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Posted by on Jun 5, 2011 in At TMV | 10 comments

It’s Obama’s Economy Now

WASHINGTON – This is not a revelation, because I wrote about it in great detail before the 2010 midterms, sounding warnings for months and months that Pres. Obama buying into the Right’s economic argument would end in big trouble for us all.

The connection between the foreclosure crisis and rampant unemployment is well known by economists and the administration. Diving home values and heavy debt burdens force cutbacks in both consumer spending and tax revenue for local governments. These reduced spending levels and lower government revenues force layoffs in both the public and private sector. And those layoffs, in turn, spur more foreclosures. A July 2010 report from the International Monetary Fund suggested that foreclosure problems added 1.25 points to the unemployment rate — or more than 10 percent. On Thursday, President Barack Obama warned House Democrats in a private meeting that the housing situation could drag down the entire economy. His stated concern about foreclosures, however, doesn’t match up with the administration’s public response. – Huffington Post

Unsurprisingly, it was foretold by Paul Krugman as well:

Maybe the most notable contrast between Mr. McCain and Mrs. Clinton involves the problem of restructuring mortgages. Mr. McCain called for voluntary action on the part of lenders — that is, he proposed doing nothing. Mrs. Clinton wants a modern version of the Home Owners’ Loan Corporation, the New Deal institution that acquired the mortgages of people whose homes were worth less than their debts, then reduced payments to a level the homeowners could afford.

… I was pleased that Mr. Obama came out strongly for broader financial regulation, which might help avert future crises. But his proposals for aid to the victims of the current crisis, though significant, are less sweeping than Mrs. Clinton’s: (Mr. Obama) wants to nudge private lenders into restructuring mortgages rather than having the government simply step in and get the job done.

Mr. Obama also continues to make permanent tax cuts — middle-class tax cuts, to be sure — a centerpiece of his economic plan. It’s not clear how he would pay both for these tax cuts and for initiatives like health care reform, so his tax-cut promises raise questions about how determined he really is to pursue a strongly progressive agenda.

Barack Obama never pretended to have a progressive agenda, but what is clear is that his rightward leanings are mimicking the trouble we’d have if a Republican president was in the White House.

He didn’t even offer a fight on taxes before the 2010 midterms, which was followed by capitulating and compromising on Bush tax cuts. Now he’s offered a grand gesture to House Democrats saying he won’t extend them again, but it comes way too late.

Democrats have every right to be furious at Pres. Obama’s economic message and policies.

Rep. Dennis Cardoza (D-Calif.) said Obama’s approach to the foreclosure crisis has been “an absolute failure” and predicted it will continue to drag down the economy unless he changes tack.

“For the life of me, I can’t figure out why a community organizer who says he cares about families, who says he cares about communities, has just turned his back on one of the biggest problems in America,” said Cardoza, who co-chairs the Democratic Caucus Housing Stabilization Task Force. “The way they get defensive when you point out it’s been a failure just underscores to me they don’t have a clue about what to do.”

Cardoza’s central California district has been hit hard by foreclosures. The three cities he represents — Modesto, Stockton and Merced — all rank in the top 10 cities with the highest foreclosure rates in the country. Three out of five homeowners in his district are “underwater,” owing more on their home loans than their houses are worth.

“I don’t blame [the administration] for causing the housing crisis,” Cardoza said. “But at two-and-a-half years in office, if they can’t figure out something to do soon that turns us around, I guarantee you they will pay for this at the ballot box.”

Pres. Obama’s formulating his deficit commission was the nail in the economic argument, because it solidified the Right’s talking points that the deficit is all important in a recession when spending is required. It opened the door for Paul Ryan’s Medicare scheme that gave the Dems a boost with NY-26, but put entitlements on the table in the first place.

No one is more responsible for the conversation about deficit reduction over revenue, while ignoring the foreclosure catastrophe, and giving Republicans the floor on austerity, than Pres. Obama. If he doesn’t figure out how to turn it around he deserves to lose his job.

