So John McCain decides to back Mitt Romney after he wins in Iowa. Nothing like backing a winning horse.
“The movers and shakers of our society seem…oblivious to the terrible destruction wrought by the economic storm that has roared through America.” Thus writes the New York Times’ Bob Herbert, who notes in a weekend column that “nearly 44 million people were living in poverty last year, which is more than 14 percent of the population. That is an increase of 4 million over the previous year, the highest percentage in 15 years.”
And as for the middle-class, Herbert observes, they have “hobbled for years with the stagnant incomes that accompany extreme employment insecurity” and are now in retreat. The economic fear stalking America goes far to explain the severe fall in popularity of President Obama and the rise of the Tea Party.
For all of my fears of the social conservatism that is veined through the Tea party movement, the public focus for most Tea Partiers is on the economy. But their answer is not the right one to deal.
Understandably, they blame government. It was government that gave us the runaway juggernauts of Fannie Mae and Freddie Mac; it was home-ownership encouragement from both sides of the Washington DC political aisle that gave us sub-prime; and it was the administration of George W. Bush that believed “deficits don’t matter” and presided over the greatest splurge of public spending since Lyndon Johnson.
So, why trust government now? For the Tea Partiers it is time to get back to basics – to the U.S. Constitution, to balanced budgets, to limited government. All noble aims. For many of them, though, read “no government” when they say limited government. But this isn’t the time to say “no government” — we need it to sort out the mess it co-authored.
Unfortunately, in the same way that Tea Partiers are going back to basics and mistaking the sky-rocketing deficit as the problem, so various policy-making elites are returning to unsophisticated positions. Free market advocates are becoming more uncompromising; Keynesians more Keynesian. All are over-focused on ideology.
In this fevered political environment the administration is more timid than it should be. The U.S. needs another financial stimulus. Yes, this would add to the federal deficit but when you have cancer, to survive you need to take some poisons as therapy. Convalescence can come later.
For Republicans – and the Tea Partiers – that is heresy. For them “big government” explains the economy’s weakness, and high unemployment is evidence that the President’s fiscal stimulus failed. But this is wrong. As the Economist magazine notes, “the notion that high joblessness ‘proves’ that (the) stimulus failed is simply wrong. The mechanics of a financial bust suggest that without a fiscal boost the recession would have been much worse.”
There has been growing confidence that America will escape a double-dip recession but that is far from certain. The jobs market remains in a slump, recovery is anemic, property prices continue to fall, a further wave of home foreclosures is on the cards.
In 1937-38, fiscal and monetary contraction killed dead a recovery, sending the economy back into a prolonged slump that didn’t end until World War II. And as Arthur Laffer argued in a Wall Street Journal op-ed earlier this year tax hikes had much to do with the problem. “The damage caused by high taxation during the Great Depression is the real lesson we should learn. A government simply cannot tax a country into prosperity.”
That lesson seems belatedly to have been absorbed by Obama aides, who are now supporting the idea of extending the Bush tax cuts, except for the top 2 percent of earners.
But this crisis is not a normal cyclical one. There are serious structural aspects to it, as the PIMCO chief executive Mohamed El-Erian has been maintaining. His point? Policymakers must implement a “structural vision to accompany their current cyclical focus. Measures are needed to address key issues, which include the change in drivers of growth and employment creation; the high risk of skill erosion and lost labor productivity; financial deleveraging in the private sector; debt overhangs; the uncertain regulatory environment; and the unacceptably high risks facing the most vulnerable segments of society.”
El-Erian’s recommendations include “pro-growth tax reform, housing finance reform, increased infrastructure investments, greater support for education and research, job retraining programs, removal of outdated interstate competition barriers and stronger social safety nets.”
Yes, in short, a stimulus from tax cuts that can help encourage consumption and unleash animal spirits AND more public spending to get things moving more.
For the Democrats tax cuts – especially for the wealthy – are anathema. But the U.S. needs to grow its way back into prosperity. For Republicans and Tea Partiers, more government spending is just an excuse for “big government.” Of course, federal deficits will need to be curbed in the long run – preferably starting within a couple of years.
Let’s go back to El-Erian’s point about there being a structural part to this crisis and observe the labor market.
According to the GOP Nevada Senate candidate Sharron Angle, people who receive unemployment assistance are “spoiled.” In short, they should just get a job. Easier said than done. Americans have been used to employment snapping back after recessions. But there is clear evidence now that it isn’t just weak demand that’s responsible for stubborn unemployment but something more structural.
For example, unemployment has not fallen in the way it should have with increases in job openings. Many jobseekers do not have the skills needed by employers. This is nothing to do with being “spoiled.” Half of the eight million jobs lost in the recession were in construction and manufacturing. Many of those workers are unable to slot into jobs in education, say, or health services. Add to that the difficulty workers have now in re-locating because they owe more on mortgages than their homes are worth.
Looser monetary policy will not alleviate this problem. Libertarians argue that government should have no role in trying to sort this out. But the free market will be too slow.
