The Bad Deal
by James K. Galbraith
POLITICAL NEWS TRAVELS slowly, and in my casual observation progressive
Europeans have held on to the myth of Barack Obama as a good man much
longer than most progressive Americans did. How could a young black
American from Chicago and Harvard be otherwise?
Over here reality has been evident for a while, thanks to the
President's pattern of giving way to banks, lobbies, Republicans and
right-wing extremists. Whether your prime interest is housing, health
care, peace, justice, jobs or climate change, if you are an activist in
America you have known for a long time that this President is not your
Still, even on these shores disillusion often took a mildly forgiving
form. The President was a “disappointment.” He was weak. He had “bad
negotiating skills.” He had a tendency to “deal with hostage-takers,” to
“surrender.” All of this fed the image of a man with a noble spirit, a
good heart, the best intentions, but trapped by limited ability and the
relentless and reckless determination of his foes.
Obama is no progressive
The debt deal will make things clear. The President is not a progressive
– he is not what Americans still call a “liberal.” He is a willful
player in an epic drama of faux-politics, an operative for the money
power, whose job is to neutralize the left with fear and distraction and
then to pivot rightward and deliver a conservative result.
What Barack Obama got from the debt deal was exactly what his sponsors
have wanted: a long-term lock-in of domestic spending cuts, and a path
toward severe cuts in the core New Deal and Great Society insurance
programs – Social Security, Medicare and Medicaid. And, of course, no
tax increases at all.
To see the arc of political strategy, recall that from the beginning
Obama handed economic policy to retainers recruited from the stables of
Robert Rubin. From the beginning, he touted “fiscal responsibility” and
played up the (economically non-existent) “problem” of the budget
deficit. From the beginning his team sabotaged economic recovery with
optimistic forecasts and inadequate programs – in the clear interest of
protecting the banking system from reform.
As the presidency moved along, false claims of economic recovery
supported a transition toward obsessive focus on debt and deficits,
validated by a federal commission and constantly reinforced by a
Washington propaganda chorus funded by Peter G. Peterson, for many
decades a billionaire campaigner against Social Security and Medicare.
Debt ceiling a pseudo-crisis
But it wasn't enough. Even with the Republican victory in the 2010
mid-terms there wasn't the political will-power simply to pass the cuts
and make them stick. For it wasn't sufficient just to pass them:
politicians need cover when they do ugly things.
They need an excuse, something that will offer protection from the anger
of the victims, or more precisely from other politicians who might
exploit that anger. In the well-practiced manner of organized crime,
blood needs to be on everyone's hands. That way, no one can defect; no
one can turn states' evidence and safely get away with blaming the others.
The debt-ceiling pseudo-crisis created the necessary panic.
The debt ceiling is a unique American law – no other country has one – a
little travesty of democratic bad faith. It was first enacted in 1917,
to allow congressmen to hoodwink the rubes back home even as they voted
for a large issue of Liberty Bonds to finance the Great War.
It has been a vehicle for posturