We needed FDR; We got Carter

Politics is about perception and, unfortunately the perception of the President is that he’s a weak and willing to do anything to cut a deal. The perception is that he’s willing to compromise any policy for politics.

And that’s just what Democratic critics have said. The Republicans run the gamut from a coward to Hitler 2.0.

I always thought that the President’s problem was less inherent weakness than benevolent neglect. It’s been obvious for almost two years now that the President will compromise on key issues because, in his mind, the compromise is what’s important, not achieving a policy goal that might do some good. Take health care: The President compromised key pieces, including a public option insurer, that made the health care reform package very questionable (a separate PR problem was the White House’s decision not to call the Republicans out on their demagoguery) and, in some cases defeated the actual goal of fixing a broken system and holding down costs. However, it still gave the President a policy ‘victory’ about which he could crow to the 20% of the public that’s still drinking the hope and change koolaid. As November 2nd showed, even many of those people take voting about as seriously as the President takes leading.

What he, of course, doesn’t get is the PR value of being seen fighting a very nasty, pitched battle for what the country needs. There are two possibilities here:

1) You win by beating the hell out of the other people. And if they mess with you again, you stomp them horribly and publicly.
2) You lose but you fire up the electorate to either make changes at the primary or general election level.

Not getting this has cost us a great deal as a country. Rather than talking about growing the economy and making America stronger through necessary public investments, we’re talking about privatizing our roads and public services (two things that have an appalling track record and are basically corporate welfare), accepting a lower standard of living and longer term, a more stagnant economy. Then there is the debt discussion on which the President is clearly too uneducated. Debt, in this economic environment, is relatively harmless. Sure, it has to be repaid however the interest rates we lock in now are so low that even though our indebtedness has increased, our ‘service cost’, the interest payments, have gone down. If this money were being put to productive use, rather than wars and tax cuts, we’d see GDP growing at 5-6% per year and we’d rapidly return to budget surpluses which would take care of our debt to GDP ratio problem.

Instead, we’re going to follow the Republican plan which will likely just add to the debt without promoting any economic growth and the President has decided to go ahead with that plan in an effort to ‘take away a campaign issue’ from the Republicans which has never, ever worked. If nothing else is clear to Democratic strategists and elected officials it should be this… you will NEVER take away a campaign issue from the Republicans. Even if everything is going perfectly, the current crop of rabid dogs running things on the right will just make things up. So, the take away from that is you might as well do something beneficial and then never let people forget you made it happen and the Republicans want to take it away.

Simplistic? Sure. But then again, so is calling Obama a Nazi for health care reform. Or thinking that we’re running out of money. Or thinking that Social Security is bankrupt.

Mary Bell Lockhart has an excellent post up that ties in very well to my thinking regarding this election, that the compromise on ARRA was the moment when the Democratic Congress and President decided that maybe it was a good idea to shoot themselves in the foot. While ARRA, in combination with TARP and programs at the Federal Reserve, helped stabilize the economy, it didn’t do anything to fill the demand gap. In political terms, as Mary Bell points out, this meant a horrible long term economic malaise that took many of our voters off the table and agitated those looking to lash out. Worse, the Republican counter point regarding taxes spooked small businesses and the Democrats never offered an effective counter argument, mostly because they didn’t understand what was happening. Small businesses were left thinking that new regulations and taxes would put them out of business and they never heard that it would really stimulate demand

In particular, small business owners may have voted against their own best interest. If you are one, do the math on your business plan if middle-class incomes drop, jobs go away and there is less demand for goods and services you provide. Which would you rather have, a small tax cut or a much larger income from higher demand? Which of those will lead you to add jobs and build the economy?

ARRA was too small to stimulate the one thing that will make businesses hire, an increase in demand. It’s simple economics… if you can increase profits by hiring one additional worker which will increase production, you do it even if your taxes do change because the increase will be marginal over your current taxes. In other words, if you can make an extra dollar but you’ll have to pay 38 cents of it in taxes instead of 35 cents, you’re going to do what’s necessary to make the extra dollar. At the end of the day, you’ll still have an extra 62 cents. Fiscal stimulus is about stimulating aggregate demand in a very large, sophisticated economy. When there is enough demand, businesses will hire.

