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Monday, December 06, 2010

Let's Make A Deal

by digby

So it's done. Would it be unseemly for me to say I told you so? (My miscalculation was that they would also be able to hold unemployment insurance hostage along with the middle class tax cuts, which was really brilliant considering that it's Christmas and they can all go home now warm in the knowledge that God blesses us one and all. Damn.)

Ezra sets forth what I would imagine is the thinking among Democratic insiders, namely that tax cuts for the rich are a form of stimulus and since we can't get any kind of real stimulus, they have to extend them. The problem here is that while tax cuts are often used for stimulus, it doesn't seem to have worked all that well in this recession, although it may have mitigated the worst of it at its depth. But tax cuts for the wealthy have been shown over and over again to be the least effective form of stimulus and coming as they are at a time when the wealthy have recovered very well and their investments are booming (while the rest of the country is still swimming in debt and suffering from lack of jobs, the housing slump and underemployment) they are likely to be even less stimulative than usual. I really don't think even they believe this rationale.

So why? I think it's a basic belief in "markets" as the savior of all economic problems and a broader fear of further angering the business community and the financial sector: they hear the threats loud and clear --- "unless you give us our tax cuts, the country gets it." The corporations and Wall Street are already sitting on a boatload of cash which they have no need to distribute as long as they are making big profits anyway. They simply do not believe they should have to pay higher taxes so they are holding a metaphorical gun to the head of the government and daring it to thwart them.

I'm not saying this to defend the administration. Indeed, I think capitulating to this is about as uncreative and lacking in seriousness as possible that I believe they are either clueless or cowardly for not doing the right thing on this. After all, if what really matters to the administration is that the economy recovers, then this is nothing more than a faith based premature capitulation to the business community. A business community which is not going to reward them even if they install a whole slew of Wall Street insiders like Roger Altman in the White House. The same Roger Altman who wrote this last summer:
JUST as Congress finally passed its sweeping financial reform bill last week, a chorus of high-profile chief executives and business lobbying groups were criticizing President Obama and what they see as a new era of big, stifling government and heavy regulation. Ivan Seidenberg, the chief executive of Verizon, delivered a particularly stinging rebuke: In remarks to the Economic Club of Washington, he blamed President Obama for “an increasingly hostile environment for investment and job creation” and lambasted an administration that is “reaching into every sector of American life” and “making it harder to raise capital and create new businesses.”

After the United States Chamber of Commerce then complained that the administration “vilified industries,” the White House advisers Rahm Emanuel and Valerie Jarrett responded with a letter clearly meant for the business community as a whole. They wrote: “The stakes are far too high for us to be working against one another. That is why we were surprised and disappointed at the rhetoric we have heard from some in the business community — rhetoric that fails to acknowledge the important steps this administration has taken every single day to meet our shared objectives.”

Their letter is more than a defense of a president stung by the anti-business label. Given the latest data indicating weak growth and strikingly high unemployment, the administration is rightly concerned that business negativism is suppressing the confidence necessary for increased investment and job growth.

This poisonous dynamic between Washington and business must be fixed. Both sides should make adjustments, but the business community — of which I am a proud member — especially needs to make efforts to mend this relationship. Yes, the administration has made some mistakes. But, on balance, its actions have supported business.


What adjustments should President Obama make to repair ties with business? For starters, no important member of his administration has ever met a major payroll. Such an absence of business experience in a presidential administration is unique in recent decades and carries negative connotations; certainly, no other comparable interest group is so unrepresented. This could be remedied by recruiting a senior industry figure for one of the four or five key economic policy positions.

Beyond that, there is skepticism over the president’s commitment to reducing the huge and dangerous budget deficits which America now faces. A strong step toward deficit reduction next year — like undertaking the difficult task of trying to fix Social Security — would earn deeper credibility with business and with all Americans.

Another problem is that the administration’s rhetoric — which too often employs inflammatory words like “reckless” — has the effect of tarring all of business with the same brush. The White House might better distinguish between Wall Street, Big Oil and health insurers, which have all incurred public wrath, and the majority of businesses, which haven’t.

The tension between President Obama and the business community is hurting both sides and may hamper economic recovery. .
This view about Social Security is backed up by Peter Orszag, recently departed from the administration (and reportedly headed to Citi), Dick Durbin, the president's proxy in the Senate, ex-labor leader Andy Stern along with numbers of Democratic Senators, signaling that Social Security really is on the menu.

And unbelievably, it's already being sold as a way to pay for these tax cuts:

Lawmakers may embrace plans by President Barack Obama’s debt commission to curb the costs of Social Security and $1 trillion in tax breaks even as comprehensive deficit reduction hinges on whether both parties seek confrontation or accommodation.

While the commission lacked the votes to send its proposal to Congress, bipartisan agreement on the panel will open a debate over the retirement system and the tax breaks, which include the home-mortgage deduction, several lawmakers and analysts said.


