the White House will say that Clinton was asked to suggest specific administration positions for Sestak, whether Clinton floated positions on his own, whether Clinton discussed other options not related to the adminstration, or whether employment even came up at all in the talks.

But the news that Clinton is at the center of this whole story is noteworthy on its own because of the former president's stature, and underscores how heavily invested the White House was in dissuading Sestak from running. The White House sent Clinton to talk to Sestak because Arlen Specter, constituting the 60th Dem vote in the Senate, was viewed as key to enacting Obama's agenda.

The White House maintains that Clinton's overtures to Sestak merely constituted an effort to gauge his seriousness about the race, the sources say, adding that Clinton was informally discussing the range of options open to Sestak as part of a larger conversation meant to ascertain Sestak's thinking.

Geez, they wanted to know what Sestak was thinking. The horror.


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