In this past weekend’s New York Times Magazine, Jonathan Chait roiled the waters of progressive opinion by claiming that the left is a little delusional in its criticism of Obama for failing to do more to improve the economy. Accusing liberals and leftists of “magical thinking,” Chait wrote that the left overlooks a major obstacle Obama would have faced had he pursued a larger stimulus plan in early 2009: “everyone who mattered” said the stimulus should be smaller, not bigger. I had my suspicions that it was Chait who was being a little magical here, conjuring a past that wasn’t quite as he presented it, but it wasn’t till I heard from my old friend from grad school Jonathan Stein that I realized what a talent Chait truly is. So I asked Jonathan, who’s now an editor at Project Syndicate, to write something up; here’s his response.
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Barely a week after Barack Obama’s inauguration, with the US financial system on government life support, credit markets frozen, and asset prices seeking a bottom, roughly 200 economists—led by six Nobel laureates, including Kenneth Arrow, Paul Samuelson, and Robert Solow—signed an open “Letter to Congress” backing swift enactment of the American Recovery and Reinvestment Act (ARRA) of 2009. “To stop the hemorrhaging of jobs and pull the economy back from the edge,” they warned, “policymakers must act quickly and decisively…to boost employment and economic growth.”
Of course, many economists, preferring Hayek to Keynes, were duly mobilized against ARRA. Their recipe for recovery, standard fare in financial crises before the New Deal, would weaken aggregate demand further by forcing everyone—households, firms, and government—to start saving at the same time. The Keynesians, by contrast, worried that ARRA’s $787 billion fiscal stimulus would prove too little to offset the collapse in private consumption and investment. They were unequivocal in their support for the bill, but were plainly unconvinced that it would suffice: “This legislation may not be enough to solve all the economy’s problems, but it is urgently needed and an important step in the right direction.”
The point of rehearsing this history is not that the Keynesians were right, or that further stimulus is urgently needed. They were, and it is. But, now that the nebulizing myth of a “jobless recovery” has crystallized into a recession-in-waiting, those seeking to keep progressives on Obama’s bandwagon are finding it necessary to argue that the appropriate scale and scope of fiscal stimulus was—and remains—a foregone conclusion.
If you’re Jonathan Chait, for example, the stimulus debate never happened, or, if it did happen, the social stratum known as “everybody who mattered” (yes, “them”) stayed out of it. Or, if people who mattered took part, people who mattered more—like that “reliable barometer of elite opinion” Colin Powell—prudently dismissed the entire exercise.
Indeed, Chait allows Powell, of all people, to render the verdict on Obama’s domestic agenda—a verdict that progressives, too, presumably must accept: “[W]e can’t pay for it all.” Anyone who claims otherwise—namely, leftists now blaming Obama for having been dealt a weak economy and a recalcitrant Congress—has succumbed, as Chait unreflectively puts it, to “magical thinking.”
In fact, those who initially argued for a much bigger stimulus were quite realistic—and not only in economic terms. Economists like Brad DeLong, Paul Krugman, Jeffrey Sachs, and Joseph Stiglitz advocated a “go large” approach precisely because they foresaw—well before the emergence of the Tea Party—the difficulty of enacting a second stimulus bill. And, in contrast to Chait’s portrayal of the “liberal” position at the time, not only did they favor a larger stimulus; they also saw no tradeoff between short-term economic-recovery efforts and longer-term reforms. Universal health insurance, for example, would save money as well as lives.
Perhaps Chait really believes that these arguments, and their purveyors, didn’t matter in early 2009. And, given the left’s electoral weakness, perhaps he is right. Indeed, Obama’s political problem today is that pro-stimulus arguments aren’t particularly progressive anymore—or, to put it another way, reality, in the form of depressed private demand, has caught up to the left since ARRA’s impact began waning in the middle of last year. As Everett Ehrlich, a former undersecretary of commerce and chief economist at Unisys Corporation, put it in July 2010:
The economy is primed for growth. Banks hold over a trillion in nonborrowed reserves. Corporations have accumulated $1.8 trillion in cash. But a spark is needed to turn this kindling into a fire. Only government can do this—stimulus will never be more appropriate nor prospectively productive than it is now.
More than a year later, with headline unemployment pinned above 9% and the federal government’s borrowing costs at record lows (which is how bond markets tell the authorities to buy bridges and high-speed rail projects), Chait somehow still cannot find fault with Obama for failing to keep his matches dry. Back in 2009, Obama chose a smaller stimulus package (and allowed his opponents to lard it with non-stimulative tax cuts) in order to avoid alienating “moderate Republicans,” whose support he supposedly needed to advance the rest of his domestic agenda. This, according to Chait, is what progressives (those who mattered, at any rate) wanted at the time. And moderate Republicans, as we know, obliged en masse: all three of them voted for ARRA. One (Arlen Specter) went on to a distinguished year-long career as a Democrat before losing his Senate seat in 2010; the other two, Susan Collins and Olympia Snowe, have not supported Obama on any major legislation since.
