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Christina Romer Was Right

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Now it’s official.  Christina Romer was right.  The signs that she was about to be proven correct had been turning up everywhere.  When Charles Kaldec of Forbes reminded us – yet again – of President Obama’s willful refusal to seriously consider the advice of the former Chair of his Council of Economic Advisers, it became apparent that something was about to happen  .  .  .

On Friday morning, the highly-anticipated non-farm payrolls report for April was released by the Department of Labor’s Bureau of Labor Statistics (BLS).  Although economists had been anticipating an increase of 165,000 jobs during the past month, the report disclosed that only 115,000 jobs were added.  In other words, the headline number was 50,000 less than the anticipated figure, missing economists’ expectations by a whopping 31 percent.  The weak 115,000 total failed to match the 120,000 jobs added in March.  Worse yet, even if payrolls were expanding at twice that rate, it would take more than five years to significantly reduce the jobs backlog and create new jobs to replace the 5.3 million lost during the recession.

Because this is an election year, Republicans are highlighting the ongoing unemployment crisis as a failure of the Obama Presidency.  On Friday evening’s CNN program, Anderson Cooper 360, economist Paul Krugman insisted that this crisis has resulted from Republican intransigence.  Bohemian Grove delegate David Gergen rebutted Krugman’s claim by emphasizing that Obama’s 2009 economic stimulus program was inadequate to address the task of bringing unemployment back to pre-crisis levels.  What annoyed me about Gergen’s response was his dishonest implication that President Obama’s semi-stimulus was Christina Romer’s brainchild.  Nothing could be further from the truth.  The stimulus program proposed by Romer would have involved a more significant, $1.8 trillion investment.  Beyond that, the fact that unemployment continues for so many millions of people who lost their jobs during the recession is precisely because of Barack Obama’s decision to ignore Christina Romer.  I have been groaning about that decision for a long time, as I discussed here and here.

My February 13 discussion of Noam Scheiber’s book, The Escape Artists, demonstrated how abso-fucking-lutely wrong David Gergen was when he tried to align Christina Romer with Obama’s stimulus:

The book tells the tale of a President in a struggle to create a centrist persona, with no roadmap of his own.  In fact, it was Obama’s decision to follow the advice of Peter Orszag, to the exclusion of the opinions offered by Christina Romer and Larry Summers – which prolonged the unemployment crisis.

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The Escape Artists takes us back to the pivotal year of 2009 – Obama’s first year in the White House.  Noam Scheiber provided us with a taste of his new book by way of an article published in The New Republic entitled, “Obama’s Worst Year”.  Scheiber gave the reader an insider’s look at Obama’s clueless indecision at the fork in the road between deficit hawkishness vs. economic stimulus.  Ultimately, Obama decided to maintain the illusion of centrism by following the austerity program suggested by Peter Orszag:

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.

For Romer, the crusade was a lonely one.  While she believed the economy needed another boost in order to recover, many in the administration were insisting on cuts.  The chief proponent of this view was budget director Peter Orszag.  Worried that the deficit was undermining the confidence of businessmen, Orszag lobbied to pare down the budget in August, six months ahead of the usual budget schedule.      .   .   .

The debate was not only a question of policy.  It was also about governing style – and, in a sense, about the very nature of the Obama presidency.  Pitching a deficit-reduction plan would be a concession to critics on the right, who argued that the original stimulus and the health care bill amounted to liberal overreach.  It would be premised on the notion that bipartisan compromise on a major issue was still possible.  A play for more stimulus, on the other hand, would be a defiant action, and Obama clearly recognized this.  When Romer later urged him to double-down, he groused, “The American people don’t think it worked, so I can’t do it.”

That’s a fine example of great leadership – isn’t it?  “The American people don’t think it worked, so I can’t do it.”  In 2009, the fierce urgency of the unemployment and economic crises demanded a leader who would not feel intimidated by the sheeple’s erroneous belief that the Economic Recovery Act had not “worked”.

Ron Suskind’s book, Confidence Men is another source which contradicts David Gergen’s attempt to characterize Obama’s stimulus as Romer’s baby.  Last fall, Berkeley economics professor, Brad DeLong had been posting and discussing excerpts from the book at his own website, Grasping Reality With Both Hands.  On September 19, Professor DeLong posted a passage from Suskind’s book, which revealed Obama’s expressed belief (in November of 2009) that high unemployment was a result of productivity gains in the economy.  Both Larry Summers (Chair of the National Economic Council) and Christina Romer (Chair of the Council of Economic Advisers) were shocked and puzzled by Obama’s ignorance on this subject:

“What was driving unemployment was clearly deficient aggregate demand,” Romer said.  “We wondered where this could be coming from.  We both tried to convince him otherwise.  He wouldn’t budge.”

Obama’s willful refusal to heed the advice of Cristina Romer has facilitated the persistence of our nation’s unemployment problem.  As Ron Suskind remarked in the previously-quoted passage:

The implications were significant.  If Obama felt that 10 percent unemployment was the product of sound, productivity-driven decisions by American business, then short-term government measures to spur hiring were not only futile but unwise.

There you have it.  Despite the efforts of Obama’s apologists to blame Larry Summers or others on the President’s economic team for persistent unemployment, it wasn’t simply a matter of “the buck stopping” on the President’s desk.  Obama himself  has been the villain, hypocritically advocating a strategy of “trickle-down economics” – in breach of  his campaign promise to do the exact opposite.

As Election Day approaches, it becomes increasingly obvious that the unemployment situation will persist through autumn – and it could get worse.  This is not Christina Romer’s fault.  It is President Obama’s legacy.  Christina Romer was right and President Obama was wrong.


 

Once Upon A Crisis

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As the 2012 Presidential election campaign heats up, there is plenty of historical revisionism taking place with respect to the 2008 financial / economic crisis.  Economist Dean Baker wrote an article for The Guardian, wherein he debunked the Obama administration’s oft-repeated claim that the newly-elected President saved us from a “Second Great Depression”:

While the Obama administration, working alongside Ben Bernanke at the Fed, deserves credit for preventing a financial meltdown, a second great depression was never in the cards.

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The attack on the second Great Depression myth is not simply an exercise in semantics.  The Obama Administration and the political establishment more generally want the public to be grateful that we managed to avoid a second Great Depression. People should realize that this claim is sort of like keeping our kids safe from tiger attacks.  It’s true that almost no kids in the United States are ever attacked by tigers, but we don’t typically give out political praise for this fact, since there is no reason to expect our kids to be attacked by tigers.

In the same vein, we all should be very happy we aren’t in the middle of a second Great Depression; however, there was never any good reason for us to fear a second Great Depression.  What we most had to fear was a prolonged period of weak growth and high unemployment.  Unfortunately, this is exactly what we are seeing.   The only question is how long it will drag on.

