James Pethokoukis

Politics and policy from inside Washington

The real message of the Scott Brown victory

Jan 29, 2010 17:48 UTC

Via John Ellis:

The answer, I think, is that whatever pivot is made will be irrelevant. The fact is President Obama doesn’t have the luxury of proposing an agenda. Agendas (or at least, agendas as we have come to think of them) are for people who have money. The United States is broke. And the debt gets worse by the day.

Therefore, President Obama’s job is to get us out of debt (or start us down the path toward that end). This job would be difficult in the best of times. President Obama has to do it in the midst of the worst recession since the 1930s. He has to do it in the midst of two wars in regions perpetually hostile to foreign influence. And he has to do it in the midst of a global recession so severe that it now threatens what erudite commentators call the “social cohesion” of our allies and trading partners around the world.

That being the case, and I think it is inarguably the case, President Obama will never be successful until he accepts the assignment that history has given him. No one (anywhere) believes for one moment that he can add 30-35 million people to the health insurance rolls and not increase (sharply) the cost of health insurance. President Obama has been peddling this fable for months now and it has only served to make him look either (a) naive, or (b) utterly cynical. No one believes that “cap and trade” legislation is anything like an urgent priority at this time. No one believes that securing the Olympics for Chicago in 2016 is an urgent use of the President’s time. No one believes that President Obama deserved or should have accepted the Nobel Peace Prize. The reason that Obama has seen his approval rating fall sharply is that people think he’s not doing his job.

His job is to get the country on a path to fiscal sustainability and to defeat (as much as humanly possible) those who seek to put nuclear weapons in our cities and detonate them in time for the evening news. His job, more accurately, is to cut costs, delay benefits, right-size government programs, rethink military and diplomatic strategies, re-focus our war efforts, all while rebuilding (or expanding) intellectual and physical infrastructure for the years ahead. And he must do all this while devising new strategies for jump-starting wealth creation. It’s more than enough agenda for anyone, even someone with President Obama’s admirable self-confidence and perhaps grandiose self-esteem.

“Stop spending money you don’t have” was the real message of the Massachusetts Senate election that vaulted Senator-elect Brown from the back benches of one of the most useless political institutions in America (the Massachusetts State Senate) onto the front page of The New York Times. “Do your job,” was the other, direct message to President Obama.

COMMENT

Dear friend,
After some long spell, i am reading and listening of your thoughtful writings from our famous news provider website.
What you said is just come out of his own shelf.
Just he entered to White House,People had more confidence,man of vision,thats why, Americans, irrespective of many inhibitions, racial mix, some ever long problems on their day today life,they have voted him as a President of America.
Historically,scientifically speaking ,that was a new chapter in American political and to world history by democratic means.
Back to your insight thoughts, you have mentioned what others said about his ruling parties suffer in recent senate election results.
Thats are all common in any democratic systems.
For example, i and we expected some drastic plans will emerge to clear recessionary obstacles, job losses, vast disparity in income,supply, distribution of income,bonuses, banks failure to deliver their goods and services in times to Americans and to boost American economy and bring America to back to mainstream of life in forthcoming months/years.So,American voters,middle classes,some business new tycoons, policy changers, some intelligent sections,some upcoming management gurus had voted to Mr,Obama as a American President.
In the mean while, many industries were closed, banks went to black list, deposit holders, employees,senior citizens were slightly on road.
So,he brought some drastic changes in banking,financial sectors by bail out measures,pumping government money to them to get back their business, some loans modification procedures,and it had produced real economic results.
Side by side, Iran!s nuclear programs, some democratic protests in Iran, mis handling Afghan!s issues from time to time and all related bad,tough matters had made Mr.Obama had sleepless nights for so many days.
Some time,some days have taken to study,organize new systems of governance to his subordinates, and to do some vital things for further halt in bad events.
He had attempted it to correct it,It had produced some minimum results.
As a general welfare, New Health Insurance schemes are much advantages to working class,organized labors,senior citizens and to others.
In the meanwhile, what all news medias,experts and other elite groups had initially supported his new health insurance schemes.Later on wards, lot of comment on his new health care proposals, some strong opposition from Republican senators and from his own party!s senators had started questioning about his latest proposal on health reform.
The above ups and downs events are new to Mr.Obama as a head of A vast country.
This had started back fire and created some ripples,confusions to hold it for some time.
Many Americans thought that, he wanted to bring some new ways of bringing legislations on health care,education, bonus,perks to top management,bank groups ,some new taxes for nations prosperity had a new fear phobia among many strong capitalist thinking persons.
To sum up, peoples expectations are too high.They want to get maximum benefits from government, industrial sectors, for more wealth generations by quick,existing and by easy ways.
That is not possible by any world famous thinker, or head of states of by any well knowledge sects of from any living personality.
Heaven will not fall us like water comes from heavy water falls or from any dams or from any oceans.
We can try to get heavenly ideas and try to implement it by one by one brick like constructing houses,malls,enterprises.
Still, many miles to go to get fruitful results and smiling,contended life from Americans and rest of the world.
But roads are not very far away to get our dreams into reality.

