Robert Kuttner

The Sequester: Now What?

flickr/Penn State news
flickr/Penn State news President Obama gambled that the threat of the automatic sequester of $85 billion in domestic and defense cuts would force the Republicans to accept major tax increases, and so far he is losing the wager. The Republican leadership, which was badly divided over the New Year’s deal that delayed the fiscal cliff, is now re-united around the proposition that Republicans will accept no further tax increases. So the president is left to court individual Republican House members to support loophole closures in exchange for the restoration of some popular domestic and military spending. But for the moment, Republicans got what they wanted—big spending cuts, party unity around no tax increases, and a weakening of a newly re-elected president. For Obama and the Democrats, there are three big risks going forward. First, the sequester slows down economic growth—cutting it in half this year from about 3 percent to 1.5 percent according to the Congressional Budget Office...

The Sequester, Now What?

Flickr/Justin Sloan
President Obama gambled that the threat of the automatic sequester of $85 billion in domestic and defense cuts would force the Republicans to accept major tax increases, and so far he is losing the wager. The Republican leadership, which was badly divided over the New Years deal that delayed the fiscal cliff, is now re-united around the proposition that Republicans will accept no further tax increases. So the president is left to court individual Republican House members to support loophole closures in exchange for the restoration of some popular domestic and military spending. But for the moment, Republicans got what they wanted—big spending cuts, party unity around no tax increases, and a weakening of a newly re-elected president. For Obama and the Democrats, there are three big risks going forward. First, the sequester slows down economic growth—cutting it in half this year from about 3 percent to 1.5 percent, according to the Congressional Budget Office. Obama, more than the...

Dear White House, You'll Regret This

Olivier Douliery/AP Images
The latest dust-up in the descent of Bob Woodward from fearless investigative reporter to manipulative media celebrity began with his contention in a Washington Post column that President Obama, by asking for revenue increases as part of a deal to defer the sequester, was “moving the goal posts” from the 2011 budget deal (in which Obama got thoroughly hosed by the Republicans). When the White House pushed back and an unnamed “senior official” told Politico that Woodward would “regret” those comments, someone, presumably Woodward, leaked an e-mail between himself and White House top economic strategist Gene Sperling. Since then, the political class has been abuzz with chatter about Woodward’s modus operandi, the ethics of burning a source, his longstanding strategy of trading access for friendly treatment, and so on. But far more revealing (and appalling) is the content of the e-mails . Here's what Sperling told Woodward: The idea that the sequester was to force both sides to go back...

The Sequestering of Barack Obama

AP Photo/Susan Walsh
AP Photo/Susan Walsh President Barack Obama urges Congress to come up with a plan to avert the automatic spending cuts set to kick in on March 1, 2013 last week. P resident Obama has miscalculated both the tactical politics of the sequester and the depressive economic impact of budget cuts on the rest of his presidency. The sequester will cut economic growth in half this year. But it’s now clear, one way or another, that we will get cuts in the $85 billion range that the sequester mandates this fiscal year. All that remains are the details. Obama’s miscalculation began in his fist term, with his embrace of the premise that substantial deficit cutting was both politically expected and economically necessary, and his appointment of the 2010 Bowles-Simpson Commission as the expression of that mistaken philosophy. Although the Commission’s plan was never carried out, its prestige and Obama’s parentage of it locked the president into a deflationary deficit reduction path. This past week,...

Still More BS

AP Photo/Alex Brandon
We all do things that we regret. President Obama must surely regret that he ever listened to the extreme deficit hawks back in early 2010, when he appointed the Bowles-Simpson Commission, the fiscal zombie that just won’t die. The commission is long defunct. The recommendations of its majority report never became law (because that required a super-majority). But the dreams and schemes of B-S have become the gold standard of deflationists everywhere. The test of budgetary soundness is: does it meet the recommendations of Bowles and Simpson? On Tuesday, the depressive duo were at it again, calling for additional deficit reductions of $2.4 trillion over a decade. This is almost a trillion dollars beyond what President Obama and Congress are considering. This clarion call was issued under the aegis of the corporate group, “Fix the Debt,” a bunch of millionaires and billionaires urging regular people to tighten their belts for the greater good. Quite apart from the impact of particular...