It’s simple but that doesn’t stop pundits and former Presidential advisers from making stupid statements like this

Gergen: If Obama is going to govern as well as prosper politically, he has to pivot back toward the center. He must embrace some sort of Social Security reform, just as Clinton did with NAFTA, even though his base will scream about it. He must also enlarge his inner circle by bringing in people who have the trust of the business community. One of the surprises for me has been that even though Obama rescued the banks, the alienation of the business community has reached a point that is threatening the recovery. Business people are sitting on a lot of money and not investing it because there is so much uncertainty about taxes, health care, financial regulations and energy. Obama’s got to be more of a partner with the business community.

You’ll have to excuse David Gergen. He’s apparently been sharing a brain with Bill Donohue over at the Chamber of Commerce who has been saying this for months. If this theory were correct, then tax rate itself is unimportant. All that matters is the elimination of uncertainty. I’ll grant that businesses typically don’t like to act in uncertain climates (which is what makes an economic crises so horrible… the collapse in confidence leads business to essentially ‘freeze up’, exacerbating the situation). However, what’s uncertain now isn’t taxes, it’s demand. Period.

What’s most terrifying about all this is that the middle class and lower middle class voter is increasingly leaning Republican. Somehow they’ve fallen into the trap of actually believing that allowing billionaires to pay less of their income in taxes than ordinary wage earners and small business owners is a good idea because then they’ll start hiring. This is what happens when Democrats avoid having the argument about taxes and wealth concentration, or worse, they actually agree with the Republicans. If we don’t start to fight now, for a more balanced taxation plan, we’re looking at ever increasing wealth and income inequality that will eventually destabilize the entire country economically and politically. Just look at Texas… our job growth is in the service sector and as Vince points out, it’s a prescription for economic disaster.

As minimum-wage service jobs continue to increase and state services begin a serious decline thanks to a $25 billion plus shortfall, we’re going to see major problems. The number of uninsured will skyrocket. The number of children suffering from food insecurity will increase. The number of people needing low-income or affordable housing will skyrocket (you can’t live in a $225k home if both bread winners make minimum wage). The number of adults with high school diplomas will decrease because the number of kids dropping out to support themselves or their family will increase. Even the prison and jail population will increase because, lo and behold, it is more economically feasible to make a living selling smack or stealing car stereos.
This is the future of the job market in Texas. We aren’t creating an economy in which a workforce will stimulate the economy with spending. We’re creating an economy that will make slumlords rich and actually increase the need for social services and drive more Texans into poverty. This will hurt higher-end jobs, too because eventually the number of low-wage workers will grow so drastically that the housing market, market for luxury goods, market for new cars, etc. will all hit rock bottom because this class of people won’t be able to buy these goods. Unemployment will rise (again). While this might make competition for low-wage jobs increase, at some point, the growth of the service economy will basically reach parity with the population and job growth will come to a screeching, grinding halt.

What we’re left with, as a nation, is a President who needs to realize that negotiating with terrorists is foolish and that’s functionally what the Republicans have become. They don’t care about the country, they care only about power.

“There is simply no basis for meaningful bipartisan leadership meetings today,” Brookings scholar and congressional expert Thomas Mann told me. “Republicans are determined to defeat Obama in 2012; they have no interest in negotiating with him in order to provide him any sort of victory. This is a partisan war and the Republicans are playing to win. The only question is how long it will take Obama to accept this reality and act accordingly.”

So, what should the President and the Democrats in Congress do now? The only real solution is additional fiscal stimulus and Chairman Bernanke is agitating for just that. He’s done his part to bring the country back from the brink but the Fed can’t do the job of creating economic growth on it’s own. If the Republicans stand in the way, unleash a media firestorm the likes of which no one in this country has ever seen and flip us back Democratic in 2012.

Either that or I would hope the President would decide not to run for a second term. It’s not that I’m ungrateful and the President has done a great deal in a short time. However, it’s clear now that he’s incapable of being the leader this nation needs because while he’s focused on smaller issues and bipartisanship, there are people feverishly trying to figure out how to feed and clothe their children this winter.

No, the President didn’t run as FDR. However, that’s what we need and if he can’t be that, then it’s time for him to step aside and let someone who can be take the spot.

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