The Pasty Little Putz has extruded a thing called “The President’s Do-Over” in which he whines about the first-term agenda that should have been. Listen, you asshole, if the Obama administration had done EXACTLY and PRECISELY what you’re setting forth you still would have excoriated him and his administration. Prof. Krugman addresses “An Impeccable Disaster,” and says the moralizers, who hate the idea of letting nations off the hook for alleged fiscal sins, are sending the euro over the edge. Here’s the Putz:
A week after President Obama took the oath of office, Alice Rivlin, budget chief to President Bill Clinton, testified before a Congress that was about to consider sweeping stimulus legislation. In her remarks, Rivlin voiced her support for a swift and substantial federal intervention to prop up the sagging economy. But she offered lawmakers three warnings as well.
The first warning was about the design of the stimulus. The ideal anti-recession package, Rivlin told Congress, would include aid to state governments, extended unemployment benefits, money for genuinely “shovel ready” projects and a payroll tax holiday. But she urged Congress to resist the temptation to combine these kinds of short-term recession-fighting measures with a larger and more costly investment in energy, education and infrastructure. Trying to rush a long-term spending package through in an atmosphere of crisis, she cautioned, would only guarantee that its contents would be poorly designed, and much of its spending wasted.
The second warning was about setting expectations. Given the nature of the financial crisis and the nasty overhang of debt it left behind, any recovery would probably be slow even with a stimulus bill. Policy makers “should be skeptical of all forecasts,” she told Congress, “and especially conscious of the risk that things may continue to go worse than expected.”
The third warning was about how to handle the problem of deficits, which already shadowed the stimulus debate. “We do not have the luxury of waiting until the economy recovers before taking actions to bring down projected future deficits,” Rivlin said. Instead, she urged Congress to take action “this year” on entitlement spending, and to prioritize Medicare reforms over a more comprehensive health care overhaul.
With these three warnings, Rivlin anticipated everything that the Obama White House and the Democratic Congress would do wrong over the next two years.
First, instead of passing a targeted antirecession package, Congressional Democrats crammed the stimulus bill with spending on everything from Head Start and Pell Grants to high-speed rail and renewable-energy projects. The hope was that the legislation would do more than just kickstart a recovery: It would lay a new foundation for the economy, with an electric car in every garage and a Solyndra solar panel on every roof. The result, predictably, was a bill that looked less like a temporary exercise in crisis management and more like the Democratic Party’s permanent wish list.
Second, instead of emphasizing the severity of the recession, the White House offered sunny — and, as it turned out, wildly mistaken — projections about how swiftly the stimulus would bring down the unemployment rate. Even once it became clear that the recovery wasn’t happening nearly as quickly as promised, the administration stuck to its Pollyannaish script, sending the president and the vice president out on an embarrassing “recovery summer” tour in 2010 and repeatedly projecting economic growth that failed to materialize.
Finally, instead of pivoting from the Recovery Act to deficits and entitlement reform, the Democratic majority spent all of its post-stimulus political capital trying to push both a costly new health care entitlement and a cap-and-trade bill through Congress. Both policies were advertised, intermittently, as deficit reduction, but neither came close to addressing the real long-term drivers of the nation’s debt. And they left Congressional Democrats to campaign for re-election in 2010 as the custodians of record deficits as well as sky-high unemployment.
Now, nearly three years after Rivlin’s warnings went unheeded, President Obama has groped his way to an agenda that looks more like what she originally recommended. His speech to Congress last week suggested that he intends to campaign for re-election on what should have been the blueprint for his first four years in office: a short-term stimulus highlighted by a payroll tax cut, a medium-term push to overhaul the tax code and a plan for long-term entitlement reform.
To Republicans, this agenda holds out the possibility that a second Obama term might feature more opportunities for compromise and common ground. But to voters pondering whether to make that second term happen, it amounts to a request for a presidential do-over — a tacit admission that the White House’s first-term agenda has been less than successful, and a plea for a second chance to get things right.
