Naked Capitalism: The Middle-Class Squeeze

Obama Moves Forward with Cutting Social Security and Medicare as We Lecture Europe Otherwise

Posted: 10 Apr 2013 05:03 AM PDT

It must be really hard to be an Obama defender these days, at least if you are not on a big corporate payroll. Daily Kos has proven to be a bellwether of the change in sentiment. After being one of the leaders in pushing the “lesser evil” trope, its commetariat and most of its diarists are up in arms over Obama’s budget, which includes Social Security and Medicare cuts. Kos waded in yesterdayand in all seriousness wrote, “I can’t imagine President Barack Obama actually wants to cut Social Security. I’m not that cynical.”

I don’t even have to shred it. Go read his comments section. His readers cite chapter, book and verse the overwhelming evidence that this is exactly what Obama wants to do.

But the loyalists on the left are trying variants of the 11th dimensional chess argument, some quite condescendingly, when it’s not that hard to see what is really going on. Obama is a Rubinie. Obama is a neoliberal. Obama in 2006 and again in the Presidential debates made it clear he wants to “reform” Social Security and Medicare. He sees undoing the New Deal as the anchor of his legacy. He’s probably envying the Maggie Thatcher obits and wondering if he’ll get ones at least as good.

Look at his latest plans for negotiating the budget, with much of his party in revolt. From the Associated Press:

But instead of moving Congress nearer a grand bargain, the Obama’s proposals so far have managed to anger Republicans and Democrats alike….

As part of the administration’s effort to win over Republicans, Obama will have a private dinner at the White House with about a dozen GOP senators Wednesday night. The budget is expected to be a primary topic, along with proposed legislation dealing with gun control and immigration.

It can’t be more clear how Obama is going about things. He’s going to try to get the Republicans to agree to some sort of face saving tax increases, which in the end are certain to be tax cuts (as in increases in one place will be more than offset by new loopholes, offsets, or more liberal interpretations of key terms). Once he gets that, he’ll go to the Dems and say, “We must have a deal! The bond gods demand it! And here I got one! This is the best those meanie Republicans would give me. Yes, I had to super duper reluctantly offer Social Security cuts. Really. Trust me.”

And Obama is just as hypocritical in dealing with our European allies as he is the American electorate. He’s sent Mellonite Jack Lew to Europe to tell them to ease up on austerity. Gee, if it’s bad for growth in Europe, tell me how can it be salutary here? Bill Black shreds the Lew arm-twisting, which the Europeans predictably ignored:

Obama’s decision to send Lew, the great proponent of self-destructive austerity, to Europe to urge them to end their self-destructive austerity exemplifies the incoherence of the administration’s financial policies. The fact that Obama is simultaneously proposing the Great Betrayal – its sixth form of austerity that Obama has agreed to inflict on our Nation since 2011 – produces a level of incoherence, incompetence, and hypocrisy so epic that it is likely to cause economists to act like manic depressives bouncing between wild-eyed gales of laughter and crying jags.

Putting two lawyers together to discuss macroeconomic policy also leads to discussions that cause economists’ jaws to drop in shock. If you understand economics you may wish to put on a neck brace before reading the next passage lest its incoherence cause whiplash.

Standing next to Mr. Schäuble, Mr. Lew said pointedly that deficit reduction needed to be balanced with growth and investment policies. While growth targets may be different for different countries, he said, “I think it is fair to say that zero isn’t a good target for anybody and negative is very bad.”

“Growth targets” are meaningless in this context. You cannot counteract austerity dragging your economy deeper into recession or depression by saying: “we are targeting a growth rate of four percent.” …Austerity is an anti-growth policy. It frequently makes the debt-to-GDP ratio larger because it causes such a large fall in GDP….

Investment programs can be very helpful in conjunction with overall stimulus budgets, but they cannot counteract austerity. This has been one of Obama’s recurrent blind spots. He seems to believe that if he can implement a new $2 billion infrastructure investment or jobs program that can overcome the damage to the economy caused by austerity in the form of a combined $300 billion in reduced spending and increased tax revenues. The net effect is $288 billion in lost demand due to austerity. This slows growth. If the austerity is large enough it causes growth to turn negative and throws the Nation back into recession or depression. We may know why Obama has this blind spot about the damage he is inflicting through austerity – he gets his advice from Lew.

Given the stakes, it’s not surprising that Obama’s remaining fans are pulling out their tired “trust our fearless Leader” card. But Obama didn’t do the right thing when he had freedom of action. As Matt Stoller wrote in “The Progressive Case Against Obama“:

Many will claim that Obama was stymied by a Republican Congress. But the primary policy framework Obama put in place – the bailouts, took place during the transition and the immediate months after the election, when Obama had enormous leverage over the Bush administration and then a dominant Democratic Party in Congress. In fact, during the transition itself, Bush’s Treasury Secretary Hank Paulson offered a deal to Barney Frank, to force banks to write down mortgages and stem foreclosures if Barney would speed up the release of TARP money. Paulson demanded, as a condition of the deal, that Obama sign off on it. Barney said fine, but to his surprise, the incoming president vetoed the deal. Yup, you heard that right — the Bush administration was willing to write down mortgages in response to Democratic pressure, but it was Obama who said no, we want a foreclosure crisis. And with Neil Barofsky’s book ”Bailout,” we see why. Tim Geithner said, in private meetings, that the foreclosure mitigation programs were not meant to mitigate foreclosures, but to spread out pain for the banks, the famous “foam the runway” comment. This central lie is key to the entire Obama economic strategy. It is not that Obama was stymied by Congress, or was up against a system, or faced a massive crisis, which led to the shape of the economy we see today. Rather, Obama had a handshake deal to help the middle class offered to him by Paulson, and Obama said no. He was not constrained by anything but his own policy instincts. And the reflation of corporate profits and financial assets and death of the middle class were the predictable results.

This is what the defenders refuse to acknowledge: the Obama critics, again and again, have been proven right, yet we have seen remarkably few mea cuplas, let alone apologies (and that includes you, Charles Pierce and Scott Lemieux). Obama is proving to be a litmus test of where commentators’ loyalties really stand: is it to “liberal” beliefs, which get redefined evermore to the right, or is it to the Democratic party neoliberal technocrats, which Obama embodies? The budget battle is pure and simple about squeezing the middle class dry, and those who pretend otherwise are simply insulting the intelligence of their audience.

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