The Politicking Populist

Over the Labor Day weekend in Milwaukee and again today outside Cleveland, President Obama delivered a strong defense of his presidency as he outlined a new $50 billion infrastructure investment proposal and a $100 billion proposal that will permanently extend research and development tax credits for businesses as part of his economic recovery program. The President also called for an end to the Bush-era tax cuts for the wealthy, saying the country cannot afford $700 billion in tax breaks that benefit “millionaires and billionaires.”

The speech was vintage Obama. As he had forewarned earlier this summer during his television appearance with the ladies of The View, the President can "politick" very well. Helene Cooper of the New York Times termed the speech a "sharply populist speech that sought to appeal to the middle class" in which the President also "urged voters not to allow Republicans to 'ride' fears about the economy into the election booths in the midterm elections in November." Over at The Atlantic, Marc Ambinder exalted that the President had written "his thesis statement."

Policy messaging, large framing opportunities, telling stories -- still relies on direct communication from a president to the people without a self-selected content or media filter. Oval Office speeches, press conferences, policy proposals sold as policy proposals -- this is the stuff of getting from point A to point B. It's not complicated. It's not ornamentalized. It's not focused grouped. It's what Americans expect from their president -- that is... it's work. He's working. This is how a president works. He tells people what he is going to do and how he does it.

When it comes to fixing the economy, people want to know: What is he for? They don't want to know: who is he? They know who he is.

Where is the thesis statement?

That's what this week is about.

The president is for a set of tax cuts for businesses and spending that would step up the pace of the economic recovery. In doing so, he's given Democrats something to run on. As much as the party wants to localize races, they're still Democrats, and President Obama is still their leader. Now, he's given them some bread. The Republicans want to freeze all spending and tax cuts. The Democrats want to cut these taxes and spend more. John Boehner, a relative unknown to the American people, took the bait this morning by offering an immediate counter-proposal. So now, Democrats have the beginning of what could credibly be called a message: here's what we're going to do. And here's what they're going to do. Do you trust them?

If the Democrats are destined to lose the House, then this presidential declarative is probably too late for political strategists. But -- and be honest here -- strategists are going to complain about anything the president does so long as his approval rating remains under 50%. But for whatever reason, or perhaps by design, President Obama's advisers now recognize that the November election IS a referendum on what the president is doing as much as it is a choice between two parties.

I think Marc is generally right. The issue is I have is that this "thesis" should been have first expounded in February 2009 and not as we approach the 20 month mark of Obama's presidency.

Still for me personally it is very reassuring, however belatedly, to hear that the President has come to recognize that the Republican game plan for what it is, for what it has always been, and for what it always be:

Look, I recognize that most of the Republicans in Congress have said no to just about every policy I’ve proposed since taking office. I realize in some cases that there are genuine philosophical differences. But on issues like this one -- a tax cut for small businesses supported by the Chamber of Commerce -- the only reason they’re holding this up is politics, pure and simple.  They’re making the same calculation they made just before my inauguration: If I fail, they win. Well, they might think that this will get them to where they want to go in November, but it won’t get our country going where it needs to go in the long run. It won’t get us there. 

It is especially noteworthy that the President noted he realized that GOP made their calculation before he was inaugurated. The GOP narrative on Obama is the one now generally holds currency across much of America and where the President failed was not in his policies, even with those that progressives may find wanting, but his remarkable adherence to seek bipartisan solutions for the sake of bipartisan solutions coupled with his even more remarkable to aversion to the blood sport side of politics that allowed the narrative that Obama was some sort of big government socialist intent on destroying American capitalism. At any rate, it is a pleasure to see and hear the politicking populist back in fine form.

Here's hoping it lasts beyond November. Because if the GOP does retake one or both houses of Congress this fall, political gridlock is all but a certainty. In fact, some elements in the GOP want nothing more. They'll destroy the country in their zeal to prove already discredited economic prescriptions. But one has to realize that when it comes to much of the GOP, their politics is faith based. They believe what they believe in spite of the empirical evidence to contrary. They believe that to place limits on economic man is to restrict the freedoms of political man and they don't care if they sentence 80 percent of Americans to perpetual poverty in the process.