Joe Weisenthal of The Business Insider directed our attention to the interview with economist Paul Krugman appearing in the current issue of Playboy.  Krugman, long considered a standard bearer for the Democratic Party’s economic agenda, was immediately thrown under the bus as soon as Obama took office.  I’ll never forget reading about the “booby prize” roast beef dinner Obama held for Krugman and his fellow Nobel laureate, Joseph Stiglitz – when the two economists were informed that their free advice would be ignored. Fortunately, former Chief of Staff Rahm Emanuel was able to make sure that pork wasn’t the main course for that dinner.  Throughout the Playboy interview, Krugman recalled his disappointment with the new President.  Here’s what Joe  Weisenthal had to say about the piece:

There’s a long interview with Paul Krugman in the new Playboy, and it’s excellent.

We tend to write a lot about his economic commentary here, but he probably doesn’t get enough credit for his commentary on politics, and his assessment of how things will play out.

Go back and read this column, from March 2009, and you’ll see that he basically called things correctly, that the stimulus would be too small, and that the GOP would be emboldened and gain success arguing that the problem was that we had stimulus at all.

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At least as Krugman sees it, the times called for a major boost in spending and so on, and Obama never had any intention to deliver.

What follows is the prescient excerpt from Krugman’s March 9, 2009 essay, referenced by Joe Weisenthal:

The broader public, by contrast, favors strong action.  According to a recent Newsweek poll, a majority of voters supports the stimulus, and, more surprising, a plurality believes that additional spending will be necessary.  But will that support still be there, say, six months from now?

Also, an overwhelming majority believes that the government is spending too much to help large financial institutions.  This suggests that the administration’s money-for-nothing financial policy will eventually deplete its political capital.

So here’s the picture that scares me:  It’s September 2009, the unemployment rate has passed 9 percent, and despite the early round of stimulus spending it’s still headed up.  Obama finally concedes that a bigger stimulus is needed.  But he can’t get his new plan through Congress because approval for his economic policies has plummeted, partly because his policies are seen to have failed, partly because job-creation policies are conflated in the public mind with deeply unpopular bank bailouts.  And as a result, the recession rages on, unchecked.

In early July of 2009, I wrote a piece entitled, “The Second Stimulus”, in which I observed that President Obama had already reached the milestone anticipated by Krugman for September of that year.  I made a point of including a list of ignored warnings about the inadequacy of the stimulus program.  Most notable among them was the point that there were fifty economists who shared the concerns voiced by Krugman, Stiglitz and Jamie Galbraith:

Despite all these warnings, as well as a Bloomberg survey conducted in early February, revealing the opinions of economists that the stimulus would be inadequate to avert a two-percent economic contraction in 2009, the President stuck with the $787 billion plan.

Mike Grabell of ProPublica has written a new book entitled, Money Well Spent? which provided an even-handed analysis of what the stimulus did – and did not – accomplish.  As I pointed out on February 13, some of the criticisms voiced by Mike Grabell concerning the programs funded by the Economic Recovery Act had been previously expressed by Keith Hennessey (former director of the National Economic Council under President George W. Bush) in a June 3, 2009 posting at Hennessey’s blog.  I was particularly intrigued by this suggestion by Keith Hennessey from back in 2009:

Had the President instead insisted that a $787 B stimulus go directly into people’s hands, where “people” includes those who pay income taxes and those who don’t, we would now be seeing a stimulus that would be:

  • partially effective but still quite large – Because it would be a temporary change in people’s incomes, only a fraction of the $787 B would be spent.  But even 1/4 or 1/3 of $787 B is still a lot of money to dump out the door.  The relative ineffectiveness of a temporary income change would be offset by the enormous amount of cash flowing.
  • efficient – People would be spending money on themselves. Some of them would be spending other people’s money on themselves, but at least they would be spending on their own needs, rather than on multi-year water projects in the districts of powerful Members of Congress.  You would have much less waste.
  • fast – The GDP boost would be concentrated in Q3 and Q4 of 2009, tapering off heavily in Q1 of 2010.

Why did the President not do this?  Discussions with the Congress began in January before he took office, and he faced a strong Speaker who took control and gave a huge chuck of funding to House Appropriations Chairman Obey (D-WI).  I can think of three plausible explanations:

  1. The President and his team did not realize the analytical point that infrastructure spending has too slow of a GDP effect.
  2. They were disorganized.
  3. They did not want a confrontation with their new Congressional allies in their first few days.

Given the fact that the American economy is 70% consumer-driven, Keith Hennessey’s proposed stimulus would have boosted that sorely-missing consumer demand as far back as two years ago.  We can only wonder where our unemployment level and our Gross Domestic Product would be now if Hennessey’s plan had been implemented – despite the fact that it would have been limited to the $787 billion amount.


 

Niall Ferguson Softens His Austerity Stance

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I have previously criticized Niall Ferguson as one of the gurus for those creatures described by Barry Ritholtz as “deficit chicken hawks”.  The deficit chicken hawks have been preaching the gospel of economic austerity as an excuse for roadblocking any form of stimulus (fiscal or monetary) to rehabilitate the American economy.  Ferguson has now backed away from the position he held two years ago – that the United States has been carrying too much debt

Henry Blodget of The Business Insider justified his trip to Davos, Switzerland last week by conducting an important interview with Niall Ferguson at the annual meeting of the World Economic Forum.  For the first time, Ferguson conceded that he had been wrong with his previous criticism about the level of America’s sovereign debt load, although he denied ever having been a proponent of “instant austerity” (which is currently advocated by many American politicians).  While discussing the extent of the sovereign debt crisis in Europe, Ferguson re-directed his focus on the United States:

I think we are going to get some defaults one way or the other.  The U.S. is a different story.  First of all I think the debt to GDP ratio can go quite a lot higher before there’s any upward pressure on interest rates.  I think the more I’ve thought about it the more I’ve realized that there are good analogies for super powers having super debts.  You’re in a special position as a super power.  You get, especially, you know, as the issuer of the international reserve currency, you get a lot of leeway.  The U.S. could conceivably grow its way out of the debt.  It could do a mixture of growth and inflation.  It’s not going to default.  It may default on liabilities in Social Security and Medicare, in fact it almost certainly will.  But I think holders of Treasuries can feel a lot more comfortable than anyone who’s holding European bonds right now.

BLODGET: That is a shockingly optimistic view of the United States from you.  Are you conceding to Paul Krugman that over the near-term we shouldn’t worry so much?

