Monthly Archives: April 2011

Walter Russell Mead argues that the Obama presidency needs a reset. He argues that Obama’s instinct to split the difference keeps getting him the worst of both worlds: his allies feel let down, and his opponents are unappeased and press for more.

This repeated lunge for the sour spot — the place where costs are high and benefits are low — now seems to be a trademark of the President’s decision-making style. On the left it is earning him Carter comparisons from people like Eric Alterman; on the right it means that despite his compromises and yielding of significant ground he continues to feed the incandescent hostility of his bitterest foes. Worst of all, it suggests to people abroad and at home that the way to manipulate this “split the difference”, consensus-seeking President is to raise your demands. If you are going to get something like 50 percent of what you ask for, ask for twice as much as you really want. And with this Presidential style, the squeaking wheel gets the grease. Not surprisingly, all the wheels have begun to squeak.

Here is the paradox we face: The President is a consensus-seeker whose decision making style rewards polarization and a conciliator who loses friends without winning over enemies.

I agree with most of what Mead says in his long and thoughtful post, and I have been arguing along similar lines myself, but still I think his summing up is not quite right and there is a simpler way of putting it. Obama has not really been a consensus-seeker. Rather, he has acquiesced in compromise when he had to. Think the stimulus, health-care reform, the post-midterm tax deal, the new posture on the budget. The difference between leading the country to compromise and putting up with compromise when he has to is crucial. Obama has consistently failed to champion, before the fact and often even after the fact, the kind of agreements that he should have known at the outset were bound to be necessary. He stands aside, which diminishes him. And he gets no credit for the outcome, even when the outcome (as in those four cases) is nothing to be ashamed of.

Michael Kazin wonders if independent voters are “really just a confused and clueless horde”.

That is certainly the impression one gets from dipping into the finer details of a mid-April survey of 1,000 likely, registered voters conducted by Democracy Corps, the outfit run by Stan Greenberg and James Carville. Beyond the usual questions about Obama’s job approval and that of House Republicans, this poll performed the valuable service of reading out each party’s talking points about the current budget debate and then asking respondents which ones they found convincing.

The results are mildly hilarious. By a margin of over 20 points, voters agree with these GOP lines: “Both Democrats and Republicans have run up deficits, but now they are out of control under President Obama and threatening our economy”; Paul Ryan’s plan “changes the reckless path of over-spending and borrowing”; and, “Over-regulation and high taxes punish companies for success.” At the same time, by slightly higher percentages, they also agree with the Democrats that Ryan’s budget would “eliminate guaranteed Medicare and Medicaid coverage”; “force seniors to negotiate with private insurance companies, which are free to raise rates and deny coverage”; and “decrease taxes for CEOs and big corporations, giving millionaires another huge tax break.”

Since avowed Republicans and Democrats line up consistently behind whichever arguments come from their side, it is the independents who are responsible for the contradictory results: Almost 50 percent agreed first with the GOP positions, and then, with those of the other party.

Obviously it is admirable to line up consistently behind whatever argument comes from your side. I defer to no man in my regard for that mindset. Even so I’d say Kazin should be careful who he calls clueless.

Granted, the wording of the six positions is tendentious; they’re talking-points, as Kazin says, not well-formed choices. Still, expressed in more neutral language, all six positions are substantially true. There is certainly no logical inconsistency in agreeing with them all; no contradiction, not even close. I imagine Kazin wants voters to do what he presumably does. First, sort all propositions into GOP lines and Democratic lines (a “reckless” here and an “eliminate” there make it easy to recognise them). Second, accept one bundle or the other according to whether you are a Democrat or a Republican.

How hard is that? Those clueless independents can’t do it. They don’t even know whether they’re Democrats or Republicans!

At this rate, the US presidential election of 2012 promises to be a titanic struggle between a failed incumbent and an unelectable challenger. With the election bearing down – less than two years to go – Barack Obama hit the campaign trail last week, ostensibly talking about the budget but in reality market-testing his anti-Republican message. Republicans have been slower off the mark and will need to get a move on, but the delay is understandable. They have so many weak candidates to choose from.

The Committee for a Responsible Federal Budget sets out some useful analysis of the new White House budget numbers. One main finding is that the president’s use of a 12-year budget timescale is a rather significant gimmick. His $4 trillion in savings over 12 years become $2.9 trillion over the standard 10 years; if you then use CBO figures, not White House figures, to reckon the “current policy” baseline, the amount of deficit reduction falls further, to $2.5 trillion. So it’s untrue to say that the White House is proposing deficit reduction on about the same scale as the House budget or the Bowles-Simpson plan. The new framework also falls short of stabilising the debt-to-GDP ratio.

It’s worth noting that, compared with a “current law” baseline, Obama’s new plan actually adds slightly to the 10-year deficit. (His February budget added nearly $3 trillion to it, so he’s moving in the right direction.) How can that be, when he calls for so many spending cuts and tax increases? It’s because the cost of making permanent the Bush tax cuts for the middle class, as Obama proposes, is so high. Remember, current law provides for all the Bush tax cuts to be reversed, not just those for higher-income households.

