"The Story That Would Have Been Spun"
Arin Dube wonders how an alternative world might have played in the press:
Counterfactual: Or a Story that would have been Spun, by Arindrajit Dube: Six weeks before the midterm elections, the Democratic Party is facing major losses in both the House and the Senate, and is looking increasingly likely to lose control of the House altogether.
What is behind this rapid change in fortunes from only two years ago, when the Democrats swept into power? Based on extensive interviews with sources in both parties, including anonymous sources within the White House, it appears that an over-reach by the Obama administration pursuing a progressive and populist platform may have played an important role. Instead of an incrementalist, business-friendly strategy, the administration went to the hilt with policies focused on a greater role of government in providing jobs and healthcare, and perhaps pre-maturely ended American military involvement in both Iraq and Afghanistan.
Sources both inside and outside the administration agree that the pursuit of a health care policy with a strong role of the federal government (a “public option”) played a large role in solidifying the image of the administration as one that did not spend enough time courting moderate Republicans such as Senator Chuck Grassley. Had the administration not insisted on a strategy that fundamentally ended the control of the health insurance market by a handful of key companies, these sources say that a bipartisan compromise on universal healthcare would most certainly have been reached.
The pursuit of a second stimulus in late 2009 measuring $700 billion dollars was likely the second reason behind the quick turnaround in public opinion. While economists largely credit the second stimulus for lowering the unemployment rate to below 7% through a focus on aid to states and direct hiring initiatives, the political reality remains that there is increasing concern about burgeoning government debt. Although interest rates on treasury bills have not risen – yet – experts we spoke with worry about a sudden increase in such rates at any time. A more measured approach which let the structural problems arising from the bubble sort themselves out though the private market may have not lowered the unemployment rate at the short term. However, politically, our sources say, such an approach would have demonstrated a hard-headed approach that eschews populism, and would have calmed both the markets and an increasingly nervous electorate worried about countercyclical deficit financing.
Finally, while the administration’s economic advisors successfully pushed for a stringent and punishing regulatory policy with respect to the financial sector, some insiders grumble about the early decision by this administration to not recruit more palatable figures such as Timothy Geithner and Lawrence Summers. Lacking the “soft touch” approach championed by Clinoton-era protégé’s of Robert Rubin, the brash economic team under Obama moved quickly to cap bank size, impose draconian capital reserve requirements, re-instate Glass-Steagall, and strong-arm Congress to impose stringent limits on financial sector pay. While possibly creating a less risky financial market, it no doubt led to a flight of talent from the financial sector. Today, the financial sector’s share of employment is back closer to the late 1980s, which some believe is a cause for concern as financial innovations are unnecessarily stymied through regulatory pressure.
As a result of these and other factors, today’s electorate is taking a hard look at the Democratic Party and its brand of economic policies. Looking back with the advantage of hindsight, perhaps the Democratic Party leaders will decide that pursuing a less populist and redistributive strategy would have secured it a lock on both the Congress and the Presidency for generations to come. And that it was the focus on reducing unemployment and providing affordable healthcare – at the cost of securing bipartisan agreements – that lay the foundations for a resurgent Republican party.
There's another possibility. If Obama had fought harder for some of these things, he probably wouldn't have made much more progress than he did -- perhaps a little, but not much. But the battle would have been worth having as a means of signaling to the base that the things they care about are worth standing up for, and for painting the other side as obstructionists standing in the way of moving forward. I think there are alternative histories where the administration is more combative and less devoted to bipartisanship that would have turned out much better than the reality we are seeing today. But the Obama I want isn't the Obama I have.
Posted by Mark Thoma on Wednesday, September 22, 2010 at 02:42 AM in Economics, Media, Politics |
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