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The market meltdown and the hopeless politics of 2011

President Obama
REUTERS/Jim Watson
President Obama

The good news about the carnage on Wall Street — another 634 points on Monday — is that we pretty much know what’s causing it: The market has decided that the prospect of meaningful economic growth in the near future is bleak.

The bad news is that we may be powerless to stop it.

This is the bottom-line of life under the 112th Congress. The current majority party in the House is at the mercy of rank-and-file members who, either because they believe it themselves or because the constituents they will answer to in their next primary election do (or both), approach every issue with the assumption that President Obama, even if what he is saying or doing actually meshes with what once passed for Republican orthodoxy, is totally and completely wrong. Thus do we now have the spectacle of Obama trying to calm the markets and goose the economy by calling for an extension of a payroll tax cut — and one of the most influential Republicans in the House suddenly declaring that a tax cut isn’t a good idea because it would increase the deficit.

In other words, Wall Street’s pessimism seems well-placed.

If there was ever a chance that there’d be a follow-up to the now clearly inadequate stimulus that Obama pushed through Congress at the start of his presidency, it vanished for good (or at least through the 2012 election) last November, when the GOP reclaimed the House and increased its share of the Senate. We knew then that the scale of collaboration between the president and the 112th Congress would probably be limited, at best. But what we’ve seen this past week is that even when they are able to reach a compromise, the results are actually destructive. After all, the market’s current nosedive — more than 1,000 points in the last week — began just after Obama signed the cuts-only debt ceiling deal. Wall Street can be a highly imperfect barometer, but the market seems to be sending a clear message that it doesn’t see austerity leading to prosperity anytime soon.

But more austerity is about all that we can expect from Washington between now and November ’12. The Republicans who hold sway in the House — and the opinion-shaping voices of Fox News, talk radio and the blogosphere — have convinced themselves that runaway deficits are the overriding source of America’s economic woes. What’s more, they have convinced themselves that these deficits are mainly the product of a spending binge that Obama and the Democratic Congress embarked on in 2009 and 2010 — and that they can only be arrested through aggressive, immediate spending cuts. Tax hikes, of course, are off the table.

You can point out — over and over again — all of the logical flaws in this reasoning, but don’t assume it will change anyone’s mind. That would assume that the GOP’s deficit dogma is coming from a logical place. But it isn’t. Instead, it’s best understood as a primarily emotional phenomenon, the product of the intense resentment of and resistance to Obama that has defined the party’s base (and its opinion-shaping commentators) since even before the 2008 election. The deficit is the respectable-sounding issue that every Republican office-holder can use to beat up Obama, scoring points with a base that wants to see him beaten up and an anxiety-plagued general public that’s conditioned to assume that the word “deficit” is evil in all circumstances. Add to this the GOP’s post-Reagan aversion to any and all tax increases and the restive, compromise-phobic mood of the party’s base today and you have a recipe for absolute inflexibility by the GOP House.

This is why it has been so easy to dismiss as wishful thinking the White House’s insistence that the debt ceiling deal will allow for a “pivot” to a jobs agenda. What kind of meaningful jobs program could pass muster with a House that will only accept spending cuts and (certain) tax reductions, and nothing else? And it’s why there’s no reason to think that the current Wall Street meltdown, no matter how long it lasts and now matter how clearly the market expresses its disdain for austerity, will prompt Republicans to give an inch — not when they can simply claim that because something bad happened on Obama’s watch, it’s a direct result of his policies and that he needs to be opposed even more fiercely going forward. Nor is there much reason to suspect that any other ominous economic developments over the next 15 months will produce a real response from Washington. Until the November ’12 election, this is the dynamic we’re stuck with.

The question  is whether a dynamic more conducive to action will emerge from the ’12 election.

There is, for instance, the increasingly plausible scenario of a top-to-bottom Republican victory next year, with Obama losing the presidency (his standing on Intrade dropped below 50 percent Monday night), and the GOP picking up the Senate and retaining its House majority. Under this scenario, the ruling Republicans might actually become more ideologically flexible in 2013, only because they would no longer feel compelled to automatically align themselves against the position of a Democratic president. This doesn’t mean they’ll suddenly become Keynesians, but we’ve seen before that the party’s attitude toward deficits isn’t nearly as hard-line when it’s running the show in Washington. Policies that they now deem anathema simply because Obama advocates them could become acceptable to Republicans again. The payroll tax cut that they’re dismissing as too expensive this week comes to mind.

On the flip side, if the economy does somehow improve measurably (and there may be some steps Obama can take on his own to increase the chances of this), Obama will be in good shape to win a second term. And if he’s in good shape, Democrats will also have a chance of holding the Senate and winning back the House. Five dozen districts that voted for Obama in ’08 are now represented by Republicans. If Democrats can pick off half of them in ’12, and keep their losses to a minimum elsewhere, they’ll be in position to win back the House — making it possible for Obama to enjoy a productive relationship with Congress again.