Pretty Words, Dismal Economics

AP Photo/ Evan Vucci
AP Photo/ Evan Vucci President Barack Obama at a pre-kindergarten classroom at College Heights Early Childhood Learning Center in Decatur, Georgia last week. The president is traveling to promote his economic and educational plan that he highlighted in his State of the Union address. B arack Obama’s State of the Union address last week—which called for, among other things, universal pre-K and raising the minimum wage—offered a bold program for rebuilding the middle class. But the president’s continuing commitment to budgetary austerity makes these commitments hollow, if not cynical. And just as Obama and the Democrats paid the price in the 2010 midterm election for excess caution and conciliation, the results of tokenism are not likely to be pretty in the midterms of 2014. Obama's plans for rebuilding the middle class will cost money. Universal pre-K alone would require upwards of $20 billion a year. Unless the president cynically imagines token “demonstration” programs, job training...

Outsiders as Insiders

Flickr/Office of Governor Patrick
Flickr/Office of Governor Patrick M assachusetts could be the harbinger of a hopeful national trend in Democratic Party politics – the reformer as regular. For 16 years, this bluest of blue states oddly kept electing Republican governors. Between 1990 when Gov. Michael Dukakis stepped down and 2006 when Deval Patrick took the governorship back, no fewer than four Republicans sat in the governor’s chair. And then Democrats blew the special election for Ted Kennedy’s seat in January 2010, when Scott Brown upset Attorney General Martha Coakley. This occurred in a state that reliably votes Democratic for president, and hasn’t sent a Republican to the U.S. House since 1994. Despite the Democratic sentiments of Massachusetts voters, the institutional party has often seemed dysfunctional, decrepit, and not welcoming of new blood. In this odd history, however, one fact screams out. The two big statewide winners of recent decades were complete outsiders—Deval Patrick and Elizabeth Warren...

Deficits: The End of an Obsession

AP Photo/Alan Diaz
The consensus around debt reduction is beginning to crumble. Some straws in the wind are more careful attention to the actual numbers, as well as public conversions by such key players as Larry Summers and Peter Orszag, two former top aides to President Obama, who only yesterday were key members of the deflate-your-way-to-recovery club. Summers wrote a piece in Wednesday’s Financial Times titled “End the Damaging Obsession with the Budget Deficit,” pointing out that the more serious deficits were in jobs, wages, and infrastructure. His former colleague Orszag wrote a piece pointing out that the rest of the budget is in decent shape—the huge outlier is federal health care costs, projected to rise from 5.5 percent of GDP now to 12 percent by 2050. President Obama, in his second inaugural address, had little to say about deficit-reduction as some kind of panacea and more about broadly-shared recovery. In the era of the Bowles Simpson Commission, the Peterson Foundation’s regular...

The President's Running Room—and Ours

AP Photo/Susan Walsh
AP Photo/Susan Walsh P resident Barack Obama won a tactical victory on New Year’s weekend by forcing Republicans to raise taxes on the top 1 percent, but he has far bigger challenges to address—and so do progressives. The economy is still at risk of several more years of hidden depression, with a high level of unemployment and no wage growth. The initial budget deal, thanks to Obama’s post-election toughness on tax increases on the rich and pressure by unions and progressive organizations not to cut Social Security and Medicare, was better than it might have been. But still to come are debates over budget cuts, with Republicans having the leverage of an automatic $120 billion “sequester” for this fiscal year now postponed to early March, if Congress fails to legislate its own additional deficit reduction. In principle, Obama has committed to $4 trillion in budget cuts over a decade, a sum that would be a huge drag on the recovery, leaving too little for the public investment necessary...

How’s That Medicine Taste, Germany?

Oliver Lang/dapd
Germany, the powerhouse of Europe, experienced negative growth in the last three months of 2012, down from a positive growth rate of 3 percent in 2011. Chancellor Angela Merkel, who more than any other leader inflicted austerity on the rest of Europe, is finding that what goes around, comes around. All of the small nations that have bowed to Germany’s austerity demands—Greece, Ireland, Spain, Portugal—are stuck in an even deeper downward spiral. They cut spending, but their deficits increased. Why? Because the hit to employment, consumption, and then to government revenues leaves their economies in deeper distress. This is a path to permanent depression. It is economic madness, a fact recognized by no less than the chief economist of the International Monetary Fund (IMF), the organization that has been Germany’s partner in enforcing austerity. The IMF’s Olivier Blanchard, in a paper released January 1, warned that the negative effects of austerity far outweighed the positive ones. It...

