Is President Obama a “change agent” on the level of Franklin D. Roosevelt, with a New New Deal comparable to FDR’s New Deal?
Michael Grunwald’s book details the enactment and operation of Obama’s almost $800 billion stimulus bill, officially called the American Recovery and Reinvestment Act of 2009. Though he covers only the first months of the new administration as it dealt with the Great Recession, Grunwald judges BHO to be the contemporary equivalent of FDR.
On the other hand, having the advantage of two years with a Democratic House and a filibuster-proof Democratic Senate, did Obama largely blow a rare opportunity to refashion government? Bob Woodward, the veteran reporter, follows the wrangling in 2011 between Obama and congressional Republicans over raising the debt ceiling, a failed process that is currently repeating itself in 2013.
Both books demonstrate what Obama displayed again in his Second Inaugural Address: the belief of the President and his administration that government is the spark that keeps the economy going. The private sector is a greedy milch cow reluctant to be drained for the common good.
Grunwald mentions Amity Shlaes’ critical reassessment of the New Deal, The Forgotten Man: A New History of the Great Depression (2008), admitting that her book “caught fire” among Republicans while dismissing it as relying “on a slew of skewed statistics and selective anecdotes.” Yet he concedes that “the Depression didn’t end until World War II took fiscal stimulus to new extremes.” In fact, the war didn’t really “end” the Great Depression. Unemployment dropped sharply in 1941 when millions of men, including my late father, were drafted into the military. More than 400,000 of them died. On the “home front,” people suffered shortages and rationing. A real economic recovery didn’t begin until 1946, when both spending and taxes were slashed, most of the New Deal legislation was allowed to lapse, and our major competitors’ economies were smashed by the war.
The New Deal comparison also fails the test of magnitude. While $800 billion is a lot of money, that was a one-time deal in the FY 2009 budget of $3.5 trillion. During Obama’s first term, spending rose 27 percent, most of it on programs in place for decades. By contrast, in the first four years of the New Deal, federal spending soared 77 percent, to $8.2 billion. And it remained stuck at those high levels until in 1941 war spending began crowding out domestic spending.
The Obama stimulus did contain a long list of public-works projects similar to those of the New Deal’s Works Progress Administration. But even here, many of them were ideological pork and programs that had immediate rather than long-term results. For example, $2 billion went for rental assistance to poor people under Section 8; $1 billion for the infamously wasteful community block grants; and $250 million to make low-income housing more energy efficient, putting grins on the faces of both poor voters and the green lobby.
The New Deal, however wasteful, actually produced some long-lasting projects, including electrification through the Tennessee Valley Authority and the Hoover Dam.
So what are the great projects of the New New Deal? “There is no bigger thing being done in this country than the California high-speed rail project, a shoot-the-moon effort to connect San Francisco to Los Angeles in less than three hours,” Grunwald enthuses (though you can already fly from LAX to SFO in about an hour).
The train “will have to overcome seismic faults, rugged mountain passes, and ferocious opposition from deep-pocketed homeowners and farmers who don’t want trains whipping through their communities.” Deep-pocketed after the housing bust led to the foreclosures of tens of thousands of homes in the path of this choo-choo boondoggle? Central Valley farm country is not Malibu, with its ten-million-dollar beachside homes of leftist Hollywood moguls. Of course, there are some naysayers. Grunwald confesses, “I went to a public meeting in the small farm town of Hanford, where high-speed rail was seen as a federal assault on rural culture.” Except possibly for a short route from Fresno to Bakersfield, the project will never be realized. The plan is intended only to spend $3.5 billion in stimulus money, plus $10 billion in bonds state voters foolishly approved.
Grunwald also touts Obama’s education “reform,” known as Race to the Top, which was only the latest in a long line of attempts (including George H.W. Bush’s Goals 2000 and George W. Bush’s No Child Left Behind) to address the academic failures of what is now a national schooling system.
Grunwald approves especially of the stimulus money spent on green projects. He concedes that Solyndra, which went bankrupt in 2011 after blowing $535 million of a U.S. Energy Department loan guarantee, “has become Republican shorthand for ineptitude, cronyism, and the failure of green industrial policy.” Yet he ballyhoos Solyndra’s technological advances, which he claims are intended to “reinvigorate a U.S.-born manufacturing industry that had fled overseas.” Actually Solyndra, unlike comparable Chinese firms, was compelled to work in an environment of high taxes and regulations, especially in California, a state hostile to manufacturing. That $535 million, had it remained in the private sector, might have created jobs elsewhere in less glamorous industries, such as furniture factories in North Carolina.