But this scenario seems unlikely. If Obama wins in ’12, it will likely be in a squeaker. That Democrats would pick up more than two dozen House seats with the presidential race so close is hard to believe. Which means that Obama, even if he is reelected, is likely to face a GOP-controlled House in his second term (and quite possibly a Republican Senate, too). Would that guarantee the same type of gridlock we’re seeing now? Maybe — but not necessarily. It could also be that a failure to unseat Obama, coupled with losses of seats in the House and a failure to win the Senate, could prompt surviving Capitol Hill Republicans to rethink their radical posture — especially if they conclude that they would have fared far better in the ’12 elections by not being so strident.

Realistically, this may be the best case scenario for Obama and his supporters — gut it out for the next 15 months, eke out a small but impressive-seeming win, then hope the Republicans of the 113th Congress decide its in their interests to be just a little bit more open to collaboration.

If that doesn’t sound like much to hope for, well, welcome to the politics of 2011.

Steve Kornacki is Salon’s news editor. Reach him by email at SKornacki[at]salon.com and follow him on Twitter@SteveKornack.

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Comments (10)

  1. Submitted by Erik Hare on 08/09/2011 - 11:08 am.

    “… the opinion-shaping voices of Fox News, talk radio and the blogosphere …”

    They may be opinion-shapers, but only because the mainstream media has made them so. The actual viewership of Fox shows such as Hannity, etc, are well under 1.5m people, or less than 0.5% of the population. Blog readership is terrible. Limbaugh does better, but is well under 10m listeners now or 3% of the population at best.

    This is a tiny minority of our population. These voices would not be as powerful if they were not amplified through other media. In fact, more people watch Dr Who on BBC America than watch Hannity – and I have yet to hear Dr Who fans described as anything better than a “fringe”. Why can we not say the same about Fox viewers?

  2. Submitted by Darryle Owens on 08/09/2011 - 12:01 pm.

    The “cuts only debt ceiling deal” merely slowed (barely) the rate of increase of spending; it did not actually cut spending. This “deal” will add a net $7 trillion to our debt over ten years. It can hardly be called “austere”. The market plunged over the next few days due to economic news and debt woes in Europe, as well as due to the uncertainty of the impact of the S&P downgrade of U.S. treasuries, not solely because of the “debt ceiling deal”. The Dow went up about 1% upon the signing of the deal and then plunged when it was understood that the “deal” really didn’t do anything but allow us to add trillions to our debt almost immediately. This congress and this president essentially punted the difficult decisions until the 2012 election season is over.

  3. Submitted by Ron Gotzman on 08/09/2011 - 12:08 pm.

    The GOP is tired of funding the re-election campaigns of the Democrats through “trickle down stimulus spending. “

    Giving Obama more money to redistribute to his democratic special interests groups is not stimulus, it is politics as usual.

    The stimulus has failed, Obama has failed, and hope and change comes in 2012.

  4. Submitted by TJ Jones on 08/09/2011 - 12:20 pm.

    I’m always fascinated when i read the opinion that the problem with the stimulus is that is simply wasn’t big enough. Akin to pouring gasoline on a burning house and when it flames up, someone yells, …”you fools! It’s not working! we need MORE gasoline…”

  5. Submitted by Rachel Kahler on 08/09/2011 - 12:55 pm.

    Very good point, Erik. Media, in general, has been nothing but an echo chamber for the opinion-based “news” streams in this country. The media has not bothered to be independent for quite a while now, simply relying only on the AP, and not independent invesigative reporting. Nor have they had the spine to call out the lies for what they are. They leave that to individuals on blogs and party-based web “news” sites. No real news exists on a large scale in this country.

    By the way, the statements in this article that Obama’s next election, IF he wins, is likely to be a “squeaker” is unfounded. At least the article provides no such founding. It, however, has(if not intended)the same effect as the comments of Mr. Jones, Mr. Gotzman, and Mr. Owens (which ARE intended) of discouraging liberal-minded individuals. One of the most powerful weapons the “conservatives” have in this political war is hopelessness. Regardless of the fact that the “conservative” viewpoint and viewership is the minority, they have wielded that weapon with great skill. And the media has pandered to it, fostering the psychological warfare being committed on our own citizens.

  6. Submitted by Jon Kingstad on 08/09/2011 - 03:23 pm.

    For 30 years, the GOP has been funding its campaigns with tax breaks and cuts for the wealthy on the now totally discredited theory of “trickle down” economics. They never worked. Unfortunately, Obama has embraced this discredited economic theory by agreeing to extend the Bush tax cuts for the wealthy which never worked either and also refusing to implement fiscal policies, i.e. spending money to create jobs. Inadequate stimulus spending hardly qualifies as funding elections through “trickle down stimulus spending” and pales in comparison to the use of these policies to redistribute wealth from the workers in this country to the wealthy as the GOP has done.

