Mayberry Machiavellis: Obama Political Team Handcuffing Recovery

Mayberry Machiavellis: Obama Political Team Handcuffing Recovery

Under the leadership of President George W. Bush, science, empirical evidence and expert advice struggled to be heard above the din of politics. It's one thing to prioritize politics over good policy; it's quite another to let bad politics drive the agenda. But that's what the Bush administration did during its Terri Schiavo era and his congressional majorities paid the price.

Today, a new band of Mayberry Machiavellis has gained control, counseling President Obama to ignore the advice of his economic team and press forward with deficit reduction ahead of job creation.

Senior White House adviser David Axelrod told the New York Times recently that "it's my job to report what the public mood is." The public mood, said Axelrod, is anti-spending and anti-deficit and so the smart politics is to alleviate those concerns. "I've made the point that as a matter of policy and a matter of politics that we need to focus on this, and the president certainly agrees with that," said Axelrod of the deficit hawkery that the administration has engaged in over the last several months.

It's an odd political strategy because Axelrod knows that if it succeeds, it will be both bad policy and bad politics. He said as much when asked about the pressure from economic advisers to focus on stimulus and job creation. "I'm very much allied with the economic group, because even as a political matter it would be very shortsighted to take steps that would send us backward," he said.

But the Mayberries have already taken those steps: by using the bully pulpit to highlight deficit fears, by proposing an across-the-board spending freeze, by creating a commission to reduce the deficit and stacking it with hawks, by making it clear to progressive allies that the White House political team believes a deficit-reduction focus is important for the midterm elections. The one recent effort by the President to pressure Congress to move forward with jobs-related spending came in a letter sent on a Saturday evening that was met with derision on the Hill for its ham-handedness.

[UPDATE: White House aide Matthew Vogel responds: "When President Obama took office, millions of people had already lost their jobs due to the recession and the deficit had ballooned. Over the last eighteen months, the economic team and the President's closest advisors have worked day and night to balance two of the greatest challenges our economy faces -- putting Americans back to work and getting us back on a sustainable fiscal path. The Administration is united in its focus on getting the economy growing again, the most powerful driver of job creation and deficit reduction."]

The focus on deficits has consequences. Without White House backing of more stimulus, the House of Representatives has steadily hacked away at a jobs package that began as a several hundred billion dollar initiative and is now a shell of itself. The Senate, meanwhile, has repeatedly failed to break a GOP filibuster of extended unemployment insurance and a must-pass package of tax extenders faces the prospect of not passing.

Axelrod's political analysis -- that "as a political matter it would be very shortsighted to take steps that would send us backward" -- is confirmed by a recent survey that is being studied by both House Democrats and Republicans. The Democrats gathered on Thursday morning to dig into the national poll, which was paid for by the Alliance for American Manufacturing and done by Democrat Mark Mellman and Republican Whit Ayers.

It hints at an answer to why people are so passionate when asked by pollsters about the deficit: It's about jobs, China and American decline. If the job situation improves, worries about the deficit will dissipate. Asking whether Congress should address the deficit or the jobless crisis, therefore, is the wrong question.

The survey finds extensive worry about U.S. indebtedness to China, which is seen as eclipsing America on the international stage, signaling the twilight of U.S. dominance and economic underperformance as the new status quo. "There's no question in my mind that the intensity of concern about this problem is related to the overall economic picture," said Mellman.

The national debt and the deficit are both proxies for concern about the economic decline. "There's very little understanding of the difference between the debt and the deficit," said Mellman, who has briefed Democratic lawmakers on polling around the deficit. "When people are talking about the deficit and being concerned about the deficit, that's really a metaphor for a whole lot of things in their mind: It's about debt to China, it's also about the waste of government money as far as they're concerned, it's about bailing out big corporations while their jobs are lost."

About 45 percent of respondents said the biggest problem is that "we are too deep in debt to China," the highest-ranking concern, while 58 percent said the U.S. is no longer the strongest economy, with China being the overwhelming alternative identified by people. Three-quarters had an unfavorable view of goods made in China and 83 percent felt the same about companies that set up shop there. The number one objection people had to China was the $2 trillion the country holds in U.S. debt. Asked how to improve the economy, the number one solution provided by voters was to "crack down on foreign countries who violate their trade agreements with us."

Overwhelmingly, the survey found voters favored policies that encourage the revival of American manufacturing. As soon as the poll was released, Rep. Thad McCotter of Michigan, a member of Republican leadership, immediately sent it around to House colleagues, encouraging them to take a look.

