Noahpinion: Department of "WTF?!?!"
Quote of the Day: February 10, 2012

Noam Scheiber on Obama’s Worst Year: 2011

Minting large-denomination platinum coins to expand the money supply, pointing out that appropriations bills constructively repeal the debt ceiling, recess-appointing Nobel Prize winners to the Federal Reserve Board, using FHFA to attempt to rebalance the housing market--there were lots of things Obama could have done in 2011 to boost the economy.

Noam Scheiber:

Obama’s Worst Year: BACK IN THE SUMMER of 2009, David Axelrod, the president’s top political aide, was peppering White House economist Christina Romer with questions in preparation for a talk-show appearance. With unemployment nearing 10 percent, many commentators on the left were second-guessing the size of the original stimulus, and so Axelrod asked if it had been big enough. “Abso-fucking-lutely not,” Romer responded. She said it half-jokingly, but the joke was that she would use the line on television. She was dead serious about the sentiment. Axelrod did not seem amused….

Only in the fall did Romer finally gain an ally—White House economic adviser Larry Summers, who had begun to echo her pleas. But Orszag insisted that any additional stimulus be paired with deficit-reduction. The result was stalemate. Even when the two sides worked out a compromise—$100 to $200 billion of stimulus in the short term, with offsetting cuts over ten years—the truce quickly unraveled.

Seated in the Roosevelt Room in early December 2009, the president wondered why both sets of ideas were so timid. Orszag grumbled that it was, in fact, disappointing to offer so little on the deficit front. Summers interjected that the economy was in dire need of more stimulus. Each side then labeled the other’s proposals political nonstarters, and the president lost his patience. “You know what, this is the same meeting we’ve been having,” he said, excusing himself. “Talk to me when you’ve thought this through.” The bickering soon grew so loud that Orszag’s deputy, Rob Nabors, lunged to shut the door.

With no agreement forthcoming, it was Orszag who filled the vacuum throughout the fall. He urged the president to freeze domestic spending in his next budget and favored setting up a commission of Washington elders to recommend trillions in savings over a decade. Summers believed such ideas were gimmicks unworthy of a president. To colleagues he complained that “what’s really important in life is not to believe your own bullshit.” The president sided with Orszag.

BY JANUARY 2011, two months after Democrats suffered a rout in the congressional midterm elections, the West Wing again faced a critical choice between engaging with Republicans and playing partisan hardball. Should they tackle the trillion-dollar deficit, co-opting the anti-government zeal that Republicans had ridden to power? Or should they try to lower the stubbornly high unemployment rate, which had exceeded 9 percent for 20 straight months?

The president’s team quickly concluded that the deficit was the higher priority. Bill Daley, a former Commerce secretary and bank executive who had recently taken over as chief of staff, considered the administration so out of touch on the issue of government spending that large cuts could only bring political benefits. David Plouffe, who had replaced Axelrod as the president’s top political counselor, thought Obama needed to establish himself as a budget-cutter to regain credibility with voters. “Plouffe specifically said, ‘We’re going to need a period of ugliness’—he meant with the left—‘so that people in the center understand that we’re not wasting their tax dollars,” recalls a former administration official who observed the discussions….

The decision to focus on the deficit in 2011 was defensible at the time. It wasn’t until much later that the economy’s weakness became clear…

Ummm… Noam:

FRED Graph  St Louis Fed

The economy's weakness was plain in the summer of 2009. It was plain in the winter of 2010. It was plain in the summer of 2010. It was plain in the winter of 2011. It did not "become plain" sometime in 2011.

I have not found anybody who claims that Daley and Plouffe understood the situation.

Noam goes on:

[O]ne judgment call that was harder to forgive. It had to do with the debt ceiling…. Many incoming Republican members of Congress had campaigned on their refusal to raise the limit, which was rapidly approaching, and senior Treasury Department officials worried that their resistance could prove disastrous. Most economists believed that hitting the debt ceiling could heighten doubts about the government’s creditworthiness and trigger a run on U.S. Treasury bonds, driving interest rates into the stratosphere. But the Tea Party Republicans asserted that not raising the debt ceiling would simply force a profligate Congress to spend less money.

After the midterm elections, Geithner’s chief of staff, Mark Patterson, thought the administration should try to defuse the debt-limit issue once and for all before the incoming Republicans arrived. He drafted a law giving the president the authority to raise the debt ceiling unilaterally and sent it to the White House. To sell it politically, the president could explain that renewing the upper-income Bush tax cuts, as Republicans were then demanding, would cost the government $700 billion over ten years, forcing it to hit the debt ceiling sooner.

The White House was initially interested, but dropped the idea once Republicans made clear they would oppose it. But, of course, the way to win concessions from obstructionist opponents isn’t to sound them out quietly. It’s to cause them public discomfort. As one former Treasury aide who was involved explains: “Imagine the alternative reality where the president comes out in December and says, ‘I understand you want to increase the high-end tax cuts. But that will make the deficit go up. … I am willing to do some of what you want to do, but you have to pay for it by raising the debt ceiling.’” At the very least, it would have put the GOP on the defensive.