The text of the President's speech is beneath the fold.

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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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The President on the Economy

The text courtesy of the White House:

THE PRESIDENT: Good afternoon, everybody. I just finished a meeting with my economic team about the current state of our economy and some of the additional steps that we should take to move forward.

It’s been nearly two years since that terrible September when our economy teetered on the brink of collapse. And at the time, no one knew just how deep the recession would go, or the havoc that it would wreak on families and businesses across this country. What we did know was that it took nearly a decade -- how we doing on sound, guys? Is it still going in the press -- okay. What we did know was that it was going to take nearly a decade in order -- can you guys still hear us? Okay. Let me try this one more time.

What we did know was that it took nearly a decade to dig the hole that we’re in -– and that it would take longer than any of us would like to climb our way out. And while we have taken a series of measures and come a long way since then, the fact is, that too many businesses are still struggling; too many Americans are still looking for work; and too many communities are far from being whole again.

And that’s why my administration remains focused every single day on pushing this economy forward, repairing the damage that’s been done to the middle class over the past decade, and promoting the growth we need to get our people back to work.

So, as Congress prepares to return to session, my economic team is hard at work in identifying additional measures that could make a difference in both promoting growth and hiring in the short term, and increasing our economy’s competitiveness in the long term -- steps like extending the tax cuts for the middle class that are set to expire this year; redoubling our investment in clean energy and R&D; rebuilding more of our infrastructure for the future; further tax cuts to encourage businesses to put their capital to work creating jobs here in the United States. And I’ll be addressing these proposals in further detail in the days and weeks to come.

In the meantime, there’s one thing we know we should do -– something that should be Congress’ first order of business when it gets back -- and that is making it easier for our small businesses to grow and hire.

We know that in the final few months of last year, small businesses accounted for more than 60 percent of the job losses in America. That’s why we’ve passed eight different tax cuts for small businesses and worked to expand credit for them.

But we have to do more. And there’s currently a jobs bill before Congress that would do two big things for small business owners: cut more taxes and make available more loans. It would help them get the credit they need, and eliminate capital gains taxes on key investments so they have more incentive to invest right now. And it would accelerate $55 billion of tax relief to encourage American businesses, small and large, to expand their investments over the next 14 months.

Unfortunately, this bill has been languishing in the Senate for months, held up by a partisan minority that won’t even allow it to go to a vote. That makes no sense. This bill is fully paid for. It will not add to the deficit. And there is no reason to block it besides pure partisan politics.

The small business owners and the communities that rely on them, they don’t have time for political games. They shouldn’t have to wait any longer. In fact, just this morning, a story showed that small businesses have put hiring and expanding on hold while waiting for the Senate to act on this bill. Simply put, holding this bill hostage is directly detrimental to our economic growth.

So I ask Senate Republicans to drop the blockade. I know we’re entering election season, but the people who sent us here expect us to work together to get things done and improve this economy.

Now, no single step is the silver bullet that will reverse the damage done by the bubble-and-bust cycles that caused our economy into this slide. It’s going to take a full-scale effort, a full-scale attack that not only helps in the short term, but builds a firmer foundation that makes our nation stronger for the long haul. But this step will benefit small business owners and our economy right away. That’s why it’s got to get done.

There’s no doubt we still face serious challenges. But if we rise above the politics of the moment to summon an equal seriousness of purpose, I’m absolutely confident that we will meet them. I’ve got confidence in the American economy. And most importantly, I’ve got confidence in the American people. We’ve just got to start working together to get this done.

Thank you very much.

While it is reassuring to hear the President speak out on the economy, I am still left somewhat wanting by his remarks. Over the weekend, I chatted with my good friend Norm Jensen who runs the free-thinking blog One Good Move and he remarked that Obama "knows how to give a campaign speech but doesn't know how to give a Presidential one." I think that's a fair assessment but Obama's problems in getting his message across seem deeper than that. If this is his clarion call to action, I suspect the response is going to be muted.