"We know what happens when the economy depends only on financial services and the creation of wealth through bookkeeping. Manufacturing jobs are good paying jobs that support families and communities, create spin-off jobs, and leads to innovation," said Rep. Tim Ryan (D-Ohio), who has been pressing House colleagues to pay close attention to the poll on China and manufacturing. "We need to force China to play by the rules. We need to pass currency reform measures and develop a national strategy to boost small and mid-size manufacturers. We've spent the last 30 years pandering to those who have taken manufacturing off shore and in turn we lost the heart and soul of our country. We need to see 'Made in the USA' again."

White House political advisers, however, see the high numbers of respondents saying that the deficit is a major concern and think belt-tightening is needed. But Mellman said that part of the deficit concern reflected in polls is a natural bias of this type of survey. "When you ask people what they're concerned about, they have to answer something," he said. "At some level, the polling game is stacked."

Indeed, it feels selfish to tell a pollster that deficits aren't a major concern. What about the children? The grandchildren? Yet when voters are asked to identify only one top concern, it is rarely the deficit. In April and June of this year, a CBS/New York Times poll found that only five percent of people mentioned the deficit as the "most important problem." Nearly half identified the economy or jobs. That was no outlier: several other polls, when they limit the choice to a top concern, found similar results, including one from Fox News in May, which found 15 percent saying the deficit is "the most important" thing for government to work on, with 47 percent identifying jobs.

In another recent survey, three quarters of respondents favored increased social spending over deficit cutting. "With unemployment close to ten percent and millions still out of work, it is too early to start cutting back benefits and health coverage for workers who lost their jobs," said 74 percent of voters, while only 21 percent agreed with this statement: "With the federal deficit over one trillion dollars, it is time for the government to start reducing spending on health care subsidies and unemployment benefits for the unemployed."

Academics Benjamin Page and Lawrence Jacobs, in the recent paper, "Understanding Public Opinion on Deficits and Social Security," have identified an additional reason that the deficit continues to rank high in polls as a prominent concern. "The 'most important problem' question responds heavily to whatever is being emphasized in the media, apparently because many respondents interpret it as asking what other people consider important," they write. "They look to the media for evidence. So a well-organized and well-funded campaign against deficits (like the one led by Peter Peterson) can grab the attention of pundits and politicians, win coverage in the media, and produce a temporary spike in responses that deficits constitute our 'most important problem.'"

The more that the president highlights deficit concerns, the more concerned the public gets, and the more his advisers warn him that the public is concerned.

For Mellman, deficit concerns stem from the suspicion that Washington spends money to help giant corporations but does little for regular people. "They're particularly angry about those bailouts in the context where they see big corporations being saved and their own jobs being lost. Something's being done for the big corporations but nothing's being done for them," said Mellman. "It also is true that simply letting thousands of teachers and police and firefighters be fired in the name of deficit reduction is not going to earn kudos from anyone. Voters are not going to stand up and say, 'Great job!'... That's not what they mean when they say they're concerned about the deficit."

Investors, however, are apparently harder to influence. Sophisticated buyers of American debt see no crisis whatsoever. Investors are asking for about 2.96 percent interest from the U.S. government in order to buy 10-year Treasury bonds, a level near historic lows, according to data compiled by the Federal Reserve Bank of Kansas City. Ten years ago, investors demanded more than double that rate. For two-year bonds, they're asking for rates below inflation. The federal government is paying investors 0.63 percent interest for two-year loans. Five years ago, the rate was about six times higher at 3.76 percent.

Investor confidence in the solvency of the U.S. government is rooted in a reality that is rarely discussed in the media, in surveys or congressional debate. The dollar is the world's central currency and the Federal Reserve has the ability to buy U.S. Treasury debt if demand for it slackens. Nations like Greece do not have that luxury. Fed purchasing of debt could ultimately lead to inflation, but inflation is a far different concern than sovereign insolvency. If inflation did kick in -- a remote consideration given the global economic decline -- the Fed has policy tools that can rein it in. Yet voters aren't asked whether they'd prefer to extend unemployment insurance now and risk inflation down the road.

Even the Congressional Budget Office, which specializes in raising the alarm about deficits, said in a recent report that if Congress follows current law, the budget deficit will largely evaporate in the long term. According to the CBO's calculations, by 2034 the budget gap as a percentage of GDP will be 1.2 percent; by 2059 it'll be 0.8 percent and fall to 0.7 percent by 2084. (The CBO doesn't believe that Congress will follow current law, and released an "alternative" calculation with dire numbers.)