But the White House didn’t have an appetite for going to war so soon after the midterms…. There wasn’t a lot of fight in folks,” says the former Treasury aide. “We [at Treasury] were a little bit obsessed. They were, ‘Yeah, yeah, yeah, we’ll deal with it later.’ ”

Sensing an advantage, the GOP pounced. Within a few months, Republicans had begun to insist they would only raise the debt ceiling if Democrats agreed to cut trillions from the deficit over a decade—essentially threatening the country with financial ruin unless they got their way.

The proper response to such a threat is to refuse to negotiate under duress. Treasury pleaded with the White House to hold the line and, for a while, it did. But, in mid-April, the White House blinked….

WHEN THE BIPARTISAN talks over the long-term deficit began in early May, the White House was prepared to hammer away at each galling detail of the GOP’s proposals…. But when the administration’s envoys to the talks—Vice President Joe Biden, Geithner, Lew, Reed, and Gene Sperling, the president’s top economic adviser—trooped back from their first few meetings with Eric Cantor and Jon Kyl, the second-ranking Republicans in the House and Senate, they conveyed a fateful message to their colleagues: Hold your fire. “The view from the negotiators in the room was that publicly attacking the Republicans would blow up the negotiations,” recalls a former White House aide involved. “They thought the negotiations were going well. No one was leaking out details to the press. They thought they could do it.”…

In June, the negotiators reached a provisional agreement with Republicans on more than $1 trillion in cuts, and the Obama contingent had begun to believe a much larger deal was in sight….

The problem was that Obama’s team had actually presented an optimistic view of what was possible—what it had assumed would be the best-case scenario. The negotiators hadn’t actually broached the idea of tax hikes with Cantor and Kyl in any detail, and the two Republicans certainly hadn’t said they would be open to them. Not even meager hikes, not even in return for a longstanding conservative goal like scaling back Medicare. In fact, Cantor and Kyl had waved off Democratic efforts to pin them down on the tax question.

Eventually, one congressional Democrat participating in the negotiations, worried that the conversation had focused too much on cuts for Medicare recipients of modest means, insisted to the Republicans that they could defer the tax discussion no longer…. “Let me get this right,” Kyl finally said to Lew and Sperling when the discussion flared up again. “You’re saying there are Medicare savings you think would be good policy. But you won’t do them unless we agree to raise taxes?” Lew and Sperling looked back at him stone-faced and simply said, “Yes.” A few days later, on June 23, Cantor and Kyl withdrew from the negotiations. Even the deal the president had deemed insultingly weak was out of reach….

For most of July, Obama and Boehner went back and forth at frequent intervals. But while the buzz of activity mimicked a high-stakes negotiation, there was never anything to show for it. At one point, over the July Fourth weekend, the president called back his entire economic team from vacation because it looked as if the talks were ripening. By the following weekend, Boehner’s office went silent with no explanation. Sperling began cracking that he “wouldn’t want to date these guys. They leave without having the ‘can we see other people’ conversation.” After a few weeks of this routine, it was blindingly obvious that Boehner wouldn’t be bringing conservatives with him on any deal involving taxes.

Under normal circumstances, the logical response to a negotiation in which one’s counterpart walks away from increasingly attractive offers is simply to give up. But, by late July 2011, this was no longer an option. There were less than two weeks before the government’s mounting pile of IOUs ran smack into the debt ceiling, risking global financial calamity… the White House still had to reach agreement with the Republican House. Not surprisingly, given that Obama was determined to avoid a debt ceiling catastrophe while many Republicans believed hitting the limit might do some good, the eventual deal skewed heavily toward Republican priorities. It cut $900 billion over a decade from the pot of money Congress doles out each year and instructed a special “supercommittee” of congressmen and senators to find at least $1.2 trillion more in cuts. Were the committee to fail at this task, then the deal called for automatic cuts totaling $1.2 trillion over a decade, with roughly half to come from domestic programs, including Medicare. The deal raised not one cent of taxes.

FOR TWO AND A HALF YEARS, Obama had been hatching proposals with an eye toward winning over the opposition. In most cases, all it had gotten him was more extreme demands from Republicans and not even a pretense of bipartisan support. Now, after the searing experience of the deficit deal, he still wanted reasonable, centrist policies. But he was done trying to fit them to the ever-shifting conservative zeitgeist. When he finally turned back to jobs in August, he told his aides not to “self-edit” proposals to improve their chances of passing the Republican House. “He pushed us to make sure this was not simply a predesigned legislative compromise,” one recalls. Sperling, who had long been a voice for ambitious policy, took the directive to heart. By the end of the month, his staff had come up with $450 billion worth of proposals to boost the economy, including an expanded version of the payroll tax cut Congress had approved the previous December…. It wasn’t the only valuable lesson the president had learned. He also seemed to recognize that the nonstop commotion over the deficit was a political loser, especially if he was at the center of it…. Obama was finally shedding the caution of his first three years in office. Even before the deficit negotiations collapsed, he'd begun criticizing Republicans for their aversion to “shared sacrifice.” He gave an impassioned speech about economic inequality and vowed to ensure that millionaires paid their fair share in taxes. “It is wrong for Warren Buffett’s secretary to pay a higher tax rate than Warren Buffett,” he famously said.

For voters contemplating whether he deserves a second term, the question is less and less one of policy or even worldview than of basic disposition…. [Obama's] adjustments didn’t come until the crisis was already at hand. His initial approach was too passive and too accommodating, and he stuck with it far too long…. Sooner or later, Obama may encounter a crisis that can’t be reversed at the eleventh hour…

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