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Tilting at Windmills

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July 26, 2010

LEARNING THE WRONG LESSON.... Ezra had a fairly brief item today that summarizes a problem that comes up nearly every day.

Last year's stimulus worked exactly as it was intended to work -- in some ways, it even exceeded expectations -- but it was too small. There was a hole in the economy, which turned out to be even bigger and more serious we realized at the time, and policymakers only filled part of it. Ezra noted that part of the problem may have been an assumption that Congress and the White House would get another bite at the apple.

If all we needed was the $700 billion package, then great. But if unemployment remained high and the recovery had trouble taking hold, surely there would be the votes for further stimulus and relief spending. No one in the political system could possibly look at 10 percent unemployment and walk away from it, right?

Wrong. Ten percent unemployment and a terrible recession ended up discrediting the people trying to do more for the economy, as their previous intervention was deemed a failure. That, in turn, empowered the people attempting to do less for the economy. So rather than a modestly sized stimulus offering room leaving the door open for more stimulus if needed, its modest size was used to discredit the idea of more stimulus when it became needed.

This may seem like madness, because it is, but this is a fine summary of the status quo. Democrats wanted a bigger stimulus, but couldn't overcome Republican opposition. The recovery effort, then, was less successful, leading to a bizarre dynamic -- political rewards for those who were wrong, political punishment for those who were right. Those who screwed up the most before, during, and after the crisis are the same folks strutting around, proud as can be, unaware and unconcerned about how foolish reality makes them look -- because they're winning.

My favorite metaphor continues to ring true. Imagine there's a massive, dangerous fire. Those responsible for the blaze insist that some lighter fluid should take care of the problem, while the fire department recommends water. Forced to compromise, the fire department uses less water than is needed, and the blaze is only partially contained.

Those with the lighter fluid, who set the fire in the first place, see this and respond, "Told you so."

Now, ideally voters would find this insane, and ignore the lighter-fluid crowd's nonsense. But the public isn't engaged at that level -- they know what they see, and in this case, they still see the flames, and don't understand why the fire department didn't get the job done.

Ezra may be very well be right about the assumptions. To strain my metaphor a bit, maybe the fire department assumed they could always just send more trucks as needed. They couldn't.

Look, this is pretty simple. Early last year, the economy stood at the brink of an extraordinary collapse. There were effectively four options:

1. Pass a massive, ambitious economic stimulus.

2. Pass a trimmed down economic stimulus that could overcome a Republican filibuster.

3. Do nothing.

4. Pass a five-year spending freeze proposed by confused congressional Republicans at the time.

Left with limited options, Democrats went with #2, and disaster was averted. We would have nevertheless been better off with #1, but we can all be very thankful #3 and #4 were rejected.

But the economy still needs more, and it won't get it, in part because Republicans learned the wrong lessons, and in part because they hope to keep the economy down on purpose to improve the GOP's electoral chances.

Steve Benen 4:35 PM Permalink | Trackbacks | Comments (31)

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Comments

Steve Benen wrote: "... confused congressional Republicans ..."

The Congressional Republicans are not "confused". They are deliberate liars. And they know exactly what they are doing, and why.

If you really think they are "confused" then you are the one who is confused.

Posted by: SecularAnimist on July 26, 2010 at 4:39 PM | PERMALINK

because Republicans learned the wrong lessons

I don't care much what the Republicans learned or didn't learn. Of bigger concern is that the voting public -- due both to a worse-than-useless media and, I think we have to shamefully admit, a pretty poor excuse for a voting public -- appears to have learned the wrong lesson as well.

They are now angrily calling for the folks with the lighter fluid to come spray some of that on the conflagration. Because blowing things up is, after all, the American way, and if you don't like it you must be some America-hating commie fascist tax-and-spend wussy.

Posted by: zeitgeist on July 26, 2010 at 4:43 PM | PERMALINK

No, SecularAnimist - I think Steve has it right - many congressional rethugs ARE that confused on policy.