On the foreign policy front, if Pres. Obama doesn’t come up with real reductions in troops in Afghanistan, a policy that is breaking us, rumored to be anywhere from a paltry 5,000 to as high as 15,000 (the minimum that should be considered), his leadership is unworthy of the challenges we face. (But let’s not kid ourselves that Mitt Romney or Tim Pawlenty are up to the job either.) Leon Panetta at the Pentagon is a hopeful sign, as he’s an OMB guy and a deficit hawk, which in the SecDef position could be important, but the election can only foreshadow what might come in a second term. Getting out of Iraq is another point of contention, but instead we get Sec. Clinton opening up the Iraq cookie jar to U.S. businesses, though considering all preemption cost this country getting something back isn’t the worst of Obama’s plans.

Of course, you can’t talk economy without mentioning health care fee-for-service costs that remain a huge drag; so Obama got the kudos without the results needed, leaving us all with a hangover and a lot more that needs to be done, with no will to tackle it.

The economic news on Friday brought with it the reality of what could have been done earlier, starting with corporations who aren’t paying their fair share of taxes, but also includes targeting mill-billionaires to create a higher tax bracket for the super wealthy. It’s attacking the problem through revenue that is broadly accepted by the American people as being fair. Channeling Bill Clinton’s tax policy when everyone knew the “recovery” would be fragile certainly made a hell of a lot more sense than sucking up to the Republican economic model, which is what Barack Obama did instead.

Now Obama’s only option is trying to change the narrative, because he can’t change the reality that may not have started on his watch, but which he’s managed as a Republican, with the results similarly catastrophic.

As Jared Bernstein has said, who last month joined Center on Budget Policy and Priorities (after serving in the White House), the “cut spending craze” has got to stop, as it “threatens to make an already tough situation worse.”

Wasted wisdom, because Pres. Obama’s not listening.

Taylor Marsh is a Washington based political analyst, writer and commentator on national politics, foreign policy, and women in power. A veteran national politics writer, Taylor’s been writing on the web since 1996. She has reported from the White House, been profiled in the Washington Post, The New Republic, and has been seen on C-SPAN’s Washington Journal, CNN, MSNBC, Al Jazeera English and Al Jazeera Arabic, as well as on radio across the dial and on satellite, including the BBC. Marsh lives in the Washington, D.C. area. This column is cross posted from her blog.

Official White House photo by Pete Souza.

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  • JSpencer

    All demonizing to the contrary, Obama hasn’t been anything approaching the strong liberal many of his early supporters hoped for. Republican-lite is the last thing we need in these dysfunctional times. There is a certain mindset at TMV which imagines solutions will somehow be found in sufficient compromise and watering down (disguised as cooperation I suppose) but I think it’s way too late for such anemic cures. It may also be too late for strong leadership (if such a think can even exist in today’s corporate govt) but I hope not.

  • casualobserver

    I don’t care what you say. “it’s Bush’s fault” was a good enough campaign theme for 2008 and, by damn, we’re planning to use it again (see slamfu comment yesterday).

    If you don’t want those neocons taking over and keeping our service personnel in harm’s way in Iraq and Afghanistan and those Constitutional rights violators coming back in and extending the Patriot Act, rendition and indefinite detention while domestic policy does nothing to help the working class families of America, then you, sister, better send your contribution check today to reelect Barack Obama.

    For some reason, my campaign managers think I will need to spend 1 billion dollars in
    order to defend my glorious record against attack.

  • rudi

    The Liberal and Libertarian wings see Obamama as Bush-Lite in the GWOT. The Libya intervention is stop 44 in more war…

  • Back in the real world, economies are built up and destroyed over long periods of time. Government can do things to destroy them quickly, but building them up quickly isn’t so easy.
    Also, only a few presidents were able to overpower the will of congress, and this president isn’t one of them.
    I know it’s a really common talking point to tie debt, economic growth and all of that to a president, but that doesn’t make it valid. A lot of what we’re seeing can be tied back to decisions and laws made years and decades ago.

