PK and RW:
Where Do We Go from Here? : [D]espite warnings from many economists (ourselves included) that the stimulus package that resulted was much too small, Obama engaged in premature triumphalism. In February 2009, he said of the plan:
It is the right size, it is the right scope. Broadly speaking it has the right priorities to create jobs that will jump-start our economy and transform it for the twenty-first century.
The only thing missing was a “Mission Accomplished” banner.
Worse, the administration seemed unable to change its line once it became clear that the program was, in fact, inadequate. Progressives kept waiting for the moment when Obama would say something like “My predecessor left the economy in even worse shape than we realized—it’s time for further action.” That moment never came. Instead, officials kept insisting that the recovery was on track.... After the midterms, leading Democratic strategists blasted the administration for being tone-deaf: “A metaphor about a car in the ditch when people are in trouble and angry about the abuse of Wall Street, it’s just out of touch with what’s going on,” declared the pollster Stan Greenberg, while James Carville asked, “What were they thinking?” A better political strategy, said Carville, could have limited Democratic losses in the House to thirty seats, but the administration remained weirdly passive right through to election day.
The same passivity was visible on other fronts: the administration did nothing as its mortgage modification program degenerated into a subject of derision; it did nothing to address public anger over Wall Street bailouts; it dithered in the face of Chinese currency manipulation; it hesitated and prevaricated for weeks after the Gulf oil spill. The administration’s political strategy seemed to boil down to sitting around and waiting for the economy to improve.
Now the Republicans control the House and have effective blocking power in the Senate. And all indications are that they are ready and willing to use this position to deny the Obama administration any achievements it could point to in 2012.... Most telling of all is the recent furious, coordinated assault on Ben Bernanke and the Federal Reserve. Until that assault began, the possibility of “quantitative easing” (purchasing bonds in an attempt to reduce long-term interest rates) by the Fed had been widely viewed as the conservative alternative to fiscal stimulus. The Fed would take action to reduce interest rates and thereby promote private spending. As many have pointed out, the Fed’s current approach is very much in line with the policy prescriptions of Milton Friedman, the patron saint of conservative economics. Indeed, in 1998, when Japan was suffering economic difficulties very similar to those we face now, Friedman urged the Bank of Japan to adopt what amounted to a policy of quantitative easing. But when the Fed finally announced a modest program of quantitative easing on November 3, it was rocked back by outraged demands from Republicans—in the company of China and Germany, two countries that through their own economic policies are thwarting the global economic recovery in the Eurozone and the US—to immediately cease and desist. Moreover, key Republicans in both the Senate and the House demanded that the Fed abandon any effort to promote employment and limit its mandate to price stability. The budget expert Stan Collender, with a sharp sense of realpolitik, anticipated the Republican “scorched economy” strategy back in August: “Ben Bernanke may have painted a big bullseye on the Federal Reserve,” he wrote on his blog Capital Gains and Games. He went on to say:
The same political pressure that has brought fiscal policy to a standstill in Washington is very likely to be applied to the Fed if it decides to move forward. With Republican policymakers seeing economic hardship as the path to election glory this November, there is every reason to expect that the GOP will be equally as opposed to any actions taken by the Federal Reserve that would make the economy better, and that Republicans will openly and virulently criticize the Fed for even thinking about it. The criticism is likely to come both before any action is taken to try to stop it from happening and afterwards to make the Fed think twice about doing more. This will come in spite of the fact that, unlike fiscal policy changes, the actions the Fed is considering will not increase the budget deficit. The deficit has never really been the real issue; it has always been subterfuge and an easy and convenient way to build opposition to the White House’s efforts to deal with the economy.
Thus the Democrats must begin by facing up to the reality of an uphill struggle. The historic opportunity of 2008 has been squandered.... Democrats... can’t count on the economy to propel Obama to reelection—in part because Republicans, whatever they claim or actually believe, will do all they can to keep the economy depressed. Nor can they count on Obama himself to lead a comeback. In a dispiriting 60 Minutes interview given after the midterms, he actually seemed to accept Republican smears—blaming himself, not the GOP, for the failure to “maintain the kind of tone that says we can disagree without being disagreeable.” And it’s truly astonishing that as corporate profits hit new records despite mass unemployment, Obama apparently takes seriously accusations that his administration is antibusiness. Even if Obama were suddenly to find an inner FDR, would anyone notice? His aloofness has become so indelibly registered in voters’ minds that if he tried to change style—even if he wanted to, a big “if”—this would immediately come across as opportunistic...