The uninspiring 2Q GDP report of 2.4 percent is now the new relevant data point, not the Zandi-Blinder study.
Politically, the issue is not whether the U.S. economy will slip into a double-dip recession — though it is hardly out of the question for a negative GDP quarter to pop up this year. It’s how the economy will impact voter mood in 100 days. Will they think America is back on track toward prosperity with growth below trend and unemployment hovering around double digits? That seems unlikely to me. And given that, this Cook Political Report forecast certainly seems realistic, if not a bit cautious:
The Cook Political Report’s current outlook is for a 32 to 42 seat net gain for Republicans. Currently there are 255 Democratic and 178 Republican House members and two vacant seats, one formerly held by a Democrat and one by a Republican. Republicans need to net 39 seats to reach a bare majority of 218 seats. … The Cook Political Report’s current outlook is for a 5 to 7 seat net gain for Republicans. Currently there are 57 Democrats, two independents that caucus with Democrats, and 41 Republican Senators.
President Barack Obama’s “recovery summer” has become a summer swoon. GDP growth has downshifted, as have his poll numbers. And with Democrats likely to suffer big losses in November’s elections, the president will have to rethink his economic agenda or face gridlock in 2011.
A new Reuters-Ipsos survey puts Obama’s job approval at 48 percent, down two points from June. It’s a number that doesn’t bode well for Democrats in the congressional midterms. Since 1962, the party of a president with an approval rating under 50 percent lost an average of 41 seats in the House of Representatives. Republicans currently need 39 seats to retake the lower chamber, and thereby regain control over the initiation of tax and spending bills. (Other polls are even more discouraging. The RealClearPolitics poll aggregator has Obama at 46.0 approve, 48.7 disapprove.)
Drill a bit deeper into the poll and the danger for congressional Democrats appears even more acute. In the poll, 46 percent said they would vote Republican for Congress against 44 percent who preferred Democrats. In 2008, Democrats took 55 percent of that vote. For now at least, Republicans are also much more determined to vote in November’s polls than Democrats.
Meanwhile, 31 percent of respondents said they “strongly disapprove” of Obama’s performance, a five point jump. The economy is draining his popularity more and more every day. The Reuters poll suggests it is his weakest issue, and voters are gloomier about America’s direction than they were last summer. That’s not an unreasonable assessment. Though the U.S. economy is expanding, the annual growth rate is probably now closer to 2 percent than 3 percent — not enough to chip away much at the 9.5 percent unemployment rate before the elections come around.
A change of control in Congress might seem a harbinger of gridlock next year. The dark scenario would involve battles as Republicans try to repeal parts of recent healthcare and financial sector legislation. But with greater numbers, the GOP might in fact feel more secure and thus more willing to haggle — as it did during Bill Clinton’s presidency.
Hashing out compromises would, however, also require Obama to shift toward the Republicans on key issues like taxes and regulation. Doing so would be a much better option than spending his next two years defending the sweeping reforms passed in his first two.
The rap on Mitt Romney is that he is the protean presidential candidate. Always shifting, always morphing, ever eager to please in relentless pursuit of the Oval Office. If he was a contestant onAmerican Idol, the judges would surely knock him for “not knowing what kind of artist he is.” One week a crooner, the next a rocker. One campaign a moderate, the next a culture warrior.
Well, that’s the rap, anyway. Residue of the 2008 campaign. But in his new book, No Apology: The Case for American Greatness, it is the Omega Romney we see, the ultimate distillation. Like a wave function collapse in quantum mechanics where many possibilities become one reality — and that reality doesn’t seem so eager to please. Not at all.
So who is Mitt Romney, at least as revealed in print? Well, the slight 2012 favorite for the Republican presidential nomination is neither in style nor substance a natural Tea Party man. Golly, no. (On the book tour, he has already spoken out against the “temptations of populism.”)
Certainly a conservative. But government, for Romney, is not always and everywhere a problem. Sometimes it can be part of the the solution, as he frequently highlights inNo Apology. The book is certainly no closing argument to those on the right who suspect the Bain Capital co-founder and former Massachusetts governor is a moderate, Wall Street elitist. Or, even worse in the eyes of many on the right, the American version of Tory leader David Cameron. Certainly Sarah Palin would never write “TARP,” Climate Change,” and “Investment Spending” on her palm. But those are major policy points inNo Apology:
1) The widespread view among party activists is that the U.S. government should have let more banks fail in the fall of 2008. To them, the $700 billion bailout was just short of a socialist plot to nationalize the financial system. In the book, Romney does criticize Treasury Secretary Timothy Geithner’s management of the Troubled Asset Relief Program, claiming it has been turned into a slush fund for the White House agenda. But Romney supported the bailout in 2008, and isn’t flip-flopping now. He writes that TARP “prevented a systemic collapse of the nation’s financial system.” (This is certainly the economic consensus, even among center-right economists.) His potential GOP rivals — keeping in mind Romney hasn’t officially declared he’ll be running — will have a different perspective. The governor of Minnesota, Tim Pawlenty, for one, says the financial crisis was overblown, while Sarah Palin, the former vice presidential candidate, says Republicans know bailouts “aren’t the answer.”