If the answer to that plea turns out to be “no,” then President Obama’s political epitaph should be taken from the Victorian verse of Dante Gabriel Rossetti:
“Look in my face; my name is Might-have-been; I am also called No-more, Too-late, Farewell.”
Schmuck. Here’s Prof. Krugman:
On Thursday Jean-Claude Trichet, the president of the European Central Bank or E.C.B. — Europe’s equivalent to Ben Bernanke — lost his sang-froid. In response to a question about whether the E.C.B. is becoming a “bad bank” thanks to its purchases of troubled nations’ debt, Mr. Trichet, his voice rising, insisted that his institution has performed “impeccably, impeccably!” as a guardian of price stability.
Indeed it has. And that’s why the euro is now at risk of collapse.
Financial turmoil in Europe is no longer a problem of small, peripheral economies like Greece. What’s under way right now is a full-scale market run on the much larger economies of Spain and Italy. At this point countries in crisis account for about a third of the euro area’s G.D.P., so the common European currency itself is under existential threat.
And all indications are that European leaders are unwilling even to acknowledge the nature of that threat, let alone deal with it effectively.
I’ve complained a lot about the “fiscalization” of economic discourse here in America, the way in which a premature focus on budget deficits turned Washington’s attention away from the ongoing jobs disaster. But we’re not unique in that respect, and in fact the Europeans have been much, much worse.
Listen to many European leaders — especially, but by no means only, the Germans — and you’d think that their continent’s troubles are a simple morality tale of debt and punishment: Governments borrowed too much, now they’re paying the price, and fiscal austerity is the only answer.
Yet this story applies, if at all, to Greece and nobody else. Spain in particular had a budget surplus and low debt before the 2008 financial crisis; its fiscal record, one might say, was impeccable. And while it was hit hard by the collapse of its housing boom, it’s still a relatively low-debt country, and it’s hard to make the case that the underlying fiscal condition of Spain’s government is worse than that of, say, Britain’s government.
So why is Spain — along with Italy, which has higher debt but smaller deficits — in so much trouble? The answer is that these countries are facing something very much like a bank run, except that the run is on their governments rather than, or more accurately as well as, their financial institutions.
Here’s how such a run works: Investors, for whatever reason, fear that a country will default on its debt. This makes them unwilling to buy the country’s bonds, or at least not unless offered a very high interest rate. And the fact that the country must roll its debt over at high interest rates worsens its fiscal prospects, making default more likely, so that the crisis of confidence becomes a self-fulfilling prophecy. And as it does, it becomes a banking crisis as well, since a country’s banks are normally heavily invested in government debt.
Now, a country with its own currency, like Britain, can short-circuit this process: if necessary, the Bank of England can step in to buy government debt with newly created money. This might lead to inflation (although even that is doubtful when the economy is depressed), but inflation poses a much smaller threat to investors than outright default. Spain and Italy, however, have adopted the euro and no longer have their own currencies. As a result, the threat of a self-fulfilling crisis is very real — and interest rates on Spanish and Italian debt are more than twice the rate on British debt.
Which brings us back to the impeccable E.C.B.
What Mr. Trichet and his colleagues should be doing right now is buying up Spanish and Italian debt — that is, doing what these countries would be doing for themselves if they still had their own currencies. In fact, the E.C.B. started doing just that a few weeks ago, and produced a temporary respite for those nations. But the E.C.B. immediately found itself under severe pressure from the moralizers, who hate the idea of letting countries off the hook for their alleged fiscal sins. And the perception that the moralizers will block any further rescue actions has set off a renewed market panic.
Adding to the problem is the E.C.B.’s obsession with maintaining its “impeccable” record on price stability: at a time when Europe desperately needs a strong recovery, and modest inflation would actually be helpful, the bank has instead been tightening money, trying to head off inflation risks that exist only in its imagination.
And now it’s all coming to a head. We’re not talking about a crisis that will unfold over a year or two; this thing could come apart in a matter of days. And if it does, the whole world will suffer.
So will the E.C.B. do what needs to be done — lend freely and cut rates? Or will European leaders remain too focused on punishing debtors to save themselves? The whole world is watching.