Democrats

On Austerity, Learning The Wrong Lessons From Europe

Samuel HooperLeave a comment

Europe Austerity 2

 

As the US presidential election draws closer and the political debate rumbles on, I find myself becoming increasingly frustrated by those voices on both the left and the right, who seek to hold up the example of “Europe” (that homogenised, cohesive whole) as Exhibit A in an attempt to win their economic policy argument.

I am talking about the ongoing “austerity/stimulus debate” – whether America should make drastic and immediate cuts to public spending in order to tackle large government budget deficits, or whether even higher levels of government spending are required in the short term to spur economic growth, before deficit-tackling measures are undertaken at some point in the future.

When talking about these issues, both Democrats and Republicans are playing fast and loose with the truth, and doing the American people (at least those who have already tuned in to the election-year political coverage) a disservice in the process.

On the left, it is fashionable to point at Europe and exclaim that austerity policies are not working because “Europe” has drastically scaled back government spending, and yet is experiencing either a very tepid recovery or an outright double-dip recession. A typical example, from The Washington Post:

Europeans are rebelling against austerity. That’s the read on Sunday’s elections in Greece and France. But why do voters loathe austerity? Perhaps because, as economists have found, efforts to rein in budget deficits can take a wrenching toll on living standards, especially in a recession.

In a recent paper for the International Monetary Fund, Laurence Ball, Daniel Leigh and Prakash Loungani looked at 173 episodes of fiscal austerity over the past 30 years. These were countries that, for one reason or another, cut spending and/or raised taxes to shrink their budget deficits. And the results were typically painful: Austerity, the IMF paper found, “lowers incomes in the short term, with wage-earners taking more of a hit than others; it also raises unemployment, particularly long-term unemployment.”

The left-leaning media across the pond is also keen to seize on this narrative, as the following opinion piece from The Guardian deftly demonstrates:

Third, the president should make it clear he won’t allow government spending cuts to take precedence over job creation. He won’t follow Europe into an austerity trap of slower growth and higher unemployment. While he understands the need to reduce the nation’s long-term budget deficit, he should commit to vetoing any spending cuts until the unemployment rate in the US is down to 5%. Instead, he should commit to further job-creating investments in the nation’s crumbling infrastructure – pot-holed roads, unsafe bridges, inadequate pipelines, woefully-strained public transportation, and outmoded ports.

Finally, Obama should make sure Americans understand the link between America’s fragile recovery and widening inequality. As long as so much of the nation’s disposable income and wealth goes to the top, the vast middle class lacks the purchasing power to fire up the economy. That’s why the so-called “Buffett rule” he has proposed – setting a minimum tax rate for millionaires – needs to be seen as just a first step toward ensuring that the gains from growth are more widely shared. He should vow to do more in his second term.

Such an economic strategy – forcing banks to help distressed homeowners, stopping oil speculation, boosting spending until unemployment drops to 5%, and fighting to ensure economic gains are widely shared – is critical to jobs and growth. It’s the mirror image of Europe’s failed austerity policies.

These arguments do not stand up to scrutiny for several reasons, many of which are well articulated in this piece from Forbes:

The trouble with Europe’s post-crisis budgets, then, isn’t so much that they’ve increased taxes. It’s that they haven’t meaningfully cut spending. “Following years of large spending increases,” Veronique de Rugy explains, “Spain, the United Kingdom, France, and Greece — countries widely cited for adopting austerity measures — haven’t significantly reduced spending since 2008.” De Rugy points to data that shows those countries “still spend more than pre-recession levels,” with France and Britain making no cuts, and Italy increasing spending in 2011 “more than the previous reduction” between 2009 and 2010. Without significant, substantial cuts, tax increases alone don’t amount to austerity. Yglesias is correct that tax hikes can contribute to austerity. What tax hikes cannot do, however, is be austerity. Tax hikes are neither necessary nor sufficient for an austerity program.

Inconsistent though it may be with the liberal worldview in the US, this is very true. Government spending, by many measures, is actually higher than pre-recession levels in Britain and other countries. The so-called “austerity” that everyone is wailing about is nothing more than a reduction in the rate of increase in government spending. Furthermore, as anyone living in Britain can easily attest, many of the “austerity” measures have been tax increases, and not spending cuts – which also does little to support the liberal view that draconian spending cuts have stymied an economic recovery.