Obama thanked the panel for highlighting “the magnitude of the challenge facing us” without embracing specific proposals. White House Budget Director Jack Lew has invited commission members to meet.


“It is difficult for the congressional leadership to drive two conflicting processes at once,” Crandall said. “Congress is probably going to have to take things one step at a time...

Peter Orszag, who was running the White House budget office when Obama formed the panel, said if Congress makes any progress on the debt-reduction proposal, it’s most likely to be on Social Security’s long-term financial challenges.

“The most auspicious part of these proposals is in Social Security, where you need some tweaks to get bipartisan agreement, but they are tweaks,” said Orszag, who led the Congressional Budget Office before joining the Obama administration in 2009.

That sentiment was echoed by panel members including Alice Rivlin, another former CBO director, and Andrew Stern, president emeritus of the Service Employees International Union, among the nation’s largest labor organizations.

“Almost everybody mentioned it at some point in the deliberations,” said Rivlin. “Social Security can be done, I’m convinced now,” said Stern.

Republicans signal they intend to make their first order of business federal programs directed at specific groups. Republicans “must immediately start a conversation with the nation about the kind of entitlement changes that are necessary,” Majority Leader-elect Eric Cantor said in a statement Dec. 3.


Now, Dick Durbin of Illinois, the Senate’s No. 2 Democrat, says: “If we want to come up with something bipartisan to work on together, Social Security is a good candidate.”

Durbin also said in an interview that “this commission opened a door that nobody has looked behind a long time, and that’s tax expenditures.”

Clearing out tax breaks appeals to Republicans looking to simplify the code and lower income tax rates.


Democrats can be brought on board by making sure the plan helps lower-income earners, said Mark Warner, a Virginia Democrat leading a bipartisan group of senators seeking common ground. [There's your arm twist, right there.]


It may take a fiscal shock, such as a drop of confidence in state or local bonds that spreads to the Treasury market, to spur action on the commission’s proposals, Orszag said.

The commission has “put ideas back on the table that, if we do run into a fiscal tremor, can be picked up,” he said.

There you have it --- a disaster capitalist blueprint for destroying Social Security. (Gosh, I sure hope we don't have any of those "fiscal tremors" don't you?) As anyone who pays attention to this knows, Social Security is not included in the deficit figures, so even putting the best face on it makes this whole exercise a phony issue designed to "reassure" some bond traders (who aren't asking for reassurance) and convince David Broder that they are Very Serious People, which seems to be the extent of the Democratic economic bag of tricks.

And since they obviously know that they will not be reelected if this economy stays in the doldrums, they must also believe that their political opponents are going to be check-mated by this brilliant plan, which is almost as ridiculous as the plan itself. They seem to have some starry eyed dream that groups like American Crossroads and a thousand other secretive corporate fronts aren't going to run ads against them accusing them of putting grandma on catfood and threatening to raise taxes on the "job creators" --- as they just did during the last election. Evidently, they think that wealthy people and corporations are really Democrats at heart if only they can be assured that the government is serious about solving problems that don't exist. It would be funny if it weren't so terrifying.

There is one thing that's immensely clarifying about this whole thing. The Democrats in general and President Obama specifically, truly believe that the economy's problems can only be solved by putting government in service of business and finance and giving them whatever they want. And they believe this even after the financial sector already blew up the economy and the government rescued it and asked nothing in return. After all, the White House is evidently on the verge of hiring Roger Altman, who wrote this in the pages of the New York Times:
Yes, business sees both the health reform and financial reform legislation as establishing burdensome regulatory structures. It is right in this regard. But financial reform was mandatory, and while some on Wall Street naturally don’t like it, most in our community view it as relatively harmless.
At this point the President, the Democratic moderates and the GOP are in agreement that tax cuts are the only way to stimulate the economy, that regulations are bad, that social security must be cut, and that the best way to fix the economy is to cater and pander to the wealthy, the corporations and Wall Street. I think we've finally achieved bipartisan heaven.

Since they are going to rip Barack Obama to shreds regardless, I hope for his sake that he really does believe this, because he's going to be Wall Street's living martyr for the cause. Too bad about all the people, who will have to suffer much harsher punishment.

Update: And by the way, Ezra and others continue to misunderstand what the Republicans were really after here. As I've said ad nauseum they want the tax cuts to be temporary because they want to have this fight over tax cuts to continue into the presidential campaign. If the President agreed to extend the tax cuts permanently, the issue would be off the table and that's not to their advantage. (Believe me, the business community is not really *uncertain* about anything at this point.)

Yes, it's better that they didn't extend them permanently, but are liberals looking forward to this argument two years from now? (And will there ever be any circumstances that will make it easier for them to expire than there were in the spring of 2009?) It's a missed opportunity, and one which I suspect was always planned to miss. The Bushies knew what they were doing when they rigged this one and it would have taken a Democratic party and a president much more brave and populist than the ones we have to undo it.