Hitting rock bottom with GOP win

This post is for anyone - Republican, Democrat or Independent - who is concerned about the U.S. economy.

Paul Krugman, winner of the 2008 Nobel Prize in economics, tells it like it is in this very succinct warning about what will happen if the GOP regains control of Congress.

Krugman's wake-up call:

SOURCE: The New York Times

Falling Into the Chasm

October 24, 2010

This is what happens when you need to leap over an economic chasm — but either can’t or won’t jump far enough, so that you only get part of the way across.

If Democrats do as badly as expected in next week’s elections, pundits will rush to interpret the results as a referendum on ideology. President Obama moved too far to the left, most will say, even though his actual program — a health care plan very similar to past Republican proposals, a fiscal stimulus that consisted mainly of tax cuts, help for the unemployed and aid to hard-pressed states — was more conservative than his election platform.

A few commentators will point out, with much more justice, that Mr. Obama never made a full-throated case for progressive policies, that he consistently stepped on his own message, that he was so worried about making bankers nervous that he ended up ceding populist anger to the right.

But the truth is that if the economic situation were better — if unemployment had fallen substantially over the past year — we wouldn’t be having this discussion. We would, instead, be talking about modest Democratic losses, no more than is usual in midterm elections.

The real story of this election, then, is that of an economic policy that failed to deliver. Why? Because it was greatly inadequate to the task.

When Mr. Obama took office, he inherited an economy in dire straits — more dire, it seems, than he or his top economic advisers realized. They knew that America was in the midst of a severe financial crisis. But they don’t seem to have taken on board the lesson of history, which is that major financial crises are normally followed by a protracted period of very high unemployment.

If you look back now at the economic forecast originally used to justify the Obama economic plan, what’s striking is that forecast’s optimism about the economy’s ability to heal itself. Even without their plan, Obama economists predicted, the unemployment rate would peak at 9 percent, then fall rapidly. Fiscal stimulus was needed only to mitigate the worst — as an “insurance package against catastrophic failure,” as Lawrence Summers, later the administration’s top economist, reportedly said in a memo to the president-elect.

But economies that have experienced a severe financial crisis generally don’t heal quickly. From the Panic of 1893, to the Swedish crisis of 1992, to Japan’s lost decade, financial crises have consistently been followed by long periods of economic distress. And that has been true even when, as in the case of Sweden, the government moved quickly and decisively to fix the banking system.

To avoid this fate, America needed a much stronger program than what it actually got — a modest rise in federal spending that was barely enough to offset cutbacks at the state and local level. This isn’t 20-20 hindsight: the inadequacy of the stimulus was obvious from the beginning.

Could the administration have gotten a bigger stimulus through Congress? Even if it couldn’t, would it have been better off making the case for a bigger plan, rather than pretending that what it got was just right? We’ll never know.

What we do know is that the inadequacy of the stimulus has been a political catastrophe. Yes, things are better than they would have been without the American Recovery and Reinvestment Act: the unemployment rate would probably be close to 12 percent right now if the administration hadn’t passed its plan. But voters respond to facts, not counterfactuals, and the perception is that the administration’s policies have failed.

The tragedy here is that if voters do turn on Democrats, they will in effect be voting to make things even worse.

The resurgent Republicans have learned nothing from the economic crisis, except that doing everything they can to undermine Mr. Obama is a winning political strategy. Tax cuts and deregulation are still the alpha and omega of their economic vision.

And if they take one or both houses of Congress, complete policy paralysis — which will mean, among other things, a cutoff of desperately needed aid to the unemployed and a freeze on further help for state and local governments — is a given. The only question is whether we’ll have political chaos as well, with Republicans’ shutting down the government at some point over the next two years. And the odds are that we will.

Is there any hope for a better outcome? Maybe, just maybe, voters will have second thoughts about handing power back to the people who got us into this mess, and a weaker-than-expected Republican showing at the polls will give Mr. Obama a second chance to turn the economy around.

But right now it looks as if the too-cautious attempt to jump across that economic chasm has fallen short — and we’re about to hit rock bottom.


Go ahead, vote Republican. I'll be here when you want to ask "what happened?" - as long as I can keep my $9.99 a month dial-up connection.


Infidel753 said...

This post is for anyone - Republican, Democrat or Independent

It won't impress Republicans, unfortunately. Krugman is one of those pointy-headed educated elitists (like climate scientists and evolutionary biologists) who actually knows stuff and bases his conclusions on real data instead of getting his opinions from ideology and ancient Middle Eastern myths like a proper teabagger. The fact that he has a Nobel prize and teaches at one of the world's greatest universities just proves he's a Marxist and a liberal, and probably a Kenyan as well.