They really do believe the nonsense they spout. On the other hand, I'd say most republican operatives aren't that dumb - they know the difference and don't care - they just want to win in the fall, and don't care if the country burns down in the meantime.

Posted by: fourlegsgood on July 26, 2010 at 4:44 PM | PERMALINK

Left with limited options, Democrats went with #2, and disaster was averted.

Disaster wasn't averted. A horrible situation was made slightly less horrible. That's about it.

Posted by: m1 on July 26, 2010 at 4:47 PM | PERMALINK

Steve,

I am not sure they really ever tried for "1". Also I am pretty sure Paul Krugman was warning as far back as late last summer that this would be the case.

Posted by: RomanX on July 26, 2010 at 4:47 PM | PERMALINK

Republicans are confused on almost every policy at every level.

However, they are not confused on the tactics required to sabotage folks who disagree with their confused policies.

See, also, Martin Wolf, Financial Times, too.

Posted by: LosGatosCA on July 26, 2010 at 4:50 PM | PERMALINK

I think it's important to note that if Obama had said up front that the stimulus wasn't enough, but he was taking what he could get, they might have been able to go back to the trough so to speak. Instead the Republicans have an attack presented on a platter. And people were warning of this very result way back when the fight for the stimulus was going on.

Posted by: mattH on July 26, 2010 at 4:54 PM | PERMALINK

The GOP leadership now only knows what it is doing, it is even more devious than this post. They have now not only discredited the Dems, but the whole idea of a stimulus and what's more, they are on their way to discredit the whole idea that government can intervene in the economy in a positive way and make things better. See Greg Sargeant's blog.

I have no idea what the people who support the GOP think about all this (I suspect they are the real "confused" of whom Steve speaks) but the leadership is utterly cynical and in the tank for their friends and donors, i.e. the rich. This applies to the two who really weakened the stiumulus, the Maine twins. Ben Nelson is just dumb and corrupt, and Specter was still testing the Dem waters when the vote was taken, IIRC.

Posted by: Mimikatz on July 26, 2010 at 4:56 PM | PERMALINK

SB: Democrats wanted a bigger stimulus, but couldn't overcome Republican opposition.

I don't think that this is a fully accurate summary of what happened.

Some of Obama's economics team were proposing - or at least modeling - a much larger stimulus package (e.g., Romer).

Others (e.g., Summers) proposed that all that was necessary was to stop the flow of blood - a smaller package.

But it was Obama's political shop that decided not to push for a much larger stimulus. There was an opportunity to use the bully pulpit to convince the US public that a much larger package was needed. That opportunity was not taken.

So, yes, maybe Democrats wanted a larger stimulus, but Obama and the Congress didn't actually try going for one. They assumed that it would never pass. Maybe they were right.

It was mostly a political failure and a PR failure.

Posted by: Iron Knee on July 26, 2010 at 4:57 PM | PERMALINK

Republicans learned the wrong lessons

They did? I thought things turned out as well as they could for the Republicans. I mean, from their point of view, "disaster was averted" too -- that is, option #1 didn't succeed.

They set their strategy early on, and good authoritarians that they are, they're sticking to it, whatever they may or may not believe. We'll see how it plays out in 3 months.

Posted by: bleh on July 26, 2010 at 4:57 PM | PERMALINK

Well, RomanX and mattH beat me to it.

Posted by: Iron Knee on July 26, 2010 at 4:58 PM | PERMALINK

RomanX, they never tried for #1. They started too low and then threw a bunch of the package away on unnecessary tax cuts. They should have begun the negotiation at a number higher than what was actually needed -- $3 trillion, maybe -- and then called the Republicans traitors every day that it didn't pass. Instead they started low, compromised at every opportunity, and here we are.

Fighting for the correct policy matters even when you know it won't pass. It can change the fundamental narrative. Refusing to fight for the correct policy guarantees failure or mediocrity.