2) Romney doesn’t sign on to the belief of many conservatives that man-made climate change is the Hoax of the Century. He said this in the 2008 campaign, as well. But it would be easy to change positions in light of the explosive revelations of those climate scientist emails and shoddy United Nations research. But Romney is sticking. As he puts it in the book: “I believe that climate change is occurring — the reduction in the size of global ice caps is hard to ignore. I also believe that human activity is a contributing factor. … Scientists are nearly unanimous in laying the blame for rising temperatures on greenhouse gas emissions.”
Of course, this doesn’t mean Romney is a cap-and-trader. Like Danish economist Bjorn Lomborg, he believes in remediation and mitigation efforts that make economic sense, not trillion dollar programs to reduce carbon emissions. From that perspective, Romney suggests he would be willing to entertain the notion of a carbon tax whose revenues would be used to offset payroll taxes. This is a favorite idea of many economists, include Harvard’s Gregory Mankiw, a Romney adviser and chairman of President George W. Bush’s Council of Economic Advisers.
3) Romney spends almost a full chapter of the book in a lively and extremely important discussion of the role of productivity and innovation in the U.S economy. And while he eventually makes his case for a lower tax rates on company profits and capital gains, he first advocates more government funding for basic science research, particularly in engineering and the physical sciences.
This is not to say that nothing in the Romney agenda syncs with the Tea Party zeitgeist. Much does, particularly on the budget deficit.
1) He lays out a compelling case for treating federal government finances like a corporate balance sheet where long-term liabilities are recognized.
2) He recognizes the huge cost of public employee unions bleeding state treasuries (and hamstringing education reform).
3) He seems fond of a plan to cut the growth in Social Security benefits for higher-income people by linking benefits to inflation rather than wages.
4) As for Medicare, he believes — as does the Obama administration — that the program must move away from a fee-for-service model. Unlike the Obama administration, Romney also seems to favor eventually giving retirees “credits” to buy their own basic health insurance, with the wealthier paying more out of their own pockets. He then moves onto a spirited defense of RomneyCare in Massachusetts, calling it imperfect but a big improvement over the status quo — and nothing, nothing like ObamaCare. Nothing. Expect to hear that a lot.
And supporting seemingly every Romney policy proposal is an insightful McKinsey study or piece of cogent analysis by noted Harvard economist and competitiveness expert Michael Porter. Clearly Romney’s not a guy who would govern or lead America according to his gut. But that is not who Romney is. He was an investor, not a day trader, after all. Deep, quantitative analysis is what private equity guys and management consultants do.
Whether Republicans want a modernizing, non-ideological Mr. Fix-it who will go where the data take him is another issue. Right now, maybe not. He’s a bit too cool, a bit too technocratic for a party base in the thrall of populist Tea Party-ism. But in 2012, after possibly four years of sluggish, New Normal economic growth, they might.
The 2008 financial crisis killed John McCain’s chances of becoming president. But will it kill Mitt Romney’s, too?
The former Massachusetts governor and private equity investor supported the $700 billion bank bailout then and he still supports it today, albeit with a host of reservations and qualifications. The problem, of course, is that the Troubled Asset Relief Program is wildly unpopular among Republicans. And Romney, one can safely assume, would like to be their presidential nominee in 2012.
Yet one can hardly think of a more toxic issue for a GOP candidate in the Age of the Tea Party than support for TARP. Especially a candidate with a Wall Street background. Especially a candidate who many party activists suspect has the heart and soul of a raging moderate. To many conservatives, TARP is nothing more than extreme crony capitalism, Big Government rescuing Big Money. Here is how Michelle Malkin puts it: “Members of Congress who let themselves be bullied into [voting for the bailout] should be experiencing the biggest case of buyer’s remorse in U.S. history.”
