Dean Baker puts his finger on the very thing that drives me crazy about Obama. He never really tells voters the truth, having decided in advance what’s best and so it’s merely a matter of manipulating them into supporting his preferred approach — an anti-democratic idea to its core. And that’s where I think Dean misses the point. I don’t think he’s faking. I think Obama really does agree with the deficit hawks:
We know the Republicans love the Job Creators and President Obama has gone out of his way to show his love, also. But in the real world, investment in equipment and software has never been much above its current share of GDP, except in the days of the dot-com bubble. This means that unless we drug investors so that they are willing to throw hundreds of billions of dollars into the stock of worthless companies, we are unlikely to see any substantial rise in investment.
As a result, we are stuck with an economy that is mired well below full employment. President Obama’s top economic advisers from his first term all claimed that they understood this point. But they said that they could not get a bigger stimulus package through Congress.
That assessment may well be true, but the real issue is what President Obama did after the stimulus package passed. He could have told the country the truth. He could have said what all his advisers claim they told him at the time: the stimulus was not large enough and we would likely need more. He could have used his presidency to explain basic economics to the public and the reporters who cover budget issues.
He could have told them that we need large deficits to fill the hole in demand that was created by the collapse in private-sector spending. He could have shown them colorful graphs that beat them over the head with the point that there was very little room for investment to expand even under the best of circumstances.
He could have also explained that consumers would not go back to their bubble levels of consumption since the wealth that had supported this consumption had disappeared with the collapse of the bubble. The public would likely understand this point, since most homeowners themselves lost large amounts of equity and understood that they were much poorer as a result of the collapse of the bubble.
In this context, the only choice in the near term is between larger budget deficits and higher unemployment. The people who clamored for cuts in government spending and lower deficits are in fact clamoring to throw people out of work and slow growth.
We will never know if President Obama could have garnered support for more stimulus and larger deficits if he had used his office to pound home basic principles of economics to the public and the media. But we do know the route he chose failed. He apparently thought the best route to get more stimulus was to convince the deficit hawks that he was one of them. He proudly announced the need to pivot to deficit reduction following the passage of the stimulus and then appointed two deficit hawks, Erskine Bowles and Alan Simpson, to head a deficit commission.
This set the ball rolling for the obsession with deficit reduction that has dominated the nation’s politics for the last three years. Instead of talking about the deficit of 9 million jobs the economy faces, we have the leadership of both parties in Congress arguing over the debt-to-GDP ratios that we will face in 2023.
This would be comical if lives were not being ruined by the charade. The unemployed workers and their families did not do anything wrong – the people running the economy did.
Now the sequester comes along, throwing more people out of work, worsening the quality of a wide range of government services and denying hundreds of thousands of people benefits they need. Yes, this is really stupid policy, and the Republicans deserve a huge amount of blame in this picture.
But it was President Obama who decided to play deficit reduction games rather than be truthful about the state of the economy. There was no reason to expect better from the Republicans in Congress, but we had reason to hope that President Obama would act responsibly.