Thursday, November 4, 2010

My Electoral Thoughts

- by New Deal democrat

As an initial matter, it gives me great pleasure that, while there are many economic bloggers whose work is picked up in the political blogosphere, we are among the very few writers whose economic writing originated in the political blogosphere, but have been cited approvingly by strictly academic and financial writers such as Barry Ritholtz, Prof. Brad Delong, Prof. James Hamilton, Prof. Mark Thoma, retired Prof. Jeff Miller of A Dash of Insight, and The Reformed Broker. My thanks to all of them for having noticed us.

This is partly due to a conscious decision to keep this blog focused on data and observable facts rather than speculations and politics. But since Bonddad penned his electoral thoughts yesterday, it's only fitting that I add mine. I wanted not to echo other commentators, but to focus on something different. And so here it is ....

People who fail Barack Obama tend to quietly, quickly, and without drama disappear. The head of the Travel Office, who amazingly thought it would be a good thing to have Air Force One fly low over New York City landmarks was gone shortly thereafter. So was the White House Social Secretary, who allowed gatecrashers to gain entrance to a formal dinner and shake hands with Obama at the White House.

With those examples in mind, let me ask you if you think anyone failed Barack Obama in terms of his grand first term strategy? Put another way, do you think Obama was expecting anything like the stinging repudiation of democrats that voters administered on Tuesday?

I'd say the answer to those questions are a resounding "Yes" and "No," respectively.

It's not like others didn't see the possibility of such a rebuke early on, but clearly Obama did not. Here's a very telling article from January 2010:
Arkansas Congressman Marion Berry [discussed] a meeting he had recently with President Barack Obama. The subject of whether the 2010 midterms were going to be a repeat of 1994 came up. The Arkansas Democrat-Gazette account, quoted in the Politico, said about President Obama's view on 2010 vs. 1994, "The president himself, when that was brought up in one group, said, 'Well, the big difference here and in '94 was you've got me.'"

It's safe to say that the humble-pie-eating press conference Obama held yesterday was not what he was anticipating 10 months ago. Back then the narrative was that, faced with accomplishment after accomplishment, Republicans would have no choice but to come to the bargaining table and negotiate with Obama if they hoped to have any influence over the long-term changes in US laws and policies that he had planned.

Instead, Obama faces the likelihood of two years of scorched-earth, Clinton-era style personal destruction.

It is clear, as any number of others have pointed out almost ceaselessly for the last number of months, that the Obama/Congressional economic policies were too timid. They saved the economy from falling into a second Great Depression, but failed to address stagnant income and persistent near-10% unemployment.

Main Street paid them back for that failure on Tuesday the only way they could, by at least temporarily handing the reins back to the GOP. Simply put, the Obama Administration made a monumental strategic miscalculation.

And with one exception, the players that brought about that monumental miscalculation have quietly, quickly, and without drama disappeared. Peter Orszag, head of Obama's OMB, resigned in July. Christina Romer, the chair of the Council of Economic Advisers, who infamously predicted that Obama's stimulus would bring the unemployment rate back down under 8% by now, resigned to return to teaching at Berkeley in August. Rahm Emmanuel has decided that running for Mayor of Chicago might be propitious. Even the mighty Larry Summers, Obama's chief economics advisor, a month ago suddenly remembered that he needed to return to Harvard by January if he wanted to keep tenure.

Uh huh.

In other words, it looks to me like Obama has quietly been cleaning house.
So if sometime between now and the end of the year Timothy Geithner should decide that it would be a rational economic move to return to his unsold house in Westchester County, New York, don't be surprised. That will be the most clear sign that Obama, finally, with his thoughts firmly centered on not having to make a concession speech two years from now, "gets it."

As to the economy, where do we go from here? Since no further fiscal stimulus will be forthcoming, the choices are (1) do nothing and hope the economy can slowly recover on its own, or (2) go off on a right-wing tax-cuts-for-billionaires,-austerity-for-the-masses bender, with disastrous consequences.

I happen to believe that (1) might -- much more slowly, painfully, and inefficiently than necessary -- work. I hate to say it, but unfortunately I think Washington is going to decide on (2). The Obama Administration will probably continue to eschew confrontation and seeks accomodation at every turn. Either way, the opportunity to address the yawning chasm of maldistribution of income and wealth - that has been translated into an equally yawning chasm of power in Washington - has been lost again. Regardless of whether the economy continues to recover, or whether asinine kleptocratic policies drive the economy back into a serious double dip recession, it appears that for years to come, 2000 will stand as the high water mark for real personal income to the average American.