Maybe Romney is having that experience. But there are few signs of it. This is what he told FOX News this week: “I hate the way TARP was administered, but I can tell you that we were on a precipice unlike anything we have known before in modern history with the potential of a complete collapse of our currency system and our financial system. Had we not taken action, you could have seen a real devastation.”
Yet Romney clearly knows his TARP support is a problem. He spends time in his new book, “No Apology: The Case for American Greatness,” explaining his position and making his case. Let’s take his key points one by one.
1) “Secretary [Hank] Paulson’s TARP prevented a systemic collapse of the national financial system.”
That is certainly the economic consensus, even among right-of-center economists and financial experts. This bit of analysis from Nicole Gelinas of the free-market Manhattan Institute is typical: “We were never going to escape this debacle without pumping massive amounts of taxpayer money into the financial system.”
There are objectors, of course. Stanford University economist John Taylor, for instance, argues that the TARP proposal itself incited a panic on Wall Street. But even many of these folks were in favor of government debt guarantees for banks and money market funds, as well as Federal Reserve liquidity measures. Having government do nothing was not a realistic option. And while many free-market economists have devised TARP alternatives since the fall of 2008, such proposals were hard to find at the moment of crisis or difficult to quickly implement.
2) “It was intended to prevent a run on virtually every bank and financial institution in the country.”
Or, in other words, TARP was about recapitalizing banks. But Americans thought it was more about unfreezing credit markets and keeping Wall Street lending to Main Street. So when Paulson called off the plan to buy troubled assets — the ones supposedly clogging up the system — and just injected capital, it looked like a bait-and-switch plan. Yet if the banks weren’t stabilized, lending would surely have come to a halt.
3) “But TARP as administered by Secretary Timothy Geithner was as poorly explained, poorly understood, poorly structured and poorly implemented as any legislation in recent history.”
This is confusing. Although it was under Geithner that TARP money was used for foreclosure mitigation, it was under Paulson that TARP shifted from an asset buying program to a capital injection program. And it was also under Paulson that TARP was used to bailout automakers and AIG. Has TARP become a slush fund? Sure, but both Republican Paulson and Democrat Geithner are to blame for that.
Bottom line: Doing nothing back in the fall of 2008 might have worked. It certainly would have negated years of moral hazard created by Washington’s Too Big To Fail approach toward the financial sector. But it would have been an amazingly high-risk proposition. That, especially with the banks now quickly repaying those billions in government bailouts. Even some early TARP critics have calmed down. The University of Chicago’s Luigi Zingales now admits TARP funds were “deployed with conditions not too far removed from market ones.”
Still, many conservatives will probably never see it that way. For them, TARP is a permanent, shining scarlet T on Romney. (They also don’t much like his health reforms in Massachusetts, nor his belief in man-made climate change.) But maybe as time passes and TARP doesn’t look quite as much like a money pit, maybe that letter won’t shine so brightly.
Just started reading Mitt Romney’s book “No Apology.” Actually quite a lot of meat in the economics chapters. The former Massachusetts governor and possible Republican presidential contender wants to cut investment and corporate taxes. Doesn’t like the Fair Tax or value-added taxes. Seems willing to consider a carbon tax/payroll tax swap. Wants to spend a lot more on basic research. No apologies for supporting TARP or RomneyCare.
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.
Pollster Rasmussen indicates that healthcare is not helping the POTUS:
The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 25% of the nation’s voters Strongly Approve of the way that Barack Obama is performing his role as President. Forty-three percent (46%) Strongly Disapprove giving Obama a Presidential Approval Index rating of -21 That’s the lowest Approval Index rating yet recorded for this President. … For the second straight day, the update shows the highest level of Strong Disapproval yet recorded for this President. That negative rating had never topped 42% before yesterday. However, it has risen dramatically since the Senate found 60 votes to move forward with the proposed health care reform legislation. Most voters (55%) oppose the health care legislationand senior citizens are even more likely than younger voters to dislike the plan.
Campaign consultant Mark McKinnon give his two cents, followed by mine in italics:
1. Mitt Romney “… if he runs his race like he did the last month of the last campaign, true to who he really is, he should be the nominee.” Lots opposition by tea party types, but those folks also disliked McCain in 2008 and he won.
2. Sarah Palin “… alleged cop-killer Maurice Clemmons, granted clemency in 2000 by Mike Huckabee, might have just given her [an open door] to walk through for 2012 … Republicans primary voters are notoriously law- and order-obsessed, so Palin has virtually an open field in Iowa, South Carolina, and other primary states dominated by Christian conservatives.” Huckabee really gave a boost to Sarah America who has improved her favorability. But the competence issue remains, though less so with conservatives.