FERGUSONI think the issue here got a little confused, because Krugman wanted to portray me as a proponent of instant austerity, which I never was.  My argument was that over ten years you have to have some credible plan to get back to fiscal balance because at some point you lose your credibility because on the present path, Congressional Budget Office figures make it clear, with every year the share of Federal tax revenues going to interest payments rises, there is a point after which it’s no longer credible.  But I didn’t think that point was going to be this year or next year.  I think the trend of nominal rates in the crisis has been the trend that he forecasted.  And you know, I have to concede that. I think the reason that I was off on that was that I hadn’t actually thought hard enough about my own work.  In the “Cash Nexus,” which I published in 2001, I actually made the argument that very large debts are sustainable, if your borrowing costs are low. And super powers – Britain was in this position in the 19th century – can carry a heck of a lot of debt before investors get nervous.  So there really isn’t that risk premium issue. There isn’t that powerful inflation risk to worry about.  My considered and changed view is that the U.S. can carry a higher debt to GDP ratio than I think I had in mind 2 or 3 years ago.  And higher indeed that my colleague and good friend, Ken Rogoff implies, or indeed states, in the “This Time Is Different” book.  I think what we therefore see is that the U.S. has leeway to carry on running deficits and allowing the debt to pile up for quite a few years before we get into the kind of scenario we’ve seen in Europe, where suddenly the markets lose faith.  It’s in that sense a safe haven more than I maybe thought before.

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There are various forces in [the United States’] favor. It’s socially not Japan.  It’s demographically not Japan. And I sense also that the Fed is very determined not to be the Bank of Japan. Ben Bernanke’s most recent comments and actions tell you that they are going to do whatever they can to avoid the deflation or zero inflation story.

Niall Ferguson deserves credit for admitting (to the extent that he did so) that he had been wrong.  Unfortunately, most commentators and politicians lack the courage to make such a concession.

Meanwhile, Paul Krugman has been dancing on the grave of the late David Broder of The Washington Post, for having been such a fawning sycophant of British Prime Minister David Cameron and Jean-Claude Trichet (former president of the European Central Bank) who advocated the oxymoronic “expansionary austerity” as a “confidence-inspiring” policy:

Such invocations of the confidence fairy were never plausible; researchers at the International Monetary Fund and elsewhere quickly debunked the supposed evidence that spending cuts create jobs.  Yet influential people on both sides of the Atlantic heaped praise on the prophets of austerity, Mr. Cameron in particular, because the doctrine of expansionary austerity dovetailed with their ideological agendas.

Thus in October 2010 David Broder, who virtually embodied conventional wisdom, praised Mr. Cameron for his boldness, and in particular for “brushing aside the warnings of economists that the sudden, severe medicine could cut short Britain’s economic recovery and throw the nation back into recession.”  He then called on President Obama to “do a Cameron” and pursue “a radical rollback of the welfare state now.”

Strange to say, however, those warnings from economists proved all too accurate.  And we’re quite fortunate that Mr. Obama did not, in fact, do a Cameron.

Nevertheless, you can be sure that many prominent American politicians will ignore the evidence, as well as Niall Ferguson’s course correction, and continue to preach the gospel of immediate economic austerity – at least until the time comes to vote on one of their own pet (pork) projects.

American voters continue to place an increasing premium on authenticity when evaluating political candidates.  It would be nice if this trend would motivate voters to reject the “deficit chicken haws” for the hypocrisy they exhibit and the ignorance which motivates their policy decisions.


 

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Time For Some Serious Pushback

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The American people are finally getting angry.  I thought it would never happen.  In case you haven’t heard about it yet, the most popular topic on Twitter right now is:  #FuckYouWashington.  (For those who don’t like typing dirty words on their computer – there is the alternative #FYW.)  If you’re looking for some refreshing reading, which will reinforce your confidence in the people of this great country (especially after excessive exposure to the depressing, “debt ceiling” debate) be sure to check in on it.

Meanwhile, our fake, “two-party system” is facing a fresh challenge.  The Republi-Cratic Corporatist Party is being threatened by an Internet-based organization called, Americans Elect.  Here’s how the group describes itself:

Americans Elect is the first-ever open nominating process.  We’re using the Internet to give every single voter – Democrat, Republican or independent – the power to nominate a presidential ticket in 2012.  The people will choose the issues. The people will choose the candidates.  And in a secure, online convention next June, the people will make history by putting their choice on the ballot in every state.

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We have no ties to any political group – left, right, or center.  We don’t promote any issues, ideology or candidates.  None of our funding comes from special interests or lobbyists.  Our only goal is to put a directly-nominated ticket on the ballot in 2012.

*   *   *

The goal of Americans Elect is to nominate a presidential ticket that answers to the people – not the political system.  Like millions of American voters, we simply want leadership that will work together to tackle the challenges facing our country.  And we believe a direct nominating process will prove that America is ready for a competitive, nonpartisan ticket.

Just when the Obama Administration was getting comfy with the idea that it could take the voters for granted  …  along came this new threat in the form of Americans Elect.  The timing couldn’t have been more appropriate.  A recent CNN poll revealed that Obama’s support among liberals has dropped to “the lowest point in his presidency”.  The man whom I characterized as the “Disappointer-In-Chief” during his third month in office, is now being referred to by The Nation as the “Compromiser-in-Chief”.  Ari Melber’s essay in The Nation provides a great summary of the criticism directed against Obama from the Left.  One example came from economist Paul Krugman, who described Obama as “President Pushover”.

In order to resist any new challenges to the status quo, the Republi-Cratic Corporatist Party is taking advantage of the proposed “debt ceiling” legislation to cement its absolute control over the United States government.  Ryan Grim of The Huffington Post provided us with the revelation of a bipartisan effort to create an authoritarian governing body, designed to circumvent Constitutionally-prescribed legislative procedures:

This “Super Congress,” composed of members of both chambers and both parties, isn’t mentioned anywhere in the Constitution, but would be granted extraordinary new powers.  Under a plan put forth by Senate Minority Leader Mitch McConnell (R-Ky.) and his counterpart Majority Leader Harry Reid (D-Nev.), legislation to lift the debt ceiling would be accompanied by the creation of a 12-member panel made up of 12 lawmakers — six from each chamber and six from each party.

Legislation approved by the Super Congress — which some on Capitol Hill are calling the “super committee” — would then be fast-tracked through both chambers, where it couldn’t be amended by simple, regular lawmakers, who’d have the ability only to cast an up or down vote.  With the weight of both leaderships behind it, a product originated by the Super Congress would have a strong chance of moving through the little Congress and quickly becoming law.  A Super Congress would be less accountable than the system that exists today, and would find it easier to strip the public of popular benefits.  Negotiators are currently considering cutting the mortgage deduction and tax credits for retirement savings, for instance, extremely popular policies that would be difficult to slice up using the traditional legislative process.

House Speaker John Boehner (R-Ohio) has made a Super Congress a central part of his last-minute proposal, multiple news reports and people familiar with his plan say.

Independents and “Third-Party” members of Congress would be excluded from this “Super Congress”, thus subverting any attempts by the “little people” to steal control of the government away from the Republi-Cratic Corporatist Party.  Concern about the upstart Americans Elect organization could have been the motivating factor which inspired the “Super Congress” plan.  Tom Friedman’s recent New York Times commentary must have set off a “treason alert” for the Congressional kleptocrats, who read this:

Write it down:  Americans Elect.  What Amazon.com did to books, what the blogosphere did to newspapers, what the iPod did to music, what drugstore.com did to pharmacies, Americans Elect plans to do to the two-party duopoly that has dominated American political life – remove the barriers to real competition, flatten the incumbents and let the people in.  Watch out.