Posted by: Mark on July 26, 2010 at 4:59 PM | PERMALINK

I agree with "Mark". Democrats and Obama need to stop acting like an abused spouse, trying to appease the abuser so they will stop beating you. They will never stop whatever you do; Republicans like beating people period.

We need to ignore them and work towards policies that will actually work. If we fail because of Rethug bullying, then we will change the narrative. We have to get people aware of how bad these past policies were and how destructive they are to our country.

Posted by: Darsan54 on July 26, 2010 at 5:07 PM | PERMALINK

As we have seen, no matter what the partisan lineup of the Congress, it always contains a large majority that will vote for the interests of organized wealth no matter what. Obama attempted to do the best he could with that reality. If he had told the truth about it, he could never have been elected. Americans don't want to hear the reality of their situation, because it reflects so poorly on their own abilities as citizens.

Posted by: JMG on July 26, 2010 at 5:11 PM | PERMALINK

"Democrats wanted a bigger stimulus, but couldn't overcome Republican opposition."

Find me a quote of Obama saying, "the stimulus is too small." The administration set itself up for this failure.

Posted by: Bloix on July 26, 2010 at 5:31 PM | PERMALINK

What can be done? Expand the 40 hour workweek to salaried professionals. The Bush administration deliberately redefined who qualified for the 40 hour work week overtime requirement so corporations could fire workers and get the slack picked up by increasing the hours of the survivors. Many engineers and other professionals I know typically work 55 to 60 hours a week and have to pick up the slack for laid off colleagues.

In today's Washington post, Robert Samuelson talks about the return of profits but lack of hiring. What ever happened to the idea of a reasonable work week and its effect on employment? A non-stimulus pro-employment policy. As to competitiveness, Americans already work more than workers on any other western country.

Posted by: BobPM on July 26, 2010 at 5:51 PM | PERMALINK

which turned out to be even bigger and more serious we realized at the time, and policymakers only filled part of it

Just to follow up on other commenters, I don't know who the "we" is you mention. Certainly Paul Krugman and Dean Baker and other economists were making plenty of noise (and still are) about the size of the hole in the economy and what it will take to fill it. The Obama stimulus may have triggered the airbags, but the car is still totaled.

Posted by: martin on July 26, 2010 at 5:53 PM | PERMALINK

Steve, I agree with Iron Knee and others: your re-writing the history of the stimulus debate is disingenuous. As happened later with healthcare reform, the administration started negotiating publicly with itself in order to corral GOP votes, lowering the number and trading off actual Keynesian measures for, well, crap. Just before the House voted Rahm dined with moderates Republicans and confidently predicted he'd pick up about 20 of them in the final roll call, including Mike Castle of Delaware and Mark Kirk of Illinois. Well, we saw how that turned out -- zero votes even after Obama cut funds earmarked for state and local aid so that President Collins could have her non-stimulative tax cuts for the affluent.

At every stage the administration has exacerbated the country's crises and its own political woes, all because of the President's insane fear of conflict and his narcissistic messianic complex. And you, Steve, with all your endless fanboy posts (like this one), feed that pathology.

Posted by: BrklynLibrul on July 26, 2010 at 6:07 PM | PERMALINK

Bunch of Monday morning quaterbacks with nothing but insults to throw. I'd love to hear a few examples of what any of the detractors here have done over the past eighteen months, besides mouthing off on blogs, to bring any significant change for the better.

Posted by: cr on July 26, 2010 at 6:36 PM | PERMALINK

it even exceeded expectations

Well, it didn't exceed anybody's written or spoken expectation. The public expectation was that it would keep unemployment lower than 7% (the figure was not constant, but it certainly wasn't what we have.)

Posted by: MatthewRMarler on July 26, 2010 at 6:37 PM | PERMALINK

I don't believe Republicans are confused or that they learned the wrong lessons. Quite the contrary, they learned that if they could keep the stimulus bill small enough while still getting 1/3 of it in tax cuts (note there is no discussion of the the cuts failing to create jobs) then they could be sure the action failed and the Democrats would look like failures along with it. For all but a few Republicans, everything is politics. There is no interest in governing or doing what might be best for the country. The only interest is power.