  • superdestroyer

    I would guess that when President Obama leaves office in January 2017, the media and academics will agree on a consensus that is was a shame that President Obama was hamper by the Bush downturn during the entire 8 years of the Obama Administration.

    No one, except the last few Republicans, will ever hold the Obama Administration for the impacts of the policies developed during the Obama Administration.

  • DLS

    Where is Shaun Mullen’s rebuttal, that this is still (forever, so long as it’s bad, anyway) the Bush economy?

    It may never end. Whether in 2012 or in 2016, if a Republican is elected President, Shaun can continue the complaining if the “Bush economy” or the “Republican economy” (if he’s more sophisticated) continues to be bad.

  • DLS

    Prof. Elwood wrote:

    Government can do things to destroy them quickly, but building them up quickly isn’t so easy.

    I suspect some people discovered this and the more general problem of government (politicians, esp. in Congress where the federal government is concerned) usually can’t be trusted to act well.

    The stimulus opportunity that we gave the Dems, their one great opportunity in ages to be encouraged to spend a lot of money, more than should ever have been spent, was squandered and we all know what a good deal of the motivation behind the 2010 election results were.

    I’ve written before that we gave the Dems the opportunity to overspend and intervene more than they normally ever should, and they not only ruined things, but reinforced the notion held by so many Americans that government often has a reverse Midas touch (rather than turning things to gold, it turns them to s—) and maybe the Austrians’ mantra (“the best thing for government to do in an economic downturn — and in an upturn, too — is to stay out of the way”) really is correct.

    Certainly the rule, that we don’t see followed, should be “First, do no harm.” And yes, getting out of the way at least partially, in the form of avoiding and reducing drags on the economy from taxes and regulation would be a good idea. Even Obama conceded this in a very limited way, reducing not only the payroll taxes temporarily (at the cost of making S.S. totally deficit-running now) and even extending the “Bush tax cuts” until after 2012 (which is what the experts were recommending, though they differed on how long to extend the lower tax rates and said the lower rates would have to end eventually given our fiscal state.

    (Review the text as well as the graph!)

  • DLS:

    And yes, getting out of the way at least partially, in the form of avoiding and reducing drags on the economy from taxes and regulation would be a good idea.

    I’m started to get a little upset with both the words “taxes” and “regulation”. There are good and bad ways of doing both. Both the Democrats and Republicans are increasingly treating them as if they’re water — you either add more or get rid of it. You see it when Democrats call for more regulation, or attribute prosperity and growth with increased regulation, and Republicans use it in the opposite way.
    Hard and fast rules are both more transparent, and easier on the regulated. They are also harder to corrupt, since agencies can be sued for not enforcing them consistently.
    And again, I’d like them to get rid of the mortgage deduction and employer health insurance exemption. Tax increases that would affect me, but would stop distorting markets. And things like a FAIR tax (as a replacement, not a supplement, for the income tax) don’t scare me either.

  • DLS

    Sorry I was too simplistic, Prof. I was merely thinking of general consequences.

    The FAIR tax is interesting, yes (and indeed, as a replacement for the income tax, not a supplement to it!) and the same for other consumption taxes.

  • slamfu

    FAIR tax is unfair. Its also really bad for an economy long term. Poor people spend nearly every dollar they have on getting by. Wealthy people get to save money and not spend some of it. Say a wealthy person is able to put away half their money, or not spend it on consumables, they are paying 50% less tax than someone who can’t afford to save anything. So the people that have the least are paying tax on all their income those who can afford to save get a tax break. Have we not discussed the negative impact of taxations like this that accelerate the flow of money to the top without returning it? Great way to destroy the consumer base that powers the entire economy.

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