The Republi-Cratic Corporatist Party is already watching out.  That’s why they are moving to create a new, imperial “Super Congress”.  Be sure to express your opposition to this power grab by logging-on to Twitter and sharing your feelings at #FuckYouWashington.


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Elizabeth Warren Should Run Against Obama

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Now that President Obama has thrown Elizabeth Warren under the bus by nominating Richard Cordray to head the Consumer Financial Protection Bureau (CFPB), she is free to challenge Obama in the 2012 election.  It’s not a very likely scenario, although it’s one I’d love to see:  Warren as the populist, Independent candidate – challenging Obama, the Wall Street tool – who is already losing to a phantom, unspecified Republican.

A good number of people were disappointed when Obama failed to nominate Warren to chair the CFPB, which was her brainchild.  It was bad enough that Treasury Secretary “Turbo” Tim Geithner didn’t like her – but once the President realized he was getting some serious pushback about Warren from Senate Republicans – that was all it took.  Some Warren supporters have become enamored with the idea that she could challenge Scott Brown for his seat representing Massachusetts in the Senate.  However, many astute commentators consider that as a really stupid idea.  Here is the reaction from Yves Smith of Naked Capitalism:

We argued yesterday that the Senate was not a good vehicle for advancing Elizabeth Warren’s aims of helping middle class families, since she would have no more, and arguably less power than she has now, and would be expected to defend Democrat/Obama policies, many of which are affirmatively destructive to middle class interests (just less so than what the Republicans would put in place).

A poll conducted in late June by Scott Brown and the Republican National Committee raises an even more basic question:  whether she even has a shot at winning.

*   *   *

The poll shows a 25 point gap, which is a massive hurdle, and also indicates that Brown is seen by many voters as not being a Republican stalwart (as in he is perceived to vote for the state’s, not the party’s, interest).  A 25 point gap is a near insurmountable hurdle and shows that Warren’s reputation does not carry as far as the Democratic party hackocracy would like her fans to believe.  But there’s no reason not to get this pesky woman to take up what is likely to be a poisoned chalice.  If she wins, she’s unlikely to get on any important committees, given the Democratic party pay to play system, and will be boxed in by the practical requirements of having to make nice to the party and support Obama positions a meaningful portion of the time. And if she runs and loses, it would be taken as proof that her middle class agenda really doesn’t resonate with voters, which will give the corporocrats free rein (if you can’t sell a liberal agenda in a borderline Communist state like Massachusetts, it won’t play in Peoria either).

Obviously, a 2012 challenge to the Obama Presidency by Warren would be an uphill battle.  Nevertheless, it’s turning out to be an uphill battle for the incumbent, as well.  David Weidner of MarketWatch recently discussed how Obama’s failure to adequately address the economic crisis has placed the President under the same pressure faced by many Americans today:

He’s about to lose his job.

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Blame as much of the problem on his predecessor as you like, the fact is Obama hasn’t come up with a solution.  In fact, he’s made things worse by filling his top economic posts with banking-friendly interests, status-quo advisers and milquetoast regulators.

And if there’s one reason Obama loses in 2012, it’ll be because he failed to surround himself with people willing to take drastic action to get the economy moving again.

In effect, Obama’s team has rewarded the banking industry under the guise of “saving the economy” while abandoning citizens and consumers desperate for jobs, credit and spending power.

There was the New York Fed banker cozy with Wall Street: Timothy Geithner.

There was the former Clinton administration official who was the architect of policies that led to the financial crisis: Larry Summers.

There was a career bureaucrat named to lead the Securities and Exchange Commission:  Mary Schapiro.

To see just how unremarkable this group is, consider that the most progressive regulator in the Obama administration, Federal Deposit Insurance Corp. Chairman Sheila Bair, was a Republican appointed by Bush.

*   *   *

The lack of action by Obama’s administration of mediocrities is the reason the recovery sputters.  In essence, the turnaround depends too much on a private sector that, having escaped failure, is too content to sit out what’s supposed to be a recovery.

*   *   *

What began as a two-step approach:  1) saving the banks, and then 2) saving homeowners, was cut short after the first step.

Instead of extracting more lending commitments from the banks, forcing more haircuts on investors and more demands on business, Obama has let his team of mediocrities allow the debate to be turned on government.  The government caused the financial crisis.  The government ruined the housing market.

It wasn’t true at the start, but it’s becoming true now.

Despite his status as the incumbent and his $1 billion campaign war chest, President Obama could find himself voted out of office in 2012.  When you consider the fact that the Republican Party candidates who are currently generating the most excitement are women (Bachmann and the undeclared Palin) just imagine how many voters might gravitate to a populist female candidate with substantially more brains than Obama.

The disillusionment factor afflicting Obama is not something which can be easily overlooked.  The man I have referred to as the “Disappointer-In-Chief” since his third month in office has lost more than the enthusiasm of his “base” supporters – he has lost the false “progressive” image he had been able to portray.  Matt Stoller of the Roosevelt Institute explained how the real Obama had always been visible to those willing to look beyond the campaign slogans:

Many people are “disappointed” with Obama.  But, while it is certainly true that Obama has broken many many promises, he projected his goals in his book The Audacity of Hope.  In Audacity, he discussed how in 2002 he was going to give politics one more shot with a Senate campaign, and if that didn’t work, he was going into corporate law and getting wealthy like the rest of his peer group.  He wrote about how passionate activists were too simple-minded, that the system basically worked, and that compromise was a virtue in and of itself in a world of uncertainty. His book was a book about a fundamentally conservative political creature obsessed with process, not someone grounded in the problems of ordinary people.  He told us what his leadership style is, what his agenda was, and he’s executing it now.

I expressed skepticism towards Obama from 2005, onward.  Paul Krugman, Debra Cooper, and Tom Ferguson among others pegged Obama correctly from day one.  Obama broadcast who he was, through his conservative policy focus (which is how Krugman pegged him), his bank backers (which is how Ferguson pegged him), his political support of Lieberman (which is how I pegged him), and his cavalier treatment of women’s issues (which is how Debra Cooper pegged him).  He is doing so again, with his choice to effectively remove Elizabeth Warren from the administration.

I just wish Elizabeth Warren would fight back and challenge Obama for The White House.  If only   .   .   .


 

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Those First Steps Have Destroyed Mid-term Democrat Campaigns

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September 6, 2010

The steps taken by the Obama administration during its first few months have released massive, long-lasting fallout, destroying the re-election hopes of Democrats in the Senate and House.  Let’s take a look back at Obama’s missteps during that crucial period.