Also missing from the left-wing take on austerity is an understanding of the fact that, unlike the US, European economies grappling with anaemic growth or double-dip recession do not have the good fortune to be underpinned by the world’s primary reserve currency. It is much easier to enact a large scale stimulus programme while retaining the confidence of the global bond markets if your currency is the US dollar, a fact that is glossed over by many people, including some in the Obama administration who hold up Europe as a cautionary tale of what happens if you fail to meet economic downturn with government stimulus.

The Washington Post reports:

“The situation in Europe is slowing things down,” Obama told donors at the New Amsterdam Theatre. At the home of hedge fund executive Marc Lasry, Obama said that Romney and congressional Republicans favored an austerity plan that would “drastically shrink government,” hurting job growth and middle-income Americans.

“That is fundamentally different from our experience in growing this economy and creating jobs,” Obama said.

Where Obama was subtle, not drawing a direct line between Europe’s approach and Romney, Clinton was not.

The former president said Republicans were adopting “the European economy policy.”

As a European watching the American political debate unfolding, it frustrates me to see such sweeping statements and generalisations being made about other countries, and seeing their actions and policy stances mischaracterised without even the pretence of trying to understand them – and this applies to both sides of the political aisle. I also fear that it does not do much to dispel the false but common notion that most Americans are insular and lacking any real understanding of the world beyond their borders.

This stereotype, where true, is unfortunate enough to the extent that it applies to the general population, but even more concerning when it manifests itself in current and would-be future political office holders.

Obama Syndrome – Tom Friedman’s Diagnosis

Samuel Hooper2 Comments

Tea Party Protest - Barack Obama

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In his latest New York Times column, Thomas Friedman succinctly puts into words what many centrists and probably nearly all frustrated liberals will immediately identify as one of the Obama administration’s biggest political failures thus far into his first term – Obama’s inability to properly sell his accomplishments, and their failure to prevent these accomplishments from being distorted and turned into electoral liabilities by the Republican opposition.

Friedman complains:

Barack Obama is a great orator, but he is the worst president I’ve ever seen when it comes to explaining his achievements, putting them in context, connecting with people on a gut level through repetition and thereby defining how the public views an issue.

True, though this is an age old complaint about Democratic politics – the inability to remain cohesive and on-message, and to deliver a point that is consistent, compelling, and easy to repeat and digest.

On what is perhaps Obama’s signature first term accomplishment – however imperfect it may be – reforming the US healthcare system, Friedman delivers the kind of blunt, incontrovertible smackdown of Republican talking points that make people like me want to shout out in agreement and kiss the screen:

“Obamacare is socialized medicine,” says the Republican Party. No, no — excuse me — socialized medicine is what we have now! People without insurance can go to an emergency ward or throw themselves on the mercy of a doctor, and the cost of all this uncompensated care is shared by all those who have insurance, raising your rates and mine. That is socialized medicine and that is what Obamacare ends. Yet Obama — the champion of private insurance for all — has allowed himself to be painted as a health care socialist.

Yes, yes, a thousand times yes. It’s painful that anyone should have to school the Republican party, the self proclaimed champions of fiscal conservatism, in such basic economic concepts as the free rider problem, but if someone has to do it then there is no one who can do so with more style than Tom Friedman. I’m not sure that I have it in me to hear one more Tea Partier lambasting Obamacare and lamenting that the US now has a socialised healthcare system and that he is being made to pay for his neighbour’s keep, without just straight up asking him “well, what the hell do you think you were doing before, idiot?”

And on the somewhat topical subject of government spending and deficits:

Finally, how did Obama ever allow this duality to take hold: “The Bush tax cuts” versus the “Obama bailout”? It should have been “the Bush deficit explosion” and the “Obama rescue.” Sure, the deficit has increased under Obama. It was largely to save the country from going into a Depression after a Bush-era binge that included two wars — which, for the first time in our history, we not only did not pay for with tax increases but instead accompanied with tax cuts — plus a 2003 Medicare prescription drug bill that we could not afford, then or now. Congressional Democrats also had a hand in this, but the idea that Bush gets to skate off into history as a “tax-cutter” and not as a “deficit buster” is a travesty. You can’t just blame Fox News. Obama has the bully pulpit.

The way in which Democrats managed to lose control of the narrative and allow the party who led America into two unfunded wars, a round of unfunded tax cuts and an unfunded expansion of Medicare (oh yes – socialised medicine, too) to reclaim any credibility whatsoever in terms of economic understanding or fiscal responsibility will forever astound me. And Friedman is right, Obama has the bully pulpit. He, his team and his spokespeople should have been sending out the right message from the start, and not have allowed themselves to have been forced to play defense.