Martin Wolf refers me to this new paper by Paul De Grauwe, The Governance of a Fragile Europe. It very well argued and, I think, entirely convincing. Unless something is done, the prognosis for the eurozone is not good. Here is the abstract:

When entering a monetary union, member-countries change the nature of their sovereign debt in a fundamental way, i.e., they cease to have control over the currency in which their debt is issued. As a result, financial markets can force these countries’ sovereigns into default. In this sense member countries of a monetary union are downgraded to the status of emerging economies. This makes the monetary union fragile and vulnerable to changing market sentiments. It also makes it possible that self-fulfilling multiple equilibria arise. I analyze the implications of this fragility for the governance of the Eurozone. I conclude that the new governance structure does not sufficiently recognize this fragility. Some of the features of the new financial assistance are likely to increase this fragility. In addition, it is also likely to rip member-countries of their ability to use the automatic stabilizers during a recession. This is surely a step backward in the long history of social progress in Europe. I suggest a different approach to deal with these problems.

De Grauwe’s suggestions are new steps towards political union, including joint issue of eurobonds and an expanded role for the ECB in controlling credit expansion country but country. If you doubt that these moves are politically feasible–as I do–then so much the worse for the future of the eurozone.

Why did Standard and Poor’s move the markets when it changed the outlook for its AAA rating of US government from “stable” to “negative”–meaning it sees a one-in-three chance of less-than-AAA within two years? S&P adduces no new information that I can see. Competent ratings of opaque instruments such as, oh, mortgage-backed securities would be very useful to investors (not that ratings agencies troubled to provide competent ratings in that case, obviously). But why should anybody need that kind of help in judging the soundness of US government bonds? S&P knows nothing about them that you or I don’t know. Yet long-dated Treasury bonds fell on the news and the stockmarket wobbled. Markets, like ratings agencies, move in mysterious ways.

If I were a ratings agency, by the way, US government bonds would already be less than AAA. The unresolved quarrel over the debt ceiling is reason enough all by itself for a lower rating. Add to that: Obama’s rallying cry to the Democratic left last week, the GOP’s bonehead refusal to consider tax increases in any form, and the consequently poor prospects for a longer-term deal on the budget. S&P’s statement that it has merely begun to wonder about a downgrade is not only superfluous but badly behind the curve (though not, admittedly, by the conventions of its peers, whose view on US debt still seems to be, “Excuse me? You think there’s a problem?”).

In this column, I argue that tax reform is the best the way to break the budget impasse, and might yet happen. But, since you ask, I give it only a one-in-three chance of happening before the end of 2012. I see tacit agreement forming to submit to political gridlock, and do nothing until after the next election. Swerve around the debt-ceiling obstacle and then keep quarrelling. But we’ll see.

One of the few drawbacks of residing in the US is the annual encounter with Form 1040, which is to personal finance as waterboarding is to asking some questions. Today is the deadline for declaring your income and taxes to the Internal Revenue Service. In early April, as the sun shines and the blooms appear, the mood of the country visibly subsides. Citizens reach for their anti-depressants and tax-preparation software.

I can see why progressive Democrats are reassured by Obama’s speech on deficits and debt. Paul Krugman says that he can live with the president’s promises to defend the welfare state and stick it to the rich. He grades the speech on style (please stop saying, “win the future”: good advice) and then on substance.

Substance: Much better than many of us feared. Hardly any Bowles-Simpson — yay!

Obama had a difficult assignment in this speech, partly because of the exaggerated hopes for it (see previous post). Even allowing for that, it was weak both politically and substantively. My instant unguarded reaction, in fact, was to find it not just weak but pitiful. I honestly wondered why he bothered.

There was no sign of anything worth calling a plan to curb borrowing faster than in the budget. He offered no more than a list of headings under which $4 trillion of deficit reduction (including the $2 trillion already in his budget) might be found–domestic non-security spending, defence, health costs, and tax reform. Fine, sure. But what he said was devoid of detail. He spent more of his time stressing what he would not agree to than describing clear proposals of his own.

Interesting to see the White House trying to moderate expectations of Obama’s speech on Wednesday about deficits and debt. More was read into David Plouffe’s comments on the Sunday talk shows about this than seemed warranted to me. Nothing Plouffe said committed Obama to pronounce his own budget, just two months old, dead, which is what needs to happen. The mooted new initiatives are not new. They are perennial Obama themes. Tax increases on the rich? Already in the budget. Cost controls for Medicare? Already in the budget. But reporters sprang to the conclusion that the speech would make detailed new commitments–“Obama to act on entitlements”, and all that.

Now of course the White House has to contend with the disappointment that will follow the speech if it falls short of these inflated hopes. A nice challenge for the speechwriters. Hence the sudden change of tack. On Sunday, we heard that the president was about to lay out a new plan. By Monday, he was promising to call for a new plan. On Sunday, he already had a plan. On Monday, he wanted Republicans to help him write one.

Clive Crook’s blog

This blog is no longer updated but it remains open as an archive.

I have been the FT's Washington columnist since April 2007. I moved from Britain to the US in 2005 to write for the Atlantic Monthly and the National Journal after 20 years working at the Economist, most recently as deputy editor. I write mainly about the intersection of politics and economics.

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