Tuesday Morning Reads

Good Morning!

I’m tired of Republican Party Dysfunction. Let’s switch to the Democratic Party Brand for awhile.  This year’s State of the Union address will be interesting.  Will it turn out to be the first major Obama campaign speech of 2102?

Mr. Obama plans, in part, to deliver a “vision” speech. He told campaign supporters over the weekend that he’ll use his speech to discuss “the central mission we have as a country, and my central focus as president.”

“And that’s rebuilding an economy where hard work pays off and responsibility is rewarded – and an America where everybody gets a fair shot, everyone does their fair share, and everybody plays by the same set of rules,” he said.

If that sound familiar, it’s a refrain of remarks Mr. Obama delivered December 6th in Osawatomie, Kansas. Both the president and aides characterize the State of the Union as a “bookend” to the Kansas speech. It was a delineation of the political philosophy Mr. Obama brings to the job and is willing to defend against whichever Republican ends up as his rival later in the year.

Economic programs and objectives will dominate his speech. “I’m going to lay out a blueprint for an American economy that’s built to last,” said the president in a video email Saturday to campaign supporters. And Mr. Obama will cite the “four pillars” on which his blueprint for America will rest: manufacturing, engineering, worker skills and American values.

• MANUFACTURING: According to “talking points” sent by the White House to its political defenders and surrogates, the president will call for “a new era of American manufacturing with more good jobs and more products stamped Made in the USA.
• ENERGY: He will propose “a new era” for energy in the US – “fueled by homegrown & alternative energy sources.
• WORKER SKILLS: He’ll put forward “new ideas” for education and training to take on “jobs of today and tomorrow.”
• AMERICAN VALUES: The president will call for “a return to American Values of fairness for all and responsibility from all.”

We’ll be live blogging the SOTU tonight.  I’m suggesting we pitch nerf balls at the TV for every Teddy Roosevelt reference and drink on references to Republican belligerence.  What say you?

Here’s some pretty good indications of why the economy has been so slow and pokey recently.   Check out The New Yorker and “The Obama Memos”. It’s getting more pundit play than Suskind’s “Confidence Men”.  Pay close attention to the whacked advice from Larry Summers who suggested Obama not go very big on the first stimulus because they could just do more later.  Let’s just hope a rumored World Bank Presidency stays just that.  Imagine this man turned on the developing world.  However, there’s a lot more tidbits in there worth chewing on.  Like this one.

Neera Tanden was the policy director for Clinton’s campaign. When Clinton lost the Democratic race, Tanden became the director of domestic policy for Obama’s general-election campaign, and then a senior official working on health care in his Administration. She is now the president of the liberal Center for American Progress, perhaps the most important institution in Democratic politics. “It was a character attack,” Tanden said recently, speaking about the Obama campaign against Clinton. “I went over to Obama, I’m a big supporter of the President, but their campaign was entirely a character attack on Hillary as a liar and untrustworthy. It wasn’t an ‘issue contrast,’ it was entirely personal.” And, of course, it worked.

But back to La La Summers.

There was an obvious tension between the warning about the extent of the financial crisis, which would require large-scale spending, and the warning about the looming federal budget deficits, which would require fiscal restraint. The tension reflected the competing concerns of two of Obama’s advisers. Christina Romer, the incoming chairman of the Council of Economic Advisers, drafted the stimulus material. A Berkeley economist, she was new to government. She believed that she had persuaded Summers to raise the stimulus recommendation above the initial estimate, six hundred billion dollars, to something closer to eight hundred billion dollars, but she was frustrated that she wasn’t allowed to present an even larger option. When she had done so in earlier meetings, the incoming chief of staff, Rahm Emanuel, asked her, “What are you smoking?” She was warned that her credibility as an adviser would be damaged if she pushed beyond the consensus recommendation.

Peter Orszag, the incoming budget director, was a relentless advocate of fiscal restraint. He was well known in Washington policy circles as a deficit hawk. Orszag insisted that there were mechanical limits to how much money the government could spend effectively in two years. In the Summers memo, he contributed sections about historic deficits and the need to scale back campaign promises. The Romer-Orszag divide was the start of a rift inside the Administration that continued for the next two years.

Since 2009, some economists have insisted that the stimulus was too small. White House defenders have responded that a larger stimulus would not have moved through Congress. But the Summers memo barely mentioned Congress, noting only that his recommendation of a stimulus above six hundred billion dollars was “an economic judgment that would need to be combined with political judgments about what is feasible.”

He offered the President four illustrative stimulus plans: $550 billion, $665 billion, $810 billion, and $890 billion. Obama was never offered the option of a stimulus package commensurate with the size of the hole in the economy––known by economists as the “output gap”––which was estimated at two trillion dollars during 2009 and 2010. Summers advised the President that a larger stimulus could actually make things worse. “An excessive recovery package could spook markets or the public and be counterproductive,” he wrote, and added that none of his recommendations “returns the unemployment rate to its normal, pre-recession level. To accomplish a more significant reduction in the output gap would require stimulus of well over $1 trillion based on purely mechanical assumptions—which would likely not accomplish the goal because of the impact it would have on markets.”

Paul Krugman, a Times columnist and a Nobel Prize-winning economist who persistently supported a larger stimulus, told me that Summers’s assertion about market fears was a “bang my head on the table” argument. “He’s invoking the invisible bond vigilantes, basically saying that investors would be scared and drive up interest rates. That’s a major economic misjudgment.” Since the beginning of the crisis, the U.S. has borrowed more than five trillion dollars, and the interest rate on the ten-year Treasury bills is under two per cent. The markets that Summers warned Obama about have been calm.

I know this is an add source for me, but the AEI has “Eleven stunning revelations from Larry Summers” has a list of quotes from the actual memo.  That’s what I’m going to use here. First, stimulus projects were not picked based on their impact on the economy but on their ability to fulfill campaign promises.

The short-run economic imperative was to identify as many campaign promises or high priority items that would spend out quickly and be inherently temporary. …  The stimulus package is a key tool for advancing clean energy goals and fulfilling a number of campaign commitments.

Another stunner was this quote which blames banking regulators.  I suppose Wall Street was an innocent in all of this?

A significant cause of the current crisis lies in the failure of regulators to exercise vigorously the authority they already have.

Krugman had this to say about the memo in a post called “Larry and the Invisibles”.

The key thing I took away from the memo is that it does not read at all like the current story the administration gives for the inadequate size of the stimulus, which is that they knew it should be larger but had to face political reality.

Instead, the memo argues that a bigger stimulus would be counterproductive in economic terms, because of the “market reaction”. That is, Summers et al were afraid of the invisible bond vigilantes.

And to the extent that there is a political judgment, it’s all in the opposite direction: if the stimulus is too big, we’ll have trouble scaling it back, but if it’s too small, we can always go back to Congress for more. That was deeply naive — and I said so in real time.

Now, you can still argue that politics made a bigger stimulus impossible. But that’s not at all the argument being made internally within the administration at the time.

At this point, the shrill one goes all mushy and says that Obama has “toughened” up since then.  I guess we’ll see.

Right now, I’d say the country is between a Barrack and a hard right place.  What’s a voter to do with such a Hobson’s choice?

So, that’s what I’ve got to offer this morning.  What’s on your reading and blogging list today?