    It’s interesting that after the Country rejected another four years of Republican misrule, which included unprecedented run-ups of the federal deficit( cf. Dick Cheney 2002: “Deficits don’t matter”), the deficits inherited almost entirely from this 8 prior years becomes a “burning house” and “debt crisis.” There is no debt crisis and the deficits are no problem compared to the unemployment crisis. Looked at it that way, I think a better analogy is that of an arsonist who sets their neighbor’s house on fire and steals the neighbor’s hose so they can’t put it out.

  7. Submitted by Ray Schoch on 08/09/2011 - 03:47 pm.

    I second Erik and Rachel.

    What is passing nowadays for “conservative thought” is neither conservative nor very thoughtful, but instead seeks to repeal the 20th century and the social contract made with the public under the New Deal, to be replaced by the benevolent dictatorship of Wall Street and corporate CEOs. There’s nothing “conservative” about a return to the 1880s and a new and more sophisticated version of The Robber Barons, nor is the consistent whining about the burden of taxes (lower than at any time in 60 years) or government regulation (echoing the same folks who brought us 1929) especially thoughtful.

    Many of the headlines and much of the TV coverage in the past decade has been devoted to individuals and groups who are not only radical, rather than conservative, but represent nothing more than the lunatic fringe. The fact that it’s a very wealthy lunatic fringe, which has learned, and learned very well, to manipulate the national media to its advantage, accounts for most of the current popularity of its hysterical and self-serving message, as espoused by the pair of presidential wannabe folks from Minnesota, not to mention #2, 3 and 4 above.

  8. Submitted by Eric Larson on 08/09/2011 - 04:07 pm.

    I was watching the kids yesterday. So we had the luck of being able to watch CNBC all day. We watched the run upto the morning bell. Then the crash. We watched the Pres start speaking and the market pedaled water for about 2 minutes. Then he started blaming people for his problems and ours. The market started diving and never recovered. Mr. President if your listening. We need jobs. Not government jobs. Stick your green jobs. How about 100 low smoke coal plants NOW!!! Use presidential power to cut the red tape. Not ad it.
    How about opening 100 mines that are caught in red tape. How about gagging 100,000 “I say no” government employees? How about showing up at a new place of employment that had NO GOVT HELP INTERVENTION OR SUBSIDY OR NEW LAW THAT BIRTHED IT and say
    “You guys are not miracle workers, your just doing the job. Here is the federal code book and here is an eraser. Tell me what to erase”.

  9. Submitted by Neal Rovick on 08/09/2011 - 04:24 pm.

    In the effort to accomplish their “number one job” which is the failure of the Obama presidency, the Republicans have taken the entire country further into the abyss that Bush drove into a few years back.

    If the Republicans are sincere about their “cut, cap, and balance”, why have they not proposed the $700 billion in cuts for next year that their “cut” called for? If they are serious about their “cap” of 18% in spending and revenue, why haven’t they proposed the cuts and the tax increases required to arrive at the 18% limit? If they want a “balanced budget”, why haven’t they ever, repeat, EVER proposed one? They control the house–so why haven’t they even fleshed out such a budget?

    The fact is that Republicans are playing a dangerous shell game that resulted in the downgrades, here in Minnesota and in the nation, as a whole. They talk tough, blithely threatening shutdown and default as no big thing, in order to protect the richest people and corporations from having to pay historically nor rates of taxation. But they are also unwilling to fully paint the picture of the depth of the cuts that their radical program of “drowning the government” will actually present.

    They have been party to every budget agreement, yet they pretend that the debt ceiling rise is not a corollary of their budgets.

    For people who are supposedly about a business-like approach to governing, they show little understanding about how business is run. Threatening to close down operations and to only pay 50 to 60% of what was agreed to is not how business is run.

    Heck of a job, Brownie!! Mission accomplished!!

  10. Submitted by John Clawson on 08/09/2011 - 05:49 pm.

    Republican calls for a balanced budget amendment (or doomestic policy) are today what they always have been: a charade. There was nothing more than hot-air bloviation to their announcements and pronouncements about it in the days of Newt Gingrich and the Contract on America than there is to it today. It is an organizing and fundraising tool only. They had have many opportunities to propose such an amendment/policy and (in the case of amendment) send it to the states. They had not done it. They know it would be horrendous policy, unrealistic and unachieveable and, if is WAS enacted, would result in the stultification/destruction of the American economy. No one lives within their means, including the much-vaunted American family: no credit cards, car loans, home loans, student loans Certainly American business/industry doesn’t: ethanol, health insurance, tax subsidies, Tom Petters, ponzi-scheming investment counselors, Bank of America foreclosure-cheating, Bernie Madoff and his coterie of willing investors and willing investor advisors, Enron, Denny Hecker and his handshake multi-million automobile deals, the developers and realtors who ran up a phony real estate market and the IT bubble-developers before them, the arms merchants selling guns in Mexico faster than they can make them, and the Blackwater folks and their ilk whose corruption and brutality in places like Iraq and Afghanistan have dirtied America’s name for years to come. What an economy we have been building. What a political system we have been building.

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