Maybe.....a weaker-than-expected Republican showing at the polls will give Mr. Obama a second chance to turn the economy around.

Most of the disappointments of the last two years have stemmed from obstructionism in the Senate because it takes 60 votes to pass legislation. If it weren't for that, HCR with a public option (for example) would have passed easily. I'm hoping that if the Republicans do less well than expected, the Senate leadership will have the guts to change the rules next year to eliminate the filibuster. There's not much hope, given their timidity, but if they do do it, well, a smaller majority is still a majority.

Obama has certainly been too cautious about proclaiming his accomplishments. He's lowered taxes and reduced the deficit, but who knows that? Hardly anyone.

But not everything is Obama's fault. Our system doesn't give the President absolute power. It's Congress that passes things (or fails to) -- which is why there's so much concern about the Republicans gaining seats.

PENolan said...

I hope you can continue to manage that $9.99/month.


Octopus said...

BJ, with all due respect for Paul Krugman, I think we should also look at the current situation within a broader context -- losses of national self-esteem due to globalization, economic crises, resource depletion, failed wars, and social conflict.

Just as Elisabeth K├╝bler-Ross outlined the five stages of grief as one faces one’s own mortality, perhaps the collective response to the end of the American Century can be similarly described: Denial, anger, bargaining, depression, and acceptance. Right now, it seems, tea party populism represents the denial and anger phase.

Ahab said...

November 2nd is looking more and more ominous ...

B.J. said...

Welcome Octo and PFNolan!

Before he gets long-winded, Frank Rich begins his column “What Happened to Change We Can Believe In?” (NYT, 10/23/10), thusly:

“President Obama, the Rodney Dangerfield of 2010, gets no respect for averting another Great Depression, for saving 3.3 million jobs with stimulus spending, or for salvaging GM and Chrysler from the junkyard. And none of these good deeds, no matter how substantial, will go unpunished if the projected Democratic bloodbath materializes on Election Day. Some are even going unremembered. For Obama, the ultimate indignity is the Times/CBS News poll in September showing that only 8 percent of Americans know that he gave 95 percent of American taxpayers a tax cut.”

Unremembered. DemWit had a sidebar link to “93 accomplishments” in Obama’s first year, but, hey, who’s counting?


B.J. said...

BTW, forget all these links to the New York Times. It’s a commie pinko, fascist, liberal media elite, antichrist, Kenyan rag. BJ

tnlib said...

I like Krugman's piece - maybe because he writes about economics in a way that even I can undestand.
I think his criticism of both parties is fair and balanced.

But I'm not about to write off the Democrats yet. As Krugman implies, maybe people who've been so critical of Obama's economic policies will have second thoughts before they pull the lever. Jobs are important but there are a lot of other parts to this equation that people might look at - the current thuggery on the part of the GOP might be a real turn-off, for example.

B.J. said...

Thanks, Leslie. Economics is not my long suit, and you are right about Krugman’s clarity. I guess the “thuggery” part depends on how many voters are thugs themselves. There have been some good indicators yesterday and today: Housing sales up, Dow Jones up, Ford posted record profits, consumer confidence up.

Had an email complaining about doctors’ costs, medicine costs, insurance costs. The person votes Republican.


Frodo, suddenly feeling alone again said...

Like Obama himself, Frodo voted today. For the first time in a long time, Frodo eliminated any consideration to anything or anyone designated as a Republicant. Frodo may have been alone. The lines were much shorter than two years ago, and the make-up of the electorate was about half-and-half, black and white, middle-aged and old. There were few under age 35. Nearly everybody had a cell phone, and most of the conversation in line was about Amendment Two, which called for an increase in tag fees to pay for trauma centers.
A local issue, no national candidates, fewer minorities, and far fewer young people; and a Speaker of the House who wasn't clued in to the fact that the Constitution is without a Preamble.

B.J. said...

Frodo, one of the four amendments to the South Carolina constitution to be voted on Nov. 2 is to make it a “constitutional right” to hunt and fish – oh, and by the way, vote Republican while you’re here for that. The so-called “Patriot” Web sites in the state are saying, “Don’t let them take away your right to hunt and fish.” As if.

B.J. said...

10/27/10: Gallup's latest polling of likely voters in this year's congressional midterms confirms that, while similar in gender, age, and education to 2006 voters, the 2010 electorate will be substantially more Republican in its party orientation than has been the case in recent midterms.