As of this moment, it appears that President Obama's debt-ceiling proposal—raising it in excange for budget cuts that are six times as large as new revenue raised—will effectively define his presidency as being less concerned with the jobs crisis than the budget deficit.
If accepted by the Republicans and Obama’s own party, the deal put forth by Obama in a meeting on Thursday will likely mean a "double-dip" recession. In short, the debt-ceiling deal would result in the layoffs of many thousands more government workers, setting off ripple effects that will drown thousands of small businesses (e.g., restaurants, car-repair garages, hardware stores).
With the official unemployment rate at 9.1 percent and the more accurate U-6 rate (which includes part-timers looking for full-time jobs and those who've given up looking for work) at 16 percent, Obama is almost certainly killing off the very shaky recovery he has been touting.
While Obama can claim to be making a strong stand against deficits, this unfortunately will not deeply impress the jobless and their families. Moreover, Republicans will work mightily to hang rising economic misery around his neck in 2012.
Given the strong hand that Obama has been dealt, this cure for deficits is a very strange choice. First, polling in swing states by Public Policy Polling on a proposal to raise taxes on millionaires and billionaires shows very overwhelming public support: “78% of voters in Ohio backed the measure, 76% in Missouri, 77% in Montana, and 79% in Minnesota.”
As MSNBC’s Ed Schultz noted on Wednesday, Obama also has 70% to 80% of the American people favoring protection of Social Security without bogus and unnecessary “reforms” like raising the retirement age, and protecting Medicare from Republican experiments.
Second, much as CEOs, hedge-fund traders, and big investors appreciate everything the Republicans have so slavishly delivered in the way of tax breaks, subsidies, and government contracts, they are not eager to see the leading financial standing of the U.S. undermined by the government running out of money to pay its bills.
The Masters of the Universe certainly do not want higher interest rates and the possibility of world-wide economic convulsions if the U.S. government defaults and shakes up their huge and happy universe.
As Joan Walsh points out, Obama could have used his Wall Street ties to elicit pressure on the Republicans to drive home these realities:
He issued no public call to constituencies like the financial industry to bring pressure to bear on the issue. He did not warn that he would manage any crisis in ways that Republicans would not like. ("If the Republicans in Congress deny me the authority to pay everybody, then I'm going to have to choose some priorities. I don't think it's likely that Texas-based defense contractors will find themselves at the top of my list.")
Instead, he appealed again and again to Republicans' spirit of responsibility. Good luck with that.
Progressive economist Robert Kuttner is similarly distressed with Obama’s strategic calculations:
President Obama has backed himself into a corner on the budget negotiations, where he’s allowed deficit hawks from both parties to define “progress” as a ten-year deal to cut the projected deficit by a huge amount. In fact, his own Bowles-Simpson Commission led the way.
Obama has also lost the framing battle over whether it’s acceptable to hold an increase in the debt ceiling hostage in order to achieve a deal as Republican congressional leaders have done. This is now taken for granted.
Based on preliminary reports, President Obama will be laying out a “grand bargain” to Democratic House and Senate members that is designed to show that the Democrats are more deeply committed to reducing the deficit than the Republicans. The Washington Post's Lori Montgomery reports:
President Obama is pressing congressional leaders to consider a far-reaching debt-reduction plan that would force Democrats to accept major changes to Social Security and Medicare in exchange for Republican support for fresh tax revenue.
At a meeting with top House and Senate leaders set for Thursday morning, Obama plans to argue that a rare consensus has emerged about the size and scope of the nation’s budget problems and that policymakers should seize the moment to take dramatic action.
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This translates into critical concessions on treasured, historic Democratic achievements to protect senior citizens, on top of the trillions in cuts that Obama has already surrendered in a stunningly unbalanced “compromise.”
POTENT ISSUE FOR DEMS DEFUSED
But many Democrats may be outraged, both on principle and practical politics, as David Dyen argues: "By taking the most potent issue off the table for Congressional Democrats – Medicare – [Obama] will leave them with literally nothing to run on."
In addition to budget cuts that are six times as large as the revenue raised by closing some of the most outrageous loopholes exploited by the American investor class, Obama is sweetening the deal for the Republicans by tinkering dangerously with safety-net programs that voters have counted upon the Democrats to defend.
White House economic advisor Gene Sperling, grilled by Chris Hayes of the Nation on MSNBC, tried very unconvincingly to make the case that the deal would produce more revenues to stimulate the economy. But if cuts in domestic programs are six times larger than the additional revenue, why won’t the much larger losses in jobs and total consumer spending power send the economy spiraling further downward?
Sperling even hauled out a favorite argument of the Right, that jobs were not being created because of a lack of “business confidence” induced by the deficits. Sperling, a major advocate of corporate globalization, lamely asserted that enhanced "business confidence" would leader corporations to locate more jobs in the United States.
What makes the Obama over-reach on this deal truly bizarre is that two of the nation’s most prominent conservative pundits had already suggested that the Republicans were crazy to pass up what Obama had already negotiated away—before the latest concessions.
Blasting the Republicans for foolishly passing on an earlier version favoring Republican goals, handed on a golden platter by Obama, David Brooks of the New York Times declared,
If the Republican Party were a normal party, it would take advantage of this amazing moment. It is being offered the deal of the century: trillions of dollars in spending cuts in exchange for a few hundred million dollars of revenue increases.
The party is not being asked to raise marginal tax rates in a way that might pervert incentives. On the contrary, Republicans are merely being asked to close loopholes and eliminate tax expenditures that are themselves distortionary.
This, as I say, is the mother of all no-brainers.
David Frum, the former speechwriter for George W. Bush, wrote of Obama’s amazing capitulations to the Republicans’ as if incredulously describing:
[Obama's earlier proposal was] weighted overwhelmingly in favor of the GOP. The president opened negotiations by offering $3 of spending cuts for every $1 of tax increases. His current offer tilts even further to the GOP: $6 of spending cuts to $1 of tax increases.
Better still (from a Republican point of view), the spending cuts come from programs Republicans dislike, like Medicaid, rather than programs they like, like the farm budget. The tax increases meanwhile are designed to be as acceptable as possible to the GOP: no increases in tax rates, but instead trimming some of the less defensible deductions in the tax code.
Once again, Obama has refused to recognize the Republicans’ intransigence and treated them as perfectly acceptable bargaining partners. Once again, Obama chose not to mobilize the massive public support on his side.
WHERE'S THE REVOLT?
Once again—as with healthcare reform, the auto bailout, and numerous other instances—Obama has been willing to reserve the biggest benefits for those at the top while imposing the harshests costs on the most vulnerable.
"Why aren't the Democrats rebelling?" asks a befuddle David Frum. This morning's meeting might produce that revolt among some very displeased congressional Democrats.
But if a revolt doesn't break out today, expect it soon from the Democrats' base of working people.