To be fair – and as Friedman notes – sometimes actions speak louder than words, and in several notable instances the Obama administration’s actions have been as much of a reason for disappointment as the selling of their message. For me, the almost unforgivable failure of the Obama administration was the failure to embrace and push forward the Bowles-Simpson deficit reduction plan, which enjoyed considerable support (if not quite enough to mandate an up-or-down vote in the House and Senate) and which would have demonstrated beyond any reasonable doubt that Obama was serious about medium term deficit reduction. The Obama administration’s reticence on this point enraged many a centrist Obama supporter, and led blogger Andrew Sullivan to declare:

My own view, however, is that Obama badly bungled this by not embracing his current position in the State of the Union and pummeling the GOP with it for months. Bowles Simpson was his commission after all, and yet he dropped it like a stone and pandered to his left when he had a perfect moment to pivot to the debt question. Giving the GOP any credibility on debt by offering nothing of real $4 trillion substance until last week may well be seen as Obama’s greatest mistake in his first term. Now that he has finally offered it, his ability to maintain the high ground on a fair measure to tackle the deficit is much reduced from his January possibility. This is not a meep-meep moment. And it could easily have been, if Obama had shown, yes, courage sooner … On this score, leading from behind has been pretty much a disaster. And there is no longer much time to lead from the front.

So there are problems here of action as well as messaging. I don’t yet believe that this is cause for panic – as I have laid out in previous posts, I am very confident that given his opposition, Obama is heading for a likely landslide reelection victory. But an administration – and a party – that fails to create and stick to a positive narrative on so important a topic, deserves their fair share of woe.

But unfortunately it is not just President Obama and his administration that suffer as a result of their baleful communication efforts. For with every day that passes without a compelling, effective message from the administration about achievements won and plans for the future, the unrepentantly unreformed party of George W. “two unfunded wars” Bush and Richard “deficits don’t matter” Cheney will seem to more and more people like a potentially viable alternative to run the show again.

Obama The Inevitable

Samuel HooperLeave a comment

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Well, stop blogging for a month or so and when you come back, the world has turned a little bit. The ratcheting up of the Euro crisis, the effective end to the Republican presidential nomination process, the sudden and complete inability of David Cameron’s Conservative Party to do anything right, in terms of either action or image… Guess I learned something there. Anyway, picking up where I left off in April…

So much handwringing in the media at the moment about President Obama’s political fortunes and reelection prospects!

From Politico:

Nothing inspires Democrats like the Barack Obama swagger – the supreme self-confidence on stage, the self-certainty in private.

So nothing inspires more angst than when that same Obama stumbles, as he has leaving the gate in 2012.

That’s the unmistakable reality for Democrats since Obama officially launched his reelection campaign three weeks ago. Obama, not Mitt Romney, is the one with the muddled message — and the one who often comes across as baldly political. Obama, not Romney, is the one facing blowback from his own party on the central issue of the campaign so far — Romney’s history with Bain Capital. And most remarkably, Obama, not Romney, is the one falling behind in fundraising.

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National polls, which had shown Obama with a slight but steady lead over Romney through April, moved into a virtual tie this month — despite Romney’s clumsy conclusion to the GOP race.

And from The Daily Beast:

The dirty little secret of campaigns is that there are usually just two messages. Either: Stay the Course or It’s Time for a Change. When Barack Obama won 53 percent of the popular vote and carried 28 states, just 14 percent of Americans thought we were moving in the right direction. So it was obviously a Time for a Change election. When Ronald Reagan and Bill Clinton coasted to easy reelections, the country’s mood was undeniably Stay the Course. The election coming up in November is stuck in between. Americans don’t know whether to forge ahead or swing back.

And watching from across the pond, The Daily Telegraph:

There are storm clouds on the horizon for Barack Obama’s re-election.

Democrats indulged in over-confidence during the Republican primaries. It was an understandable reaction to the chaos that came with all the pandering to the far-Right and the rise of frankly laughable candidates like Michele Bachmann and Herman Cain in the search for an alternative to Mitt Romney.

After that debacle, the Romney campaign manager’s promise of an “etch-a-sketch” moment to re-shake and re-shape public perception about their candidate seemed a dose too hopeful.

But only a month after the Republican primaries all but officially ended, we have a real horserace on our hands.