So-so growth for 2010?

Jan 29, 2010 15:26 UTC

That is how IHS Global calls it:

The fourth-quarter GDP surge was produced by a sharp turn in the inventory cycle. Firms still cut inventories in the fourth quarter, but much less severely than in the third. That led to increased production, which boosted GDP. Final sales growth, a better guide to the underlying path of the economy, was much more sedate, at 2.2%, but that was still an improvement on the third quarter’s 1.5% pace.

The best news in final sales was on exports and business spending. Exports surged 18.1%, their second strong increase in a row. And there was a 13.3% increase in business spending on equipment and software (two-fifths of which came from computers). The improving trend in capital goods orders suggests more gains in equipment spending ahead. If firms are feeling confident enough to raise their equipment spending, they’re probably confident enough to start hiring again. That will support consumer spending, which showed a moderate 2.0% gain in the fourth quarter.

The weakest spot was business structures spending, down sharply again as the commercial real estate crisis took its toll.

We must be careful in drawing implications for the future from today’s release. There’s more help to come from the inventory cycle, since inventories were still falling in Q4. But we won’t see a boost as big as 3.4 percentage points again. And we’re doubtful that foreign trade can continue to be a plus for growth, as we expect imports to rebound.

The Q4 GDP surge doesn’t change the view that growth is likely to be subdued by historical standards, in the 2.5-3.0% region for 2010.

COMMENT

1. the economy turns around when enough businesses reduce enough costs to become profitable again
2. the GDP includes government spending, and Obama bucks have flooded the economy. So no surprise GDP went up. But what will happen when the Obama bucks have to be paid back?
3. the underlying problems of a horrible economy are still there: huge debt, looming taxes, looming inflation, government interventions for the sole purpose of expanding government, a new bubble in the stock market, huge uncertainties resulting from an economically illiterate administration.

They can force the GDP up by spending borrowed money, but the economy won’t get better until the criminals in Washington are washed away.

Posted by proreason | Report as abusive

5.7 percent 4Q GDP growth … then a slowdown

Jan 29, 2010 14:31 UTC

Or so says RDQ Economics:

The recovery from the Great Recession firmed in the fourth quarter as real GDP increased at its fastest rate since the third quarter of 2003.  However, also as expected, a sharp slowing in inventory liquidation accounted for 3.4 percentage points (or 60%) of the 5.7% increase in real GDP.  We are particularly impressed by the 13.3% increase in nonresidential investment (upside risk in this area was flagged by yesterday’s durable goods report).

We were also pleased that none of the growth came from government spending, which fell by 0.2%.  From the Fed’s perspective, however, this report does not bring a rate hike closer.  First, the unemployment rate rose from 9.6% in the third quarter to 10.0% in the fourth (raising upside risk to the estimates for potential growth).  Second, the GDP deflator increased by only 0.6% (although, perhaps counter-intuitively, this modest gain was due to the subtraction effect of higher import prices, which surged 16.3%—the price index for domestic purchases rose 2.1% in the fourth quarter, which is a measure of what people and businesses paid, whereas the GDP price index measures the price of what the U.S. produced).

Nominal GDP growth was a robust 6.4% in the quarter (and 0.8% year-over-year).  As the addition to growth from inventories fades somewhat, we see growth in the first quarter of 2010 at around 2½%

COMMENT

Laffer says the numbers will be better than expected this year because businesses will pull income into 2010 to avoid the tax hike in 2011. Then 2011 will be very bad.

It rings true.