During the first two weeks of February, 2009 — while the debate was raging as to what should be done about the financial stimulus proposal — the new administration was also faced with making a decision on what should be done about the “zombie” Wall Street banks.  Treasury Secretary Geithner had just rolled out his now-defunct “financial stability plan” in a disastrous press conference.  Most level-headed people, including Joe Nocera of The New York Times, had been arguing in favor of putting those insolvent banks through temporary receivership – or temporary nationalization – until they could be restored to healthy, functional status.  Nevertheless, at this critical time, Obama, Geithner and Fed chair Ben Bernanke had decided to circle their wagons around the Wall Street banks.  Here’s how I discussed the situation on February 16, 2009:

Geithner’s resistance to nationalization of insolvent banks represents a stark departure from the recommendations of many economists.  While attending the World Economic Forum in Davos, Switzerland last month, Dr. Nouriel Roubini explained (during an interview on CNBC) that the cost of purchasing the toxic assets from banks will never be recouped by selling them in the open market:

At which price do you buy the assets?  If you buy them at a high price, you are having a huge fiscal cost. If you buy them at the right market price, the banks are insolvent and you have to take them over.  So I think it’s a bad idea.  It’s another form of moral hazard and putting on the taxpayers, the cost of the bailout of the financial system.

Dr. Roubini’s solution is to face up to the reality that the banks are insolvent and “do what Sweden did”:  take over the banks, clean them up by selling off the bad assets and sell them back to the private sector.  On February 15, Dr. Roubini repeated this theme in a Washington Post article he co-wrote with fellow New York University economics professor, Matthew Richardson.

Even after Geithner’s disastrous press conference, President Obama voiced a negative reaction to the Swedish approach during an interview with Terry Moran of ABC News.

Nearly a month later, on March 12, 2009 —  I discussed how the administration was still pushing back against common sense on this subject, while attempting to move forward with its grandiose, “big bang” agenda.  The administration’s unwillingness to force those zombie banks to face the consequences of their recklessness was still being discussed —  yet another month later by Bill Black and Robert Reich.  Three months into his Presidency, Obama had established himself as a guardian of the Wall Street status quo.

Even before the stimulus bill was signed into law, the administration had been warned, by way of an article in Bloomberg News, that a survey of fifty economists revealed that the proposed $787 billion stimulus package would be inadequate.  Before Obama took office, Nobel laureate, Joseph Stiglitz, pointed out for Bloomberg Television back on January 8, 2009, that the President-elect’s proposed stimulus would be inadequate to heal the ailing economy:

“It will boost it,” Stiglitz said.  “The real question is — is it large enough and is it designed to address all the problems.  The answer is almost surely it is not enough, particularly as he’s had to compromise with the Republicans.”

On January 19, 2009, financier George Soros contended that even an $850 billion stimulus would not be enough:

“The economies of the world are falling off a cliff.  This is a situation that is comparable to the1930s.  And once you recognize it, you have to recognize the size of the problem is much bigger,” he said.

On February 26, 2009, Economics Professor James Galbarith pointed out in an interview that the stimulus plan was inadequate.  Two months earlier, Paul Krugman had pointed out on Face the Nation, that the proposed stimulus package of $775 billion would fall short.

More recently, on September 5, 2010, a CNN poll revealed that only 40 percent of those surveyed voiced approval of the way President Obama has handled the economy.  Meanwhile, economist Richard Duncan is making the case for another stimulus package “to back forward-looking technologies that will help the U.S. compete and to shift away from the nation’s dependency on industries vulnerable to being outsourced to low-wage centers abroad”.  Chris Oliver of MarketWatch provided us with this glimpse into Duncan’s thinking:

The U.S. is already on track to run up trillion-dollar-plus annual deficits through the next decade, according to estimates by the Congressional Budget Office.

“If the government doesn’t spend this money, we are going to collapse into a depression,” Duncan says.  “They are probably going to spend it.   . . . It would be much wiser to realize the opportunities that exist to spend the money in a concerted way to advance the goals of our civilization.”

Making the case for more stimulus, Paul Krugman took a look back at the debate concerning Obama’s first stimulus package, to address the inevitable objections against any further stimulus plans:

Those who said the stimulus was too big predicted sharply rising (interest) rates.  When rates rose in early 2009, The Wall Street Journal published an editorial titled “The Bond Vigilantes:  The disciplinarians of U.S. policy makers return.”   The editorial declared that it was all about fear of deficits, and concluded, “When in doubt, bet on the markets.”

But those who said the stimulus was too small argued that temporary deficits weren’t a problem as long as the economy remained depressed; we were awash in savings with nowhere to go.  Interest rates, we said, would fluctuate with optimism or pessimism about future growth, not with government borrowing.

When in doubt, bet on the markets.  The 10-year bond rate was over 3.7 percent when The Journal published that editorial;  it’s under 2.7 percent now.

What about inflation?  Amid the inflation hysteria of early 2009, the inadequate-stimulus critics pointed out that inflation always falls during sustained periods of high unemployment, and that this time should be no different.  Sure enough, key measures of inflation have fallen from more than 2 percent before the economic crisis to 1 percent or less now, and Japanese-style deflation is looking like a real possibility.

Meanwhile, the timing of recent economic growth strongly supports the notion that stimulus does, indeed, boost the economy:  growth accelerated last year, as the stimulus reached its predicted peak impact, but has fallen off  — just as some of us feared — as the stimulus has faded.

I believe that Professor Krugman would agree with my contention that if President Obama had done the stimulus right the first time – not only would any further such proposals be unnecessary – but we would likely be enjoying a healthy economy with significant job growth.  Nevertheless, the important thing to remember is that President Obama didn’t do the stimulus adequately in early 2009.  As a result, his fellow Democrats will be paying the price in November.




Not Getting It Done

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August 9, 2010

Are the Democrats trying to lose their majorities in both the Senate and the House in November?  Their two biggest accomplishments, the healthcare “reform” bill and the financial “reform” bill haven’t really impressed the electorate.  According to a Gallup Poll, voter reaction to the passage of the “Affordable Healthcare Act” is 49 percent contending that the bill is a “good thing” as opposed to 46 percent who believe it is a “bad thing”, with 5 percent undecided.  Criticism of the “Wall Street Reform and Consumer Protection Act of 2010” has been widespread, as I have previously discussed here, here and here.  The latest critique of the bill came from Professor Thomas F. Cooley, of the Stern School of Business at NYU.  His Forbes article entitled, “The Politics Of Regulatory Reform”, was based on this theme:

The awareness of how close we came to paralyzing the financial system created an opportunity to do something truly significant to make the system safer and more in tune with the needs of our economy.  Sadly, because all things in Washington are political, we fumbled the ball.