Obama's economic team -- Treasury Secretary Timothy Geithner, Larry Summers, Christina Romer and other senior advisers -- have also been pushing for more stimulus, warning that private demand is not yet sufficient to generate a robust recovery.

One reason that investors, the economic team and the CBO analysts don't see deep deficit problems is that, historically and relatively, U.S. debt is well within bounds. "Even after a decade of accumulating debt at a rapid pace, the U.S. would still face a lower debt burden than countries like Italy do today. Italy is currently able to borrow in financial markets at very low interest rates. Projections for 2020 show that the debt burden of the United States would still be less than half of the current debt burden of Japan, which still pays less than 2.0 percent interest on its long-term debt," writes economist Dean Baker.

The Obama political team's focus on the deficit raises the question: Just who is this hypothetical midterm voter who was leaning to the GOP because of deficit concerns, but will vote Democratic if only Congress trims a spending bill from, say, $250 billion down to $80 billion? Most voters -- and most reporters, for that matter -- can't guess within a few hundred billion what the budget deficit is, and would struggle to put a dollar figure on the latest jobs-bill proposal. So how is it, then, that a voter would cheer saving a few billion dollars by cutting off COBRA subsidies?

When voters think of spending and the deficit, said Mellman, they bundle together much bigger items than an unemployment insurance extension: the Wall Street bailout, the stimulus, the rescue of the auto companies and health care reform (which was deficit-neutral, according to the CBO, as if that matters to voters). Despite all of that spending, unemployment has hovered around ten percent, leading voters to assume and leaving Republicans to argue that the stimulus didn't work. The reality is that it did save or create hundreds of thousands of jobs, if not millions, but was too small -- as economists warned at the time -- to fill the economic hole left by the housing collapse and financial crisis.

The White House's refusal to get behind the jobs effort in Congress makes it harder for Democrats to pin the delay on Republicans, muddling what could be a devastating message. It's been 35 days since Congress allowed unemployment benefits for the long-term jobless to expire, the first time the body has done so with unemployment above eight percent. More than 1.7 million people and counting, who've been out of work for longer than six months, have been thrown off the rolls.

Obama knows what he's doing. Shortly after Inauguration, he met privately with House Republicans to hear their concerns, which boiled down to spending and the deficit. In response, Obama raised the specter of 1937, the year President Franklin Roosevelt succumbed to conservative pressure and cut spending, leading, economists insist, to a renewal of the economic collapse that has been dubbed the "recession within the Depression," according to several Republicans who were in the room.

"In the middle '30s -- '36, etc. -- they were concerned about what was happening so they tightened their belts in terms of spending, and that caused a recession within the Depression, instead of keeping the momentum going," House Speaker Nancy Pelosi (D-Calif.) said back in February of 2009. "We're not going to let it happen again."

There was evidence during the campaign that Obama could have been the type of leader to keep that promise. In the spring of 2008, as oil prices started to soar and the public clamored for a gas tax holiday, presidential candidate Barack Obama broke with both his primary and general election opponents, rejecting the tax relief as pennywise policy that was pure political posturing.

Eschewing politics turned out to be smart politics, as Obama left his opponents looking frivolous and craven. It was a defining moment for the campaign, one that senior advisers recall frequently -- the time that Obama became truly presidential, became a leader. "The easiest thing in the world for a politician to do is tell you exactly what you want to hear," said Obama at the time.

UPDATE II: Simon Rosenberg, founder of NDN, has a thorough analysis of the polling on deficit concerns:

Spending and Deficits Are a Secondary Concern For Most Voters - Adding in a third recent poll, a YouGov/Economist poll, the other remarkable thing in these recent polls is how clear it is that spending and deficits - despite the media frenzy of late - remain a secondary concern - at best - for most voters. In each poll, as most polls over the past five years, the economy is the overwhelming concern of voters, with the spending/deficit numbers far behind. As it should - for every day Americans suffering through a "lost decade" of no wage and income growth, the state of the economy is a much more immediate and significant concern than the more abstract concern about the federal budget. Concerns about deficits and spending spike among conservatives and Republicans, but in the In The Economist poll, for example, less than 10 percent of moderates and independents cited the deficit as a major concern. In the NBC poll, those citing the importance of deficits actually dropped over the past month and still trailed the economy by 20 points. There simply is no data in these polls showing spending/deficits to be the killer app of 2010.

In each poll there was a great deal of intensity about spending and the deficit among Republicans, and much more interest in the economy/jobs in the rest of the electorate. Which begs the question - how did the Democrats allow fiscal issues to become so dominant? I take a look at that in another post, this one on how the all important debate over the economy might play out this year.

With reporting by Shahien Nasiripour

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