by Charles Lemos, Wed Sep 01, 2010 at 09:42:18 PM EDT
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.