Rahm Emanuel’s infamous doctrine, “You never want a serious crisis to go to waste” is apparently being disregarded by Rahm Emanuel and company at The White House.  Of course, the entire economic catastrophe has provided the Obama administration with a boatload of crises – most of which have already gone to waste.  For example, consider this fiasco-in-progress:  The “small business” sector plays such an important role in keeping Americans employed, a bill to facilitate lending to small businesses has been sponsored by Senator Mary Landrieu (D-Louisiana).  An August 7 report by Sharon Bernstein of the Los Angeles Times provided this update on the status of the measure:

The small business loan assistance ran into trouble in the Senate when members from both parties began attaching amendments to support their favored causes.

The ineffective efforts of Senate Democrats are unfairly souring public opinion on their more unified counterparts in the House.  In attempt to redeem the image of Congressional Dems, House Speaker Nancy Pelosi scheduled a special session of Congress for Tuesday, August 10, (an interruption of their August recess) to pass a $26-billion bill to avert public employee layoffs.

With the passing of time, it has become more obvious that President Obama’s biggest mistake since taking office was his weak leadership in promoting the economic stimulus effort.  Many commentators have expressed the opinion that Christina Romer’s resignation as chair of the President’s Council of Economic Advisors was based on her frustration with the under-funded stimulus program.

I recently wrote an “I told you so” piece, referencing my July, 2009 prediction that it would eventually become necessary for President Obama to introduce a second stimulus bill because the $787 billion proposal would prove inadequate.  At his blog, liberal economist Paul Krugman similarly reminded readers of his prediction about the consequences for failing to pass an effective stimulus bill:

So here’s the picture that scares me:  It’s September 2009, the unemployment rate has passed 9 percent, and despite the early round of stimulus spending it’s still headed up.  Mr. Obama finally concedes that a bigger stimulus is needed.

But he can’t get his new plan through Congress because approval for his economic policies has plummeted, partly because his policies are seen to have failed, partly because job-creation policies are conflated in the public mind with deeply unpopular bank bailouts.  And as a result, the recession rages on, unchecked.

The reality has turned out even worse than Krugman’s prediction because we are now approaching September 2010 – an election year – and the unemployment rate is being understated at 9.5 percent.  The conflation Krugman discussed has manifested itself in the narrative of the Tea Party movement.  In September of 2009, I discussed why Obama should have been listening to Australian economist Steve Keen, who – by that point – was saying basically the same thing:

So giving the stimulus to the debtors is a more potent way of reducing the impact of a credit crunch — the opposite of the advice given to Obama by his neoclassical advisers.

Economist Joseph Stiglitz recently provided us with this update about how the global financial crisis is affecting Australia in August of 2010:

Kevin Rudd, who was prime minister when the crisis struck, put in place one of the best-designed Keynesian stimulus packages of any country in the world.  He realized that it was important to act early, with money that would be spent quickly, but that there was a risk that the crisis would not be over soon.  So the first part of the stimulus was cash grants, followed by investments, which would take longer to put into place.

Rudd’s stimulus worked:  Australia had the shortest and shallowest of recessions of the advanced industrial countries.

Meanwhile, President Obama and the Democrats have decided to utilize a mid-term campaign strategy of assessing all of the blame for our current financial chaos on President George W. Bush.  Criticism of this approach has been voiced by people outside of the Republican camp.  Frank Rich of The New York Times lamented the lack of message control exercised by the Democrats and their ill-advised focus on the Bush era:

But rather than wait for miracles or pray that Bushphobia will save the day, Democrats might instead start playing the hand they’ve been dealt.  Elections, the cliché goes, are about the future, not the past.  At the very least they’re about the present.

At this point in American history, it’s becoming more obvious that the two-party system has served no other purpose than to perpetuate the careers of blundering grafters.  The voting public must accept the reality that the only way it will be honestly and effectively represented in Washington is by independent candidates.  The laws that keep those independents off the ballots must be changed.




Wading In Quicksand

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July 12, 2010

The recent Gallup Poll, revealing that President Obama’s approval rating has dropped to 38% among independent voters, has resulted in an outpouring of (unsolicited) advice offered to the President by numerous commentators.  As I pointed out in my last posting, Matt Miller’s July 8 Washington Post article set out a really great plan, which he described as “a radically centrist ‘Jobs Now, Deficits Soon’ package”.   Nevertheless, Mr. Miller’s piece was not written as advice to the President, as some of the more recent articles have been.  I recently read one of those “advice to Obama” pieces that the President would do well to ignore.  It was written by a former Bill Clinton pollster named Douglas Schoen for the New York Daily News Schoen’s plan focused on this premise:

The independent swing voters who hold the fate of the Democratic Party in their hands are looking for candidates and parties that champion fiscal discipline, limited government, deficit reduction and a free market, pro-growth agenda.

Not true.  The independent swing voters are disappointed with Obama because the candidate’s promise of “hope and change” turned out to be a “bait and switch” scam to sell the public more cronyism.  At this point, it appears as though the entire Democratic Party will suffer the consequences in the 2010 elections.

The shortcomings of the Obama administration were more accurately summed up by Robert Kuttner for The Huffington Post:

But even a dire economic crisis and a Republican blockade of needed remedies have not fundamentally altered the temperament, trajectory, or tactical instincts of this surprisingly aloof  president.  He has not been willing or able to use his office to move public opinion in a direction that favors more activism.  Nor has Obama, for the most part, seized partisan and ideological opportunities that hapless Republicans and clueless corporate executives keep lobbing him like so many high, hanging curve balls.

*   *   *

But despite our hopes, Barack Obama is unlikely to offer bolder policies or give tougher speeches any time soon, even as threats of a double-dip recession and an electoral blowout in November loom.  This is just not who he is.  If the worst economic crisis in eight decades were going to change his assumptions about how to govern and how to lead, it would have done so by now.

*   *   *

I have also watched Obama’s loyal opposition –people like Joseph Stiglitz, Paul Krugman, Elizabeth Warren, Sheila Bair — be proven right by events, again and again.  So there are alternative paths, as there always are.  But the White House has disdained them.

And I’ve noticed that it is the populists among Democratic elected officials who are best defended against defeat in November.  That tells you something, too.  Why should the project of rallying the common people against elites in Washington, on Wall Street, and in the media, be ceded to the far right?  But that is what this White House is doing.

E. J. Dionne of The Washington Post demonstrated a good understanding of why independent voters have become fed up with Obama and how this has ballooned into a larger issue of anti-Democrat sentiment:

On the one hand, independent voters are turning on them.  Democratic House candidates enjoyed a 51 percent to 43 percent advantage over Republicans in 2008.  This time, the polls show independents tilting Republican by substantial margins.

But Democrats are also suffering from a lack of enthusiasm among their own supporters.  Poll after poll has shown that while Republicans are eager to cast ballots, many Democrats seem inclined to sit out this election.