So far no single growth engine has emerged to pull the U.S. towards strong recovery. Consumer spending and business investment have been too weak. President Obama’s hope that the country can export its way to strong recovery looks forlorn. For that to happen, America’s trading partners need to be buying American goods. They aren’t. China and India are eager to head off inflation and are tightening. The PIGS economies in Southern European are cutting spending and raising taxes. So are some of the more robust EU economies, notably Britain. But unlike the European countries the U.S. has some leeway to increase public spending — the yield on 10-year Treasury bonds remains below 4%, well down from the 8% of 1990 and inflation remains weak.
So government has to seek to accelerate growth – by tax cuts, payroll tax holidays and further government spending. The debt can be focused on down the road when growth increases along with tax revenues.
There hasn’t been much to cheer up the White House in recent weeks but last night’s Tea Party upset in the GOP Senate primary in Delaware must have prompted some pretty big smiles in the West Wing. “Tea Party Scores Big,” was the Washington Post headline this morning. But the scoring is at the cost of the GOP and the headline could easily have been instead – “Big Night for the White House.”
Tea Party activists won’t feel that way. From their perspective they are shaking up politics and disproving Speaker Nancy Pelosi’s dismissive interpretation of the Tea Party as just “Asrto-turf “ and “not really a grass-roots movement.” As Tea Party victor Christine O’Donnell said last night after her defeat of veteran GOP congressman Mike Castle, this is “no more politics as usual.”
Add O’Donnell’s stunning victory to the string of embarrassments the Tea Party has been handing out to the Republican establishment this year, from Alaska with Joe Miller’s trouncing of Sen. Lisa Murkowski in a primary to last spring’s Tea Party overturning of Sen. Robert Bennett at the Utah Republican state convention, and it hard for the activists to think anything but that history is with them.
Certainly there are pollsters and commentators eager to confirm that view. Writing in the Washington Examiner, pollster Scott Rasmussen and political consultant Douglas Schoen launch on a breathless paean to the Tea Party’s importance, arguing that the movement is “demonstrating a level of activism and enthusiasm that is both unprecedented and arguably unique in recent American political history.”
While they are right to castigate the press for dismissing the movement earlier this year, and while they are surely correct in arguing that the Tea Party has been “one of the most derided and minimized and, frankly, most disrespected movements in American history,” I am not so convinced that the Tea Party movement is that different from the third-party challenge of Ross Perot back in 1992.
Many of the things claimed for the Tea Party were claimed also for the Perot movement – one as inchoate as the Tea Party. It was going to shake up politics and repaint the political landscape permanently. The activists were highly active and incredibly enthusiastic and glowing with the self-righteous belief that their time had come. And what did it in practice do? Act as a major factor in the defeat of George Bush and the election of Bill Clinton.
And that is exactly what the Tea Party is likely to achieve. Their victories are not over the Democrats, supposedly their real foes. Their triumphs are over party allies and each time they win they are underscoring the civil war that continues to rage within the GOP, thereby weakening Republican prospects come November.
O’Donnell inadvertently revealed that when she said last night in her victory speech that, “This is more of a cause than a campaign.” Causes tend not to do too well when it comes to general and congressional elections and they can inflict incredible harm on the party they are trying to capture. The anti-war movement did no favors to the Democrats and succeeded in assisting Richard Nixon to victory in 1968. The ugly anger of the Buchanan Brigades and their challenge to Bush in the 1992 primaries only added to the hurdles the incumbent president had to try to jump.
Compare the poll numbers Rasmussen and Schoen outline in their article. One of their surveys finds nearly one quarter (24 percent) of the electorate self-identified as being members in the Tea Party movement. That’s about what the Perot movement was polling in the summer of 1992.
Admittedly, the Perot movement was taking votes and support away from the GOP; Tea Party activists claim they will bring votes to the Republicans come November. But is this really true? Most Tea Party activists vote GOP when push comes to shove and for every new vote they may attract to a Republican candidate, they will turn off an independent voter or centrist who could have been enticed to vote GOP.
Take a look at what happened to John McCain’s presidential prospects after Sarah Palin joined the ticket. Yes, he got an opinion poll jump for a few days after his pick but once the broader electorate got to know Palin more, his numbers plummeted. She was meant to reflect McCain’s “change credentials” and help him appeal to urban women. In fact, her selection was a turning point in the campaign for the Democrats and along with the Republican crack-up was a determining factor in his win.
Senior Republicans know this. Last night, the silence from GOP Sen. John Cornyn, the NRSC chairman, who issued no statement congratulating O’Donnell, was telling. O’Donnell’s win in Democrat-tilted Delaware has jeopardized the chance of the GOP in winning the Senate seat there in the fall. She is too conservative for the state and the Tea Party is too conservative for a lot of the electorate.
Earlier this week I suggested that President Obama would be hard pushed to reverse the GOP tide. Last night he might have found a new ally in the Tea Party. Yup, it was a good night for the White House.