Chait believes that the Republicans’ credible filibuster threat before the 2010 election, and their subsequent takeover of the House, redeems Obama’s domestic record—if not fully, then enough that progressives should stop whining and stay onside. Indeed, Obama, in Chait’s view, has been as progressive as institutional constraints have allowed him to be. Why, he wants to know, did Robert Reich call Obama’s decision to extend the Bush administration’s tax cuts for the wealthiest income earners “an abomination”? Didn’t Obama wring from the Republicans payroll-tax cuts and an extension of federal unemployment benefits (as Reich had been advocating)? And, most alarmingly, if Obama had refused that deal, wouldn’t he “have to accept the likelihood that nearly a million fewer jobs would have been created and that we would have been at risk of a double-dip recession back then”?
Well, in that case, Obama would have been worrying about the wrong problem—or, rather, not worrying enough about the right one. As August’s employment data show, a recession deferred is not a recession denied. Even if we accept Chait’s jobs figure, net employment grew by just 360,000 from August 2010-August 2011, with the total increase (and then some) attributable to those whom the Bureau of Labor Statistics describes as “working part time because their hours had been cut back or because they were unable to find a full-time job.” And, to them—and to millions of other underemployed, casualized, non-organized, and de-unionized workers, and their families—the risk of a double-dip recession probably doesn’t seem quite so troubling as it does to Chait; after all, American wage earners, on average, have yet to recover from the first dip—in 1981.
That is why, for Reich, the payroll-tax cuts and extension of unemployment benefits that Obama received amounted to “peanuts.” When weighed against the size of the income-tax cuts that he extended—and against the unprecedented economic inequality fueled by the massive transfer of wealth from labor to capital over the past 30 years—that seems a fair assessment. Chait, however, rejects Reich’s claim that recent unemployment data would have left the GOP with no choice but to extend benefits. On the contrary, those peanuts were “forms of stimulus that Republicans would never have allowed without an extension of upper-bracket tax cuts in return.”
Fair enough. But, honey-glazed or not, peanuts are peanuts, not porterhouse. The issue is not that Obama—now supposedly focused squarely on short-term economic recovery—might have lost some stimulus had he insisted on letting the tax cuts expire; it’s that he failed to demand much more in exchange for reneging on a key campaign pledge. A public jobs program that provides workers with a living wage and secure benefits (and that establishes benchmarks for private-sector employers) is also a form of stimulus—and one that, unlike what Obama got, might have averted, rather than postponed, the risk of a double-dip recession.
At the very least, such a demand would have made some rich people more careful about what they wish for. See, that’s the thing about institutional constraints: acknowledging their existence should never mean turning them into a stalking horse for policy outcomes that run counter to your voters’ interests. Republicans understand that very well. For the GOP, bipartisanship is a tactic, not a program. As Chait points out, Bush enacted his income-tax cuts by relying on the congressional budget-reconciliation procedure, thereby avoiding the threat of a Democratic filibuster. So, why didn’t Obama use budget reconciliation prior to the 2010 mid-term election to restore the upper-bracket rates?
Chait has no answer to such questions, because Obama’s constraints have been largely ideological, not institutional. Indeed, Chait suggests time and again that Obama should have chosen differently—on the size of ARRA and the extension of the Bush-era tax cuts, no less. The arguments for choosing differently were made. They turned out to be right. Unfortunately, Obama still doesn’t think they matter. What he and Chait don’t understand is that, if institutional constraints are to be changed, these arguments matter much more than what can be won by ignoring them.
Jonathan Stein is an editor at Project Syndicate. The views expressed here are his own.
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Hi. Me again. If you weren’t into that Marilyn rendition of this classic song—though you have to admit she does capture the feeble breathiness of Chait’s column pretty well—check out this version from Louis Prima and Keely Smith. The best version is Mel Torme’s, but I can’t find a video of it.
Update (10:30 pm)
Elias Isquith, who’s got a great blog over at League of Extraordinary Gentlemen, has an excellent post on this matter, with some good follow-up material from Chait and Elias’s response. Check it out.
Update (11:30 pm)
Mike Konczal delivers a withering, if understated, reply to Chait. That guy is seriously, seriously smart.
Update (September 17, 3:30 pm)
The New York Times Magazine decided to use an excerpt from Jonathan Stein’s guest post as a response to Chait’s piece in their letters section! Not bad, Jonathan S….