Hagel Faces Down the Neo-Cons

Rex Features via AP Images
It’s terrific news that the neo-conservatives like Bill Kristol and Elliott Abrams, who have been peddling the slander that Chuck Hagel is an anti-Semite, got no traction with leading pro-Israel senators. The announcement by New York senator Chuck Schumer and California senator Barbara Boxer that they will support Hagel signals that the mainstream Jewish community wasn’t buying it, and even that the Israel lobby is split. Well placed sources tell me that the full-page ad in yesterday’s New York Times created by Kristol and company, under the name “The Emergency Committee for Israel” actually backfired. In the ad, Alan Dershowitz is quoted as saying that Hagel speaks the language of “the bigots of Tehran.” The ad evidently failed to sway leading legislators. The Committee’s entire board is Kristol, Gary Bauer (a prominent rightwing Christian supporter of Israel) and Rachel Abrams, a neo-con married to Elliott Abrams. Schumer’s support now makes it safe for other Democrats and moderate...

All the President's Resolve

AP Photo/Carolyn Kaster
AP Photo/Carolyn Kaster President Barack Obama listens to reporters' questions in the East Room of the White House. Three very good signs in the past few days suggest that President Obama has been reading Robert Caro’s latest volume on Lyndon Johnson. The president is handling the debt-ceiling fight very shrewdly, and making the Republicans look both reckless and childish for playing cute with the risk of another financial meltdown. Some of us have been waiting four years for Obama to sound like this: Republicans in Congress have two choices here: They can act responsibly, and pay America’s bills; or they can act irresponsibly, and put America through another economic crisis. But they will not collect a ransom in exchange for not crashing the American economy. The financial well-being of the American people is not leverage to be used. The full faith and credit of the United States of America is not a bargaining chip. Wow! Drew Westen didn’t say that, President Obama did. He’s also...

The Mortgage Mess and Jack Lew

Rex Features via AP Images
The more information we learn about the mortgage settlement that was announced Monday—official documents are yet to be made public—the more of a smarmy backroom deal it turns out to be. The deal lets ten major banks and other “loan servicers” off the hook for a corrupted and illegal process of millions of foreclosures, with a paltry one-time settlement of $8.5 billion. The economic damage inflicted on homeowners, and by extension on the economy, was many times that. The deal was hatched by the weakest of the federal bank regulatory agencies, the Comptroller of the Currency, and signed off on by the Federal Reserve. There was no consultation with the more consumer-oriented agencies, such as the FDIC or the Consumer Finance Protection Bureau. The Comptroller just went and did it. Nor was the Justice Department consulted, even though the deal, nominally a civil settlement, will make criminal prosecutions more difficult now that a major regulator has signed off on an bargain to close the...

Is Jack Lew the Best We Can Do?

AP Photo/Charles Dharapak
AP Photo/Charles Dharapak White House Chief of Staff Jack Lew in the East Room of the White House in Washington T o no one’s great surprise, President Obama has appointed his chief of staff, Jack Lew, to succeed Tim Geithner as Treasury Secretary. Mainly, the choice signals that there will be no change either in the Obama-Geithner approach to reforming Wall Street (not very much), or on fiscal politics, where deficit reduction is a paramount goal despite a faltering recovery. The positives of Lew are these. He’s not a hard-core deficit hawk like Erskine Bowles (low bar). He’s not a bully like Larry Summers or Rahm Emanuel (even lower bar.) He’s a highly competent, detail-oriented numbers guy, and a skilled negotiator. That combination seems to drive some Republicans nuts, because in the infighting over the budget deal of 2011, Lew’s knowledge of the details enabled him to win some tactical victories in what was otherwise a rout for the administration (this was the deal that created...

The Banks Win Again

AP Photo/Mike Groll, File
Last February, the big banks agreed to a major “settlement” to protect themselves from litigation by state attorneys general stemming from fraudulent documentation of mortgages. Though some, such as New York’s crusading attorney general Eric Schneiderman, believed that the government had leverage to get a lot more, the settlement required the banks to pony up some $25 billion to settle outstanding charges. The banks, without admitting wrongdoing, agreed to reform fraudulent practices, such as “robo-signing” and proceeding with foreclosures on one track while supposedly helping borrowers to adjust terms on another. The settlement reserved the government’s right to continue criminal prosecutions. But there was a lot of double counting of funds already committed, and at the end of the day the banks parted with only a few billion dollars in new money, precious little of which went to relief of damaged mortgage holders. Only about $2.5 billion has found its way to actual principal...

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