To begin with, I would prefer that the President framed the crisis not just differently but also more succinctly. This is not simply a decade long debacle attributable to George W. Bush, this is a 30 year crisis in the making that needs to be pinned on Ronald Reagan and his misbeggotten policies. I think it important to remember that Reagan didn't just run against Jimmy Carter, he ran against FDR. This entire mess has to be pinned on the GOP going back to Reagan, not for political reasons, but for economic ones. Give the devil his due, this is Reaganomics biting our collective butts.

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Record Number of Americans Seeking Government Help

That the private sector has failed should be obvious but the takeaway that conservatives will draw from the news that one in six Americans, or 17 percent, is now aid-dependent for some or all of their needs is that these Americans are somehow lazy. 

The four government social safety programs most being accessed are Medicaid, Food Stamps, Unemployment Insurance and Welfare. USA Today breaks down the numbers:

More than 50 million Americans are on Medicaid, the federal-state program aimed principally at the poor, a survey of state data by USA TODAY shows. That's up at least 17% since the recession began in December 2007.

The program has grown even before the new health care law adds about 16 million people, beginning in 2014. That has strained doctors. "Private physicians are already indicating that they're at their limit," says Dan Hawkins of the National Association of Community Health Centers.

More than 40 million people get food stamps, an increase of nearly 50% during the economic downturn, according to government data through May. The program has grown steadily for three years.

Caseloads have risen as more people become eligible. The economic stimulus law signed by President Obama last year also boosted benefits.

"This program has proven to be incredibly responsive and effective," says Ellin Vollinger of the Food Research and Action Center.

Close to 10 million receive unemployment insurance, nearly four times the number from 2007. Benefits have been extended by Congress eight times beyond the basic 26-week program, enabling the long-term unemployed to get up to 99 weeks of benefits. Caseloads peaked at nearly 12 million in January — "the highest numbers on record," says Christine Riordan of the National Employment Law Project, which advocates for low-wage workers.

More than 4.4 million people are on welfare, an 18% increase during the recession. The program has grown slower than others, causing Brookings Institution expert Ron Haskins to question its effectiveness in the recession.

As caseloads for all the programs have soared, so have costs. The federal price tag for Medicaid has jumped 36% in two years, to $273 billion. Jobless benefits have soared from $43 billion to $160 billion. The food stamps program has risen 80%, to $70 billion. Welfare is up 24%, to $22 billion. Taken together, they cost more than Medicare.

The necessity of jump-starting the economy should be obvious. Conservatives worry that government programs won't contract after the recession and that we're creating some of sort lasting dependency to government assistance. "They're much harder to unwind in the long term," says Michael Tanner of the Cato Institute, a libertarian think tank. I guess Mr. Tanner and his libertarian ilk would prefer that Americans line up for private charities and soup kitchens. This isn't just the poor that we are talking about. Increasingly those accessing these social safety net programmes are those who formerly comprised the middle classes.

In 2006, the SEIU and the Center for American Progress published a report entitled Middle Class in Turmoil (pdf) that warned that "despite an economic recovery well into its fifth year, middle class families are struggling to pay for a home, health insurance, transportation and their children’s college education due to a weak labor market and sharply higher prices. To pay for these necessary expenditures, middle class families are borrowing record amounts of money, leaving them unable to put away hardly any cash for a rainy day."

Well, guess what that rainy day is here and it's not just a deluge but a monsoon.

The 1.6 Percent GDP + 9.5 Percent Unemployment = Second Stimulus

On Friday, the Commerce Department revised its estimate for 2Q10 US gross domestic product (GDP). Unfortunately, the revision was a downward revision. According to the Commerce Department, the US economy grew at a 1.6 percent pace in the second quarter, less than the original 2.4 percent estimate. The number represents a sharp decline in the speed of economic recovery compared to the first quarter, when GDP grew at a more robust 3.7 percent clip. There's little question that the 1.6 percent figure is tepid, worrisome and certainly not sufficient reignite job growth.