Posted by: Diane on July 26, 2010 at 7:11 PM | PERMALINK

I AM DONE. I HAVE FUCKING HAD IT STEVE.

"There was a hole in the economy, which turned out to be even bigger and more serious we realized at the time..."

What? WHAT? How DARE you. Once again the DIRTY FUCKING HIPPIES screamed that this would not be enough we SCREAMED that it was far FAR worse than Obama thought. We tried to tell him this. Once again we were proved right. And now you DARE say all of us were misled?

Posted by: MNPundit on July 26, 2010 at 8:08 PM | PERMALINK

"Democrats wanted a bigger stimulus, but couldn't overcome Republican opposition."

Steve, I honestly have no idea what or whom you are referring to. Links please.

There was a hole in the economy, which turned out to be even bigger and more serious we realized at the time

Steve, you write this as if the WH would have done anything differently if they did know better.

By Sept 2009, less than 6 months after the stimulus was passed, the unemployment rate hit 10% which was worse than the worst scenario without a stimulus, according to Obama.
So that was pretty quick. What did the WH do when the news hit? Nothing.

That was 10 months ago.

Are they any other rewrites of recent history you would like to do so that you can blame the Republicans?


Posted by: Observer on July 26, 2010 at 9:59 PM | PERMALINK

MNPundit, you really shouldn't let yourself go like that; it just confirms your basic childishness.
Now, regarding the stimulus: there is nothing in Mr. Benen's entry that either states or implies that anyone was misled. He DOES post part of Ezra Klein's story that presupposes an assumption on the part of the administration concerning the size the stimulus and possibility of a second stimulus, if necessary.
That, in hindsight, it would have been wiser to start with a larger stimulus is acknowledged by intelligent commenters. That the Republican Party would sink to its current depths, basing its political hopes on an economy that they are ACTIVELY attempting to worsen, was NOT a given even on these various blogs until AFTER the stimulus bill had been introduced.
DFH that I am, I fully expected delays and diversions, but I also expected, once such political formalities had been satisfied, that sane, adult, rational behavior would ensue. Fooled me, too.
That the present-day Republican Party is now united in placing partisanship above their country's welfare is apparent. Such political untity didn't even occur in the run-up to the War of Southern Treason; with the exception of the Republican Party, parties split and reformed over secession and slavery, but no single national party acted concertedly against the Union.
Until now. When the Republican Party repudiates everything it stood for at its inception. Ironic doesn't even approach it.
I read history for pleasure and, hopefully, to learn a bit and the only other instance I can recall where a group of politicans acted so against their country's best interests was Poland during the 18th century. And in that case the politicians had the excuse, such as it was, that they were operating under the orders of those paying them: the Austrians, Russians and Prussians.
That Democrat Senator and Representatives, seeing the Republican members of Congress on a daily basis, were hard put to imagine such, well depravity, is not surprising. After all, it was just "campaign talk", wasn't it? Once the elections were over, sense would return. But it didn't and hasn't.
Now, you can shout about your progressive "purity" and wave your time-stamped examples of such all you want, but that purity isn't going to be worth squat if the Republicans regain the House and/or Senate in November. So, MNPundit, pardon me if I don't waste any sympathy on your wounded feelings as, frankly, I have more important things on my mind.

Posted by: Doug on July 26, 2010 at 10:10 PM | PERMALINK

I remember quite clearly that the Senators who were the marginal votes for passage of the stimuless bill were bought off by hacking an entirely arbitrary amount from the bill. It was obvious at the time that a larger starting point would have ended up with a larger result. They only wanted the headlines to demonstrate their fiscal rectaltude.

To return to your metaphor, it's not that the fire department was FORCED to compromise. It's more like they heard that there might be some trouble, and nobody wants trouble, so we'll only use half the water. Fire does not go out. Fire department cries, "But it's not our fault! We were just trying to be reasonable!" Nobody believes them.

