Economic Viagra
by digby
Here's the Chief of Staff Pete Rouse:
[I]n a rare interview in September before his selection, he insisted Mr. Obama’s first two years would be judged well by history, but lamented that the economic crisis forced a series of actions that fueled the image of a traditional Democrat, even while staving off a depression.
“If we’d had our druthers,” Mr. Rouse said, “starting out with a $787 billion spending program that people don’t think benefited them, that reinforced the idea of big-spending liberal, isn’t the option we would have chosen, but it was what was called for.”
Another way of looking at it might have been that "traditional Democrats" always have to clean up after the catastrophes the "small government" conservatives create with their greed and irresponsibility whenever they get the reins of power. It happens over and over again, and for some reason the Democrats seem to prefer being treated like doormats instead of standing up for their philosophy.
If big spending liberals would spend half the time defending their tradition and principles that they spend apologizing for them, they might not have so many problems. But that assumes that the principles I attribute to them are their principles. At this point, it's not evident that they are.
I'll let Krugman explain again how we got to this juncture:
The aftermath of major financial crises is almost always terrible: severe crises are typically followed by multiple years of very high unemployment. And when Mr. Obama took office, America had just suffered its worst financial crisis since the 1930s. What the nation needed, given this grim prospect, was a really ambitious recovery plan.
Could Mr. Obama actually have offered such a plan? He might not have been able to get a big plan through Congress, or at least not without using extraordinary political tactics. Still, he could have chosen to be bold — to make Plan A the passage of a truly adequate economic plan, with Plan B being to place blame for the economy’s troubles on Republicans if they succeeded in blocking such a plan.
But he chose a seemingly safer course: a medium-size stimulus package that was clearly not up to the task. And that’s not 20/20 hindsight. In early 2009, many economists, yours truly included, were more or less frantically warning that the administration’s proposals were nowhere near bold enough.
Worse, there was no Plan B. By late 2009, it was already obvious that the worriers had been right, that the program was much too small. Mr. Obama could have gone to the nation and said, “My predecessor left the economy in even worse shape than we realized, and we need further action.” But he didn’t. Instead, he and his officials continued to claim that their original plan was just right, damaging their credibility even further as the economy continued to fall short.
Meanwhile, the administration’s bank-friendly policies and rhetoric — dictated by fear of hurting financial confidence — ended up fueling populist anger, to the benefit of even more bank-friendly Republicans. Mr. Obama added to his problems by effectively conceding the argument over the role of government in a depressed economy.
We are politically worse off than we were before unless something magical happens and the economy turns itself around quickly. And this is a direct result of money in the system (for which Democrats feel they have to compete in order to compete) and, I think, the transition from accommodation to neo-liberalism for political reasons to true belief among the liberal intelligentsia.
The only way I can reconcile what Krugman says above (and what I think is about to happen) is that the administration and the top leadership of the Democratic Party truly do not believe in Keynesianism anymore except as a convenient excuse for tax cuts which are now seen as supernatural confidence potions. Economic Viagra. (If you look at the Europeans you can see the same thing, which I suspect is also driving the unsure and directionless Obama's acquiesence to an austerity agenda.)
They are all magical thinkers now, which explains why Paul Krugman seems to be somewhat frantic and very, very worried. As we all should be. Peter Rouse's apology for using government to stave off economic catastrophe says it all.
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