The apathy of the rank-and-file Democrats and the alienation of the independents is best explained by the Administration’s faux-reform agenda.  The so-called healthcare “reform” bill turned out to be a giveaway to big pharma and the health insurance industry.  Worse yet, the financial “reform” bill not only turned out to be a hoax – it did nothing to address systemic risk.  In other words, if one of those five “untouchable” Wall Street banks fails, it will take the entire financial system down with it — in the absence of another huge, trillion-dollar bailout from the taxpayers.

Mike Konczal of the Roosevelt Institute documented the extent to which Obama’s Treasury Department undermined the financial reform bill at every step:

Examples?  Off the top of my head, ones with a paper trail:  They fought the Collins amendment for quality of bank capital, fought leverage requirements like a 15-to-1 cap, fought prefunding the resolution mechanism, fought Section 716removed foreign exchange swaps and introduced end user exemption from derivative language between the Obama white paper and the House Bill, believed they could have gotten the SAFE Banking Amendment to break up the banks but didn’t try, pushed against the full Audit the Fed and encouraged the Scott Brown deal. spinning out swap desks,

You can agree or disagree with any number of those items, think they are brilliant or dumb, reasonable or a pipe dream.  But what is worth noting is that they always end up leaving their fingerprints on the side of less structural reform and in favor of the status quo on Wall Street.

The Obama administration is apparently operating from the mistaken perspective that the voters are too stupid to see through their antics.  Sending Joe Biden to appear on Jay Leno’s Tonight Show to dissuade the public from considering the motives of politicians will not solve the administration’s problem of sinking approval ratings.




I Knew This Would Happen

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May 27, 2010

It was almost a year ago when I predicted that President Obama would eventually announce the need for a “second stimulus”.  Once the decision was made to drink the Keynesian Kool-Aid with the implementation of last year’s economic stimulus package, we were faced with the question of how much to drink.  As I expected, our President took the half-assed, yet “moderate” approach of limiting the stimulus effort to less than what was admitted as the cost of the TARP program, as well as approving  the waste of stimulus funds on “pork” projects, ill-suited to stimulate economic recovery.  In that July 9, 2009 piece, I discussed the fact that liberal economist, Paul Krugman, was not alone in claiming that $787 billion would not be an adequate amount to jump-start the economy back to firing on all cylinders.  I pointed out that a survey of economists conducted by Bloomberg News in February of 2009 revealed a consensus opinion that an $800 billion stimulus would prove to be inadequate.  The February 12, 2009 Bloomberg article by Timothy Homan and Alex Tanzi revealed that:

Even as Obama aims to create 3.5 million jobs with a stimulus plan, economists foresee an unemployment rate exceeding 8 percent through next year.

As we now reach the mid-point of that “next year”, the unemployment rate is at 9.9 percent.  Those economists were right.  Beyond that, some highly-respected economists, including Robert Shiller, are discussing the risk of our experiencing a “double-dip” recession.  As a result, Larry Summers, Director of the President’s National Economic Council, is advocating the passage of a new set of spending measures, referred to as the “second stimulus”.  To help offset the expense, the President has asked Congress to grant him powers to cut unnecessary spending, as would be accomplished with a “line item veto”.  The Financial Times described the situation this way :

The combined announcements were made amid rising concern that centrist Democrats, or those representing marginal districts, might vote against the spending measures, which include more loans for small businesses, an extension of unemployment insurance and aid to states to prevent hundreds of thousands more teachers from being laid off.

*   *   *

Taken together, Mr Summers’s speech and Mr Obama’s announcement show an administration walking a fine line between the need to signal strong medium-term fiscal discipline and not jeopardising what they fear may be a fragile recovery.

Because they couldn’t get it right the first time, the President and his administration have placed themselves in the position of seeking piecemeal stimulus measures.  If they had done it right, we would probably be enjoying economic recovery and a boost in the ranks of the employed at this point.  As a result, this half-assed, piecemeal approach will likely prove more costly than doing it right on the first try.  With mid-term elections approaching, deficit hawks have their knives sharpened for anything that can be described as an “entitlement” (unless that entitlement inures to the benefit of a favored Wall Street institution).  Harold Meyerson of The Washington Post challenged the logic of the deficit hawks with this argument:

Those who oppose the jobs bills in the House and Senate this week should be compelled to answer some questions, starting with:  Absent more stimulus, what do they see as the plausible engine of economic recovery?  What effect will laying off as many as 300,000 teachers have on the education of American children?  And, more elementally, don’t they know there’s a recession on?

Marshall Auerback of the Roosevelt Institute picked up where Harold Meyerson left off, as this recent posting at the New Deal 2.0 website demonstrates:

In fact, full employment is also the best “financial stability” reform we could implement, because with jobs growth comes higher income growth and a corresponding ability to service debt.  That means less write-offs for banks and a correspondingly smaller need to provide government bailouts.

Fiscal austerity, by contrast, won’t cut it.  Our elites seem think that you can cut “wasteful government spending” (that is, reduce private demand further) and cut wages and hence private incomes and not expect major multiplier effects to make things significantly worse.  Of course, that “wasteful”, “unsustainable” spending never seems to apply to the Department of  Defense, where we always seem to be able to appropriate a few billion, whenever necessary.  “Affordability” principles never extend to the Pentagon, it appears.

The fact that we are still in the midst of a severe recession (rather than a robust economic recovery as is often claimed) accounts for the rationale asserted by Larry Summers in advocating a second stimulus amounting to approximately $200 billion in spending measures.  Here’s how Summers explained the proposal in a May 24 speech at the Johns Hopkins School of Advanced International Studies:

It has in recent years been essential for the federal deficit to increase as the economy has gone into recession and has been severely constrained by demand.

And I cannot agree with those who suggest that it somehow threatens the future to provide truly temporary, high-bang-for-the-buck jobs and growth measures.

Rather, assuring as rapid a recovery as possible strengthens our future economy, our future prosperity, with many benefits, including a greater ability to manage our debts.

On the other hand, those who recognize the fiscal and growth benefits of strong expansionary policies must also recognize that it is simultaneously desirable to provide confidence that deficits will come down to sustainable levels as recovery is achieved.  Such confidence both spurs recovery by reducing capital costs and reduces the risk of financial accidents.

To put the point differently:  It is not possible to imagine sound budgets in the absence of economic growth and solid economic performance.

*   *   *

It is important to recognize that the ultimate consequences of stimulus for indebtedness depend critically on the macroeconomic conditions.  When the economy is demand constrained, the impact of a dollar of tax cuts or expansionary investment will be at its highest and the impact on deficits at its lowest.
*   *   *

In areas where the government has a significant opportunity for impact, it would be pennywise and pound foolish not to take advantage of our capacity to encourage near-term job creation.   This explains the logic of the Recovery Act’s success and the rationale for taking additional targeted actions to increase confidence in our economic recovery.

Consider the package currently under consideration in Congress to extend unemployment and health benefits to those out of work and support to states to avoid budget cuts as a case in point.