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According to a new Washington Post/ABC poll, 30 percent of Americans say they are worse off than when President Obama took office in the depths of the fiscal crisis. This is comparable to the numbers President George HW Bush faced when he lost re-election to Bill Clinton in 1992.

And right now Obama and Romney are essentially tied when registered voters are asked who would be better at creating jobs and handling the economy.

Why do we do this to ourselves?  Why spend so much time speculating about an event the outcome of which is almost a foregone conclusion?

I understand the motives of the professional media. People will not tune in to The Situation Room with Wolf Blitzer or Hardball with Chris Matthews in significant numbers to get their daily dose of the campaign ups and downs if they think that the result is already assured. That would mean less advertising revenues for the networks, and a huge army of unemployed cable news talking heads who would suddenly flood the market and push unemployment back up above 9%. So the word must continue to go out that the uninspirational, unpersonable technocrat who is unable to motivate his base and who campaigns like an electioneering android with a gaffe bug actually poses a serious threat to Obama’s reelection chances.

With regard to the professional media, I think there is also the bias factor. And by that I don’t mean the fact that all news outlets are biased in one direction or another, but actually the fact that all of the television and most print sources (even Fox News to some extent) strive to appear “balanced” when reporting the news, to tell both sides of the story (even if, in Fox’s case, the tone of voice, facial expressions and screen captions help to “guide” the viewer as to which side is correct).

At some point – and not being a student of journalism and media I don’t know when – good television reporting stopped meaning uncovering and reporting the truth, but rather reporting and giving equal weight to both sides of a story. So if Sam says the world is round but Bob says that it is a perfect cube, today’s headline will read “Sam and Bob spar in congress over shape of the world” rather than “Bob effectively ends his career with insane statement”.

But why do we ordinary people do it to ourselves? Are we just led by the media, or is there something else at work too?

I suppose that I will be doing the blogging walk of shame come November this year if the unthinkable occurs and Romney does become president-elect. But seriously. Are we all really so bored and in need of intrigue that we are going to kid ourselves that this one is even going to be close?

Wait A Second.

Samuel HooperLeave a comment

Politico reports that Republicans are protesting that the Democrats are refusing to help them undo automatic cuts to the defense budget agreed as part of the previous debt ceiling deal. Apparently, allowing these automatic cuts to government spending to take effect would risk plunging the US economy back into recession:

http://www.politico.com/news/stories/0512/76749.html

Sen. Harry Reid’s refusal to “back off” looming cuts to the Pentagon won’t just harm the nation’s security, Republicans say. It could plunge the fragile U.S. economy back into a recession next year.

GOP defense hawks struck back at the Senate majority leader Thursday for insisting he won’t stave off or delay $600 billion in automatic defense cuts unless Republicans budge on new revenues.

President Barack Obama’s top military advisers, including Defense Secretary Leon Panetta, have warned that the so-called defense sequestration would weaken national security, Republicans said. And a report from the nonpartisan Congressional Budget Office this week handed the GOP more ammunition: It concluded that spending cuts and tax hikes set to take effect in January would stall the economic recovery — at least in the short term.
Yes. Republicans, who have been busy blaming Obama’s stimulus package and increased government spending in general for the current slow rate of economic growth in the US, now say that cutting government spending would put the recovery in jeopardy. Hmm.

 

Okay, so what do we learn from this snazzy little pirouette by congressional Republicans? Wait, “learn” is the wrong word, let me rephrase. What tired, depressing old certainty is reinforced upon our weary souls by this latest spat?

1. When Democrats expand or maintain government spending for their pet projects (infrastructure, public services, welfare), it increases the deficit, adds to the national debt and is a grave mistake, but when Republicans expand or maintain government spending for their pet projects (like defense), they are taking vital steps to prevent a double-dip recession.

2. People will invoke the Congressional Budget Office to win an argument whenever the CBO pronouncement supports what they want to do, and they will ignore it or trash it if the CBO pronouncement suggests that what they want to do may be unwise.

Neither party exactly makes a serious play for the fiscal responsibility trophy here, but for sheer, barefaced hypocrisy on the matter, it is definitely the Republicans who flunk this round.

How British Conservatives Miss Their American Mark

Samuel Hooper2 Comments

Fraser Nelson takes to his Daily Telegraph column today to extol the virtues of Mitt Romney, in a puff piece entitled “David Cameron need take no lessons from Barack Obama, but he might listen to Mitt Romney”. But by fundamentally misunderstanding today’s Republican Party, he fails to make a convincing case.