If there is a bright spot in the Commerce Department report, it is that consumer spending, which represents the core of the economy accounting for nearly two-thirds of all economic activity, has risen at least modestly for four straight quarters. Still the pace of growth remains slower than normal in an economic recovery.

The US labor market remains abysmally soft. The unemployment rate in the United States was 9.5 percent and the broader U6 rate stood at 16.5 percent in July. The BLS August 2010 report will be released this Friday. I suspect the report will disappoint with the unemployment rate creeping up to 9.6 percent. My contention that our unemployment problem isn't just cyclical but structural got a boost from David Altig, research director at the Atlanta Fed. Writing in Macroblog, Altig takes us through the Beveridge Curve.

"The disconnect between the supply of and demand for workers that is reflected in statistics such as the unemployment rate, the hiring rate, and the layoff rate can be dynamically expressed by the Beveridge curve. Named after British economist William Beveridge, the curve is a graphical representation of the relationship between unemployment (from the BLS's household survey) and job vacancies, reflected here through the JOLTS (Job Openings and Labor Turnover Survey)."

The most tempting explanation for the seeming shift in the Beveridge curve relationship according to Altig is "is a problem with the mismatch between skills required in the jobs that are available and skills possessed by the pool of workers available to take those jobs." Another who thinks our unemployment problem has a structural component is Brad DeLong of the University of California at Berkeley who's been swayed by Altig's analysis. DeLong writes:

Given the large recent increase in vacancies in the past two quarters, the U.S. unemployment rate ought to have started to fall. It did not. That means that the chances are now very high that our cyclical unemployment is starting to turn into structural unemployment, as businesses that seek to hire and have the cash flow to hire still find that the currently-unemployed applying for jobs don't fit inside their comfort zones.

Taken together our tepid 1.9 percent 'recovery' plus our still torrid 9.5 percent unemployment rate call for decisive action. Perhaps it is a measure of the Administration's thinking but this weekend, Laura Tyson, a member of President Obama’s Economic Recovery Advisory Board, has an op-ed in the New York Times making the case for a second round of a fiscal stimulus.

The primary cause of the labor market crisis is a collapse in private demand — the same problem that bedeviled the economy in the 1930s. In the wake of the financial shocks at the end of 2008, spending by American households and businesses plummeted, and companies responded by curbing production and shedding workers. By late 2009, in response to unprecedented fiscal and monetary stimulus, household and business spending began to recover. But by the second quarter of this year, economic growth had slowed to 1.6 percent, according to a government estimate issued Friday. Clearly, the pace of recovery is far slower than what is needed to restore the millions of jobs that have been lost.

Households and businesses are on a saving spree to rebuild their balance sheets. Their spending relative to income has fallen more than at any time since the end of World War II. So there is now a substantial gap between the supply of goods and services the economy is capable of producing and the demand for them. This gap is starkly reflected by the 23 million Americans who are looking for full-time jobs and the millions more who have left the labor force because they could not find one.

The situation would be even worse without the $787 billion fiscal stimulus package passed in 2009. The conventional wisdom about the stimulus package is wrong: it has not failed. It is working as intended. Its spending increases and tax cuts have boosted demand and added about three million more jobs than the economy otherwise would have. Without it, the unemployment rate would be about 11.5 percent. Because about 36 percent of the money remains to be spent, more jobs will be created — about 500,000 by the end of the year.

But by next year, the stimulus will end, and the flip from fiscal support to fiscal contraction could shave one to two percentage points off the growth rate at a time when the unemployment rate is still well above 9 percent. Under these circumstances, the economic case for additional government spending and tax relief is compelling. Sadly, polls indicate that the political case is not.

The President needs to make the economic case directly to the American people and the politics be damned. Enough of this sitting in the White House and trying to be above the political fray. It's time to get down and dirty and rough up the GOP.


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