It would be an act of fiscal shortsightedness to break from the longstanding practice of extending these provisions at a moment when sustained economic recovery is so crucial to our medium-term fiscal prospects.

So, here we are at the introduction of the second stimulus plan.  Despite the denial by President Obama that he would seek a second stimulus, he has Larry Summers doing just that.  Last year, the public and the Congress had the will – not to mention the sense of urgency – to approve such measures.  This time around, it might not happen and that would be due to the leadership flaw I observed last year:

President Obama should have done it right the first time.  His penchant for compromise — simply for the sake of compromise itself — is bound to bite him in the ass on this issue, as it surely will on health care reform — should he abandon the “public option”.  The new President made the mistake of assuming that if he established a reputation for being flexible, his opposition would be flexible in return.  The voting public will perceive this as weak leadership.  As a result, President Obama will need to re-invent this aspect of his public image before he can even consider presenting a second economic stimulus proposal.

At this point, Obama’s “flexibility” is often viewed by the voting public as a lack of existential authenticity, sincerity or — worse yet —  credibility.  As a result, I would expect to see more articles like the recent piece by Carol Lee at Politico, entitled, “Obama:  Day for ‘partnership’ passed”.

Here comes the makeover!






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The Conspiracy Against Conspiracy Theories

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January 18, 2010

Cass Sunstein is a Harvard-educated legal scholar who began his career in the Justice Department’s Office of Legal Counsel and moved on to become a Professor at the University of Chicago Law School.  President Obama appointed Mr. Sunstein to the position of Administrator of the Office of Information and Regulatory Affairs.  In case you’re wondering what that bureaucracy does, a visit to its website will reveal this:

The Office of Information and Regulatory Affairs (OIRA) is located within the Office of Management and Budget and was created by Congress with the enactment of the Paperwork Reduction Act of 1980 (PRA).  OIRA carries out several important functions, including reducing paperwork burdens, reviewing federal regulations, and overseeing policies relating to privacy, information quality, and statistical programs.

On January 12, Daniel Tencer of The Raw Story website, pointed out that Mr. Sunstein co-authored a paper with Adrian Vermule, published in the Journal of Political Philosophy in 2008 entitled, “Conspiracy Theories: Causes and Cures”.  Here is some of what Mr. Tencer had to say about that paper, while quoting fellow critic, Marc Estrin:

Sunstein argued that “government might undertake (legal) tactics for breaking up the tight cognitive clusters of extremist theories.”  He suggested that “government agents (and their allies) might enter chat rooms, online social networks, or even real-space groups and attempt to undermine percolating conspiracy theories by raising doubts about their factual premises, causal logic or implications for political action.”

“We expect such tactics from undercover cops, or FBI,” Estrin writes at the Rag Blog, expressing surprise that “a high-level presidential advisor” would support such a strategy.

Estrin notes that Sunstein advocates in his article for the infiltration of “extremist” groups so that it undermines the groups’ confidence to the extent that “new recruits will be suspect and participants in the group’s virtual networks will doubt each other’s bona fides.”

At Salon.com, Glenn Greenwald (an attorney who has litigated cases based on Constitutional law issues) expressed outrage that President Obama would be so closely tied to someone with such views:

There’s no evidence that the Obama administration has actually implemented a program exactly of the type advocated by Sunstein, though in light of this paper and the fact that Sunstein’s position would include exactly such policies, that question certainly ought to be asked.  Regardless, Sunstein’s closeness to the President, as well as the highly influential position he occupies, merits an examination of the mentality behind what he wrote.  This isn’t an instance where some government official wrote a bizarre paper in college 30 years ago about matters unrelated to his official powers; this was written 18 months ago, at a time when the ascendancy of Sunstein’s close friend to the Presidency looked likely, in exactly the area he now oversees.

*   *   *

What is most odious and revealing about Sunstein’s worldview is his condescending, self-loving belief that “false conspiracy theories” are largely the province of fringe, ignorant Internet masses and the Muslim world.  That, he claims, is where these conspiracy theories thrive most vibrantly, and he focuses on various 9/11 theories — both domestically and in Muslim countries — as his prime example.

It’s certainly true that one can easily find irrational conspiracy theories in those venues, but some of the most destructive “false conspiracy theories” have emanated from the very entity Sunstein wants to endow with covert propaganda power: namely, the U.S. Government itself, along with its elite media defenders.  Moreover, “crazy conspiracy theorist” has long been the favorite epithet of those same parties to discredit people trying to expose elite wrongdoing and corruption.

Sunstein also advocated the use of  “credible independent experts” to be hired and paid by the government to add a veneer of credibility to government positions.  The relevance of this point to the controversy over Jonathan Gruber (the MIT professor who received undisclosed payments to promote the President’s healthcare plan) resulted in a situation where that issue became the most widely-discussed aspect of Greenwald’s piece.  By taking issue with Greenwald, Paul Krugman took advantage of the opportunity to get a little egg on his own face with a blog posting at his New York Times-based site.  Greenwald had no difficulty exposing the flawed rationale of Krugman’s retort on January 16.

I would like to see the debate refocus on the original point:  the idea that the government should get involved in debunking “conspiracy theories”.  That term is used by all types of pundits to invalidate any point of view contrary to their own.  As Daniel Tencer explained in his Raw Story piece, Sunstein used the term “crippled epistemology” to support the contention that people who believe in conspiracy theories have a limited number of sources of information that they trust.  I believe that Sunstein and his ilk have it backwards.  By their constant attempts to tar “the Internet” as the wellspring of so many “conspiracy theories” – they are acting to limit the number of trustworthy sources of information with their own counterintelligence tactics.

The greater question concerns why it would be so important for the government to get involved in this type of activity.  In the case of the 9/11 conspiracy theories, there is the obvious concern that Al Queda or some similarly-inclined group would want to cultivate an online network of kindred spirits who might potentially be of service to such an organization.  Does that mean that anyone who suspects some degree of cover-up concerning some aspect of that tragedy should be treated as a potential “enemy combatant”?  What other “conspiracy groups” would be targeted by such operations?  Who would determine whether a particular conspiracy theory becomes the focus of such an effort and what would be the criteria for making such a determination?  As Glenn Greenwald’s January 15 essay demonstrates, once the government embarks on such a course, there is unlimited potential for abuse.  Worse yet, the government’s use of such tactics should cause any such government “information control” efforts to self-destruct.  Greenwald put it this way:

The reason conspiracy theories resonate so much is precisely that people have learned — rationally — to distrust government actions and statements.  Sunstein’s proposed covert propaganda scheme is a perfect illustration of why that is.  In other words, people don’t trust the Government and “conspiracy theories” are so pervasive precisely because government is typically filled with people like Cass Sunstein, who think that systematic deceit and government-sponsored manipulation are justified by their own Goodness and Superior Wisdom.

In other words, this is a battle the government has already lost.  A program to conspire against conspiracy groups could serve no other purpose but to validate the claims made by those groups.