3. Tim Pawlenty “He could end up everyone’s second choice (assuming Romney and Palin both run) and that’s a heck of a place to be in a crowed and wild primary.” A few early missteps but could be the David Cameron of the GOP.
4. John Thune “If he would run, John Thune could be the Bob McDonnell of the 2012 GOP field. … The senator from South Dakota’s got central-casting good looks and comes across as humble and quiet; he has a Gary Cooper sensibility about him.” Brief lobbying career could be a negative, but he does fit the suit. If it was certain he was running, he and Pawlenty would switch spots.
5. Mike Huckabee “Maybe he can create a serious conversation about the notions of redemption and forgiveness in our criminal justice system. Or not. In which case, he’ll probably always have a home at Fox News.” The trend is not in the right direction
6. Joe Scarborough “The host of MSNBC’s Morning Joe, former Florida congressman Joe Scarborough, would be a terrific candidate. He’s young, articulate, and telegenic.” A little high on the list, I think. But it might be a good year for an unconventional candidate.
7. Haley Barbour “Sure he’s a caricature of the classic Southern politician: old, large, white, honey-lipped, and a former lobbyist to boot. But if voters are really tired of Obama, they’ll be looking for the mirror opposite of the man occupying the Oval Office. And that would clearly be Haley.” I think the caricature speaks for itself.
8. Newt Gingrich “But our bet is that while he may contribute in many ways and continue to tease, in the end he probably won’t go for the Full Monty.” I think that’s right.
9. Mitch Daniels “Daniels has been an extraordinarily successful and effective governor in Indiana, a state that has been recently more blue than red. A no-nonsense, tell-it-like-is conservative, Daniels cruised to re-election by 18 points last year when Obama was winning the state.” Probably should be much higher on list. Both Daniels and Thune are really the anti-Obama’s on the list. Former WH folks love the guy.
10. Rick Perry “He’s already the longest-serving governor in Texas history and may be headed for his third term next fall.”
in 2012.” McKinnon wonders why he doesn’t usually land on these sorts of lists. Maybe there is a reason for that.
This commentary from GOP thought leader Rep. Paul Ryan of Wisconsin really sets the intellectual and political framework for where the GOP might be headed. He goes after Crony Capitalism, the melding of Big Money, Big Business and Big Goverment. This is what’s next. Here are some important bits:
1) Since bringing us back from the precipice however, the Troubled Asset Relief Program [TARP] has morphed into crony capitalism at its worst. … No longer concerned with preserving overall financial market stability, Treasury’s walking around money continues to be deployed to reward the market’s Goliaths while letting its Davids suffer.
2) Washington is working hard to nationalize other sectors of our economy too. The House Finance Committee is pushing a massive financial “reform” bill, effectively creating banking utility companies. The Treasury Department has effectively nationalized the housing finance sector, with Fannie Mae & Freddie Mac demonstrating how fast big businesses, through a federally blessed and backed oligopoly, can fall. Now, on both ends of Pennsylvania Avenue, health care and energy lobbyists continue to fall over themselves to cut their deals–knowing that if they aren’t at the table, they’ll be on the menu.
3) Big businesses’ frenzied political dealings are not driven by party or ideology, but rather by zero-sum thinking in which their gain must come from a competitor’s loss. Erecting barriers to competition is a key to maintaining advantage and market share. With Washington leading the way, it makes sense for the big boys to redirect their resources to their lobbying shop and government affairs office. They’re far less interested in expanding the economic pie than with making certain that they get their slice.
4) For every encroachment into the market by the federal government–under the guise of “reform”–there exist pro-market alternatives that Republicans must articulate and passionately defend. University of Chicago’s Luigi Zingales, who has written extensively on the issue of crony capitalism, reminds policymakers that the path forward requires “adopting a pro-market, rather than pro-business, approach.”
Running under the Tea Party brand may be better in congressional races than being a Republican.
In a three-way Generic Ballot test, the latest Rasmussen Reports national telephone survey finds Democrats attracting 36% of the vote. The Tea Party candidate picks up 23%, and Republicans finish third at 18%. Another 22% are undecided.
Among voters not affiliated with either major party, the Tea Party comes out on top. Thirty-three percent (33%) prefer the Tea Party candidate, and 30% are undecided. Twenty-five percent (25%) would vote for a Democrat, and just 12% prefer the GOP.
Among Republican voters, 39% say they’d vote for the GOP candidate, but 33% favor the Tea Party option.