Grunwald admits that the economic growth provided by the stimulus has not been as fast as Obama promised. “The Recovery Act,” he adds,
helped ease a lot of pain, and helped avert a depression that would have caused immeasurable pain. Remember, in the fourth quarter of 2008, the economy withered at an 8.9 percent annual rate. At that pace we would have shed an entire Canada’s worth of output in 2009. Modest growth, while frustrating, has been infinitely preferable to hellacious contraction.
But these statements are based on Keynesian assumptions that a government can “fine tune” the economy. A more likely reason the American economy bottomed out in 2009 was that people and businesses, following the shock of the real-estate bust of 2007-08 and the financial crash of September 2008, concluded that the new Obama administration was not going to be as bad as they had anticipated, and got on with their business.
Bob Woodward is the ultimate insider. He knows everybody and, adopting a “fly on the wall” perspective, often quotes his many sources off the record. Of course, this ensures that he gives his reader the establishment view—which at times can be revealing.
My favorite Woodward scene is in his 1995 book Agenda: Inside the Clinton White House, in which Clinton rails profanely against the New York bond houses because they are increasing interest rates in anticipation of his spending agenda, requiring the President to restrain the new programs he liked to tout in his State of the Union addresses. There is no equivalent scene in Woodward’s Price of Power, because the Federal Reserve Board, under Chairman Ben Bernanke, kept interest rates close to zero for all Obama’s first term, and plans to continue that policy at least through mid-2015. With inflation officially at two percent (and probably much higher in reality), the result is a grinding down of the middle class as the value of “savings” declines by at least two percent per year. Even during the stagflation of the 1970’s, interest rates were maintained higher than they are now.
Woodward’s main thesis is that, despite wrangling over almost everything, the most Obama and Congress could accomplish was a weak recovery and a compromise in 2011 that pushed the government’s debt problem past the November 2012 election. Here is the gist of what happened, most of it Woodward’s paraphrase:
I want to look at significant structural reforms to all the major entitlement programs, [Republican House Speaker] Boehner told the president.
You would have to give on tax increases before we consider entitlement reform, Obama replied.
You can’t have tax increases, Boehner said. But he did offer a path to increasing federal revenues: comprehensive tax reform.
“If we lower all the rates, clean out all the garbage in the tax code, you know, there could be some revenue,” Boehner said.
The speaker believed they could get additional revenue from economic growth and better tax compliance. It had been done with the 1986 Reagan tax code overhaul.
We know how that turned out. In 2011, Republicans caved in by allowing the debt-ceiling decision to be put off until December 2012. Obama won reelection in 2012 on a promise to make the rich “pay their fair share.” After the election, he rolled Republicans again, as they agreed to boost taxes on 77 percent of Americans, most of them not “rich.” Promised “entitlement reform” was negligible.
In 2011, the Republicans and Obama finally agreed to “sequestration” by which, as Woodward describes it, “spending cuts of $1.2 trillion over 10 years were scheduled to begin in 2013,” as well as “another $1.2 trillion in cuts over 10 years.” Thanks to Republican stupidity back in 2003, when the GOP controlled both houses of Congress and the White House, the Bush tax cuts also were set to expire, for a hit of four trillion dollars over ten years. “That could total $6.4 trillion over 10 years, or $640 billion a year, an anti-stimulus package approaching the size of the [one-time] 2009 Obama stimulus of $787 billion every year for a decade.”
Later, Bernanke dubbed the supposed calamity the “fiscal cliff,” a catchy Keynesian phrase that helped to effect this year’s tax increases and minor spending cuts. Woodward doesn’t say much about the Tea Party activists, without whom the Republicans would not have grabbed the House in 2010. But with the tax increases in 2013, the GOP betrayed them—as it usually does its base.
The waste, the deficits, and the debt were cans kicked down the road in 2011, and now again in 2013. But there will come a full reckoning for the American economy, and it will come soon.