You might expect Nelson to perhaps talk about some of the reasons why David Cameron should pay heed to Mitt Romney rather than President Obama on his upcoming trip to the United States. But all we really get is this solitary paragraph:

“In the Republican primary contest, meanwhile, the candidates have been very precise about debt. American conservatism is now defined by plans to tackle it, and the candidates compete on which taxes they’d cut to kick-start the economy, increase employment and balance the books. Romney’s 59-point plan for growth is easily the most moderate, yet is still more radical and holistic than anything produced in Britain. He has ruled out tax rises, and pledged to cut state spending by 5 per cent on day one. Cameron, by contrast, is aiming for a 3.3 per cent cut over five years.”

Would that this were true.

mittromneyrolemodel

American conservatism, defined by plans to tackle the debt? If there is one thing – and there are a lot at the moment – which distinguishes British and American conservatives, it is the fact that British conservatives (perhaps with the exception of the ultra-hardcore Eurosceptic fringe) live predominantly in the real world, while American conservatives have decamped en masse to cloud-cuckoo land, where huge swathes of the federal budget can be eliminated at a stroke without causing any undue suffering to those who have been coaxed and encouraged over the years to depend on various government programmes, and with no political repercussions.

Romney’s plan may well be more radical and holistic than anything produced in Britain, but that doesn’t really matter because nothing remotely resembling it is ever going to be implemented. The British Tories, on the other hand, are willing to risk alienating public opinion and their petulant Liberal Democrat coalition partners to actually implement a programme of needed budget cuts. So who should get the praise, the man who gives tough speeches about slashing trillions from the federal budget with no earthly chance of ever actually doing it, or the man who treads more carefully and holds together a precarious coalition to deliver more modest budget cuts that are actually attainable?

That’s not to say that the British conservatives are in the right with regard to the slower pace at which they have chosen to tackle budget deficits and spur economic growth while in government. Many people, myself included, are frustrated at the glacial pace at which much needed supply-side reforms are being implemented in the UK (often thwarted by EU regulations and/or the Liberal Democrats). A little more ambitious, far-reaching zeal would not be a bad thing at all, though how possible this is as long as the Liberal Democrats are partners in government remains in doubt. And so at first glance, once can understand why some British political pundits look at the fiery rhetoric emanating from the Republican primaries on the economy and find the British conservatives lacking. But to look closer, and to remember the different respective points that Britain and America occupy on the left-right political spectrum, is to realise firstly that the British conservatives have very little political scope to move further to the right, and secondly that the policy positions that the Conservative Party occupies do not differ greatly from the Democratic party in many cases.

And this is the crux of the matter. Even as the Republican Party in America continues to lurch further and further to the right and stake out ever more extreme positions on all manner of issues, the British Tories and their supporters in the British press as yet are unable to sever the psychological link which tells them that they should cheer the Republicans and boo the Democrats. This mindset may have worked in the past, when there was a greater degree of comity and moderation in American politics and the two parties were not so greatly divided, but it does not work today.

It seems to be of entirely no matter to the Republican cheerleaders in the British press that the majority of Democratic party policies are equivalent to or to the right of many current Tory principles (even the long-cherished and now-abandoned public health insurance option is significantly to the right of having a single-payer National Health Service), or that many members of the new Republican tea party congressional intake would (if they actually possessed a working knowledge of the world beyond their own borders) look at Britain with disdain, regarding us as some type of socialist dystopia.

Sadly, the time has come for the British Tories and their allies to acknowledge that they no longer have a serious, thinking partner on the other side of the Atlantic. This is probably just a temporary blip, as all such overcorrections to the right or the left tend to be countered by a return to more moderate positions (as will either happen in 2012 when Obama beats Romney/Santorum, or in 2016 when Obama’s heir runs against a chastened GOP desperate to win back the votes of the women and minorities that it is currently shedding so carelessly). But for the time being, British conservatives have nothing to gain by cosying up to the Republican Party of John Boehner, Eric Cantor, Mitch McConnell, Sarah Palin, Rush Limbaugh, Newt Gingrich, Mitt Romney and Rick Santorum.

The Conservative Party’s American role models may have embraced tea as their emblem, but their economic policy prescriptions are not based in reality, and are going a long way toward making the Republicans look callous, backward and foolish. There is no need for the Tories to damage their still-fragile brand by standing next to them, wearing a T-shirt that proclaims “I’m with Stupid”.