Posted by: tatere on July 27, 2010 at 12:38 AM | PERMALINK

Lots of misinformation in your column. It's one thing to spin an opinion, but another thing to have basic facts wrong. The stimulus was underfunded, and Obama's transition team knew it at the time they proposed it and presented it to Congress and the American people. Through the stimulus, Obama and his team averted a complete collapse, so they demonstrated minimal competency expected from them. But it is another matter to praise them, metaphorically speaking, for having left the fire still burning, uncontained, and not telling everyone early and often that more air tankers, fire trucks and firemen would be needed or the fire would last for a decade more.

See this link for a discussion about the transition team's deliberations about the size of the stimulus:
http://www.newyorker.com/reporting/2009/10/12/091012fa_fact_lizza

In short, the economic models developed by Christine Romer for the Obama transition team showed that $1.2 trillion was the size of the stimulus that was needed. A lesser dollar amount was selected for political reasons, implementation issues (meaning difficulty in finding shovel ready projects), Larry Summers' concerns about the bond genie and his view of the stimulus as "an insurance policy against catastrophic failure" rather than as a cure. In other words, the ones in the know understood that they weren't going in for enough money to get the job done and that a second stimulus was going to be needed.

Posted by: gone_west on July 27, 2010 at 2:43 AM | PERMALINK

Sure, maybe all we could GET was #2. But the appropriate course of action was #1a, which has these three steps:

a) Argue like hell for #1.
b) Settle for something #2ish to the extent necessary to get 60 votes.
c) From the bill-signing ceremony on, never let people forget you really wanted #1 to begin with. Make sure everyone knows you still think more was needed, but that if we all get LUCKY, this might be enough.

Then if we don't get lucky, everyone knows we thought we needed more in the first place, and that the watering down was their idea, not ours.

Posted by: low-tech cyclist on July 27, 2010 at 5:38 AM | PERMALINK

I am not sure they really ever tried for "1". Also I am pretty sure Paul Krugman was warning as far back as late last summer that this would be the case.

Posted by: RomanX on July 26, 2010 at 4:47 PM |

Dead-on. Except that Krugman predicted back in February of 2009 that a stimulus smaller than the $2 trillion hole in the economy would not only be too small to work, but that its failure would eliminate the chance to pass a second stimulus.

And the first stimulus was NOT $750 billion - subtract the tax cuts that actually made the recession worse and you end up with barely $400 billion - one fifth of what was needed.

This is NOT the fault of Senate repugs and Blue Dogs. This is the fault of President Obama and Harry Reid for not stomping on repug/BlueDog balls until they agreed to $2 trillion.

Don't tell me it wasn't possible: They never tried.

If the electorate punishes them in November, it will be precisely what they deserve.

Unfortunately, it won't be what the country deserves, and the country will be the one that suffers.

Posted by: Yellow Dog on July 27, 2010 at 9:11 AM | PERMALINK

gone_west: A lesser dollar amount was selected for political reasons...

"Political reasons." I guess that's a euphemism for a little, insignificant thing like GETTING THE FUCKING BILLED PASSED THROUGH CONGRESS.

Like always, the Purity Pony Progressive Party would rather that Obama "fight like a man" and LOSE then actually DO SOMETHING for the poor and working classes of this country.

Posted by: cr on July 27, 2010 at 9:32 AM | PERMALINK

Actually, there was option #5. Break the filibuster as the first order of business once it became obvious (as it was to many) by March of 09 that the Republicans were going to be the party of "no" --- and were adopting a strategy of if Obama and the economy fails, we Repubs win.

Posted by: gdb on July 27, 2010 at 12:07 PM | PERMALINK

It's not easy to get some useful information,even small piece of info.Thanks a lot.

Posted by: donald pliner devina on March 1, 2011 at 8:41 AM | PERMALINK




 

 

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