Posted by proreason | Report as abusive

Bernanke wins confirmation 70-30

Jan 28, 2010 21:40 UTC

Almost twice as many no votes as Volcker who got 16 back in 1983. BB will have to tough it out against a Congress that wants to push the Fed around.  Barney Frank, for instance, wants to kick the regional bank president off the FOMC since they are not confirmed by Senate — and are often to hawkish for his tastes.

Dems might be in worse trouble than 1994

Jan 28, 2010 17:09 UTC

If Mike Barone thinks so, so do I:

I have not seen a party’s fortunes collapse so suddenly since Richard Nixon got caught up in the Watergate scandal and a president who carried 49 states was threatened with impeachment and removal from office.

The victory of a Democrat in the special election to fill Vice President Gerald Ford’s House seat in February 1974 was a clear indication that the bottom had fallen out for the Republican Party. Brown’s victory last week looks as if something similar has happened to the Democratic Party.

Many people ask me whether the Democrats are in as much trouble as they were in 1994. The numbers suggest they are in much deeper trouble, at least at this moment. Back in 1994 I wrote the first article in a nonpartisan publication suggesting that the Republicans had a serious chance to win the 40 seats necessary for a majority in the House. That article appeared in U.S. News & World Report in July 1994.
Read more at the Washington Examiner: http://www.washingtonexaminer.com/politics/Democrats-fall-as-fast-as-Nixon-Republicans-in-1974-82731837.html#ixzz0dvZU4EpA

COMMENT

Barone says worse than 1974.

And Obama’s State of Me address didn’t help the statists’ cause.

Posted by proreason | Report as abusive

A limited speech by a constrained president

Jan 28, 2010 15:55 UTC

The White House political team loves comparing Barack Obama to Bill Clinton and Ronald Reagan, predecessors who easily won second terms despite early stumbles in their first ones. But the economic and fiscal pincers which constrain Obama are much tighter. None of the president’s proposals in Wednesday’s State of the Union speech can do much to free him.

Obama said high unemployment would be his number one focus this year. No wonder, as it is the issue of most concern to voters, and the biggest reason their support for the president and Congress is falling.

The president made some proposals — money for small business lending and a tax credit for hiring — which may help at the margins. But the new initiatives would probably cost around $100 billion, a fraction of the $300 billion or so in stimulus spending so far, which has not prevented the unemployment rate from climbing to 10.0 percent currently from 7.7 percent at the start of 2009. Good luck finding an economist — even inside the Obama administration — who has great expectations from the proposed new spending.

On unemployment Obama is falling behind his comeback predecessors. As it is, the Congressional Budget Office predicts unemployment will remain close to 10 percent heading into 2011, a forecast echoed by many private economists. By contrast, the first full year of the Reagan recovery in 1983 saw unemployment fall by 2.5 percentage points, while Clinton inherited a growing economy and a falling jobless rate.

And don’t forget the moribund housing market. A new piece of analysis from Goldman Sachs concludes that “recoveries from post-bust recessions tend to be more sluggish than normal and substantial excess capacity generally remains for some time.”

Looking at the political damage caused be high joblessness, Obama would no doubt have preferred to announce something bolder. The liberal Economic Policy Institute has a $400 billion plan that takes in everything from tax credits to government make-work positions. (And major cuts in investment and corporate taxes are out of the question with this administration.)

But that price tag doesn’t go with the double-digit deficit, which spooks financial markets and independent voters. Obama nodded in their direction with a proposed idea-seeking commission and a very limited three-year spending freeze. While not exactly a frugal Hooverite response, it’s not exactly New Deal II, either.

In the end, it was a limited agenda outlined by a constrained president — constrained by the loss of a Senate supermajority, constrained by the Scott Brown win in Massachusetts, constrained by his own falling popularity and constrained by investors whom he fears are reaching their debtload tolerance.

So not a reboot but a slow retreat. The reboot may come next January if the sour economy costs Democrats their dominance of Congress. I didn’t even think Obama’s heart was really in the no obligatory bit of Wall Street bashing. There was also an interesting moment in the televised Frank Luntz focus group after the speech. Those folks hated when Obama talked about the economy having turned the corner. They think the recession continues.

So forget Reagan and Clinton.  Given Obama’s economic challenges, one-term Jimmy Carter might be the better historical comparison.

COMMENT

The only constraint on this guy is his radical ideology.

Every time Amerca gets a glimpse, we recoil in horror.

Posted by proreason | Report as abusive

Obama SOTU speech

Jan 28, 2010 14:50 UTC

It was a limited agenda outlined by a constrained president, constrained by the loss of a Senate supermajority, constrained by the Scott Brown win, constrained by his own falling popularity and constrained by investors whom he fears are reaching their debtload tolerance.

Not a reboot but a retreat. The reboot will come NEXT January. I didnt even think his heart was really in the Wall Street bashing. There was also an interesting moment in the Frank Luntz focus group after the speech. Those folks hated when Obama talked about the economy having turned the corner. They think the recession continues.

Larry Kudlow and Barack Obama

Jan 27, 2010 19:50 UTC

I will not read a more entertaining column all year. Mr. Kudlow paints a picture:

Now, sir, let’s join hands, you and me, and go for a full-throated spending and debt limitation approach that will last not three years, but many decades to come. It will keep us out of bankruptcy, re-balance our books and promote growth.

And, sir, let’s you and I visit with Sen. Scott Brown, sit down and watch his ad of President John F. Kennedy talking about the need to grow the economy and create new private jobs by slashing marginal tax rates across-the-board for all families and all businesses. No class warfare. Together, we’ll show the stock market what pro-growth really means.

And then sir, let’s you and I visit with beleaguered Ben Bernanke. Let’s tell him to stop covering up bailout nation. Put all that behind us. Instead, Mr. Bernanke should be defending the value of King Dollar to give American families more consumer spending power in their pocketbooks. Now that will get the stock market’s attention.

I want to welcome you sir, with open arms, back to the free market supply-side capitalist camp. It’s just what we talked about at George Will’s house in Washington a year ago when you had dinner with a few of us.

COMMENT

Ditto! No real change until we reach a crisis. Unfortunately, it’s “the people” who will pay the price for what these fools have done to us.

Posted by Johnba | Report as abusive

The Obama base

Jan 27, 2010 19:46 UTC

As explained by Joel Kotkin:

Gentry liberalism combines four basic elements: faith in postindustrial “creative” financial capitalism, cultural liberalism, Gore-ite environmentalism and the backing of the nation’s arguably best-organized political force, public employee unions. Obama rose to power on the back of all these forces and, until now, has governed as their tribune.

Obama’s problems stem primarily from gentry liberalism’s class contradictions. Focused on ultra-affluent greens, the media, Wall Street and the public sector, gentry liberalism generally gives short shrift to upward mobility, the basic aspiration of the middle class.

Now that the ball is in his court, the president and his party must abandon their gentry-liberal game plan. The emphasis on bailing out Wall Street and public employees, supporting social welfare and manufacturing “green” jobs appealed to the core gentry coalition but left many voters, including lifelong Democrats, wondering what was in it for them and their families.

COMMENT

It’s not gentry liberalism. They are Marxist.

Refusing to say it doesn’t halp anybody.

Posted by proreason | Report as abusive

Explaining the Oregon tax hike

Jan 27, 2010 19:36 UTC

What does it mean that voters in the state voted for higher taxes in companies and wealthier residents? Megan McArdle take a crack at explaining it:

My thoughts:

  • The fact that Clinton raised taxes, and then the economy recovered, is not proof that raising taxes has no effect on the economy.  Most people thing that there is at least some dampening effect, which is especially problematic in a downturn.
  • Realistically, income tax response gets more elastic as the tax region gets smaller.  Oregon borders two states with attractive migration possibilities.  California’s taxes are no bargain–but Oregon’s relatively lower tax rates may have attracted wealthy individuals and businesses that will now find it not so attractive.
  • The Tax Foundation says that pre-tax, it was on the top ten list for business tax climate.  That suggests that it has relatively more room to increase taxes than other states.
  • The business tax changes apparently include a gross receipts tax, which is really an awful tax, especially during a downturn.  Companies which are actually losing money may still owe taxes, which could hasten their closure, and the evaporation of any jobs they provide.
  • Trying to close the gap with only taxes on high income makes state revenues very dependent on a very small group of people.  Ask New York and California how that’s going.
  • Since state income taxes are deductible from federal taxes, this doesn’t entirely raise new tax revenue–much of it will be transferred from the Federal government.
  • There aren’t that many attractive revenue-raising measures for state budgets during a downturn, nor is cutting services always optimal, since demand for them rises when the economy tanks.  Ideally, states would run surpluses in the good years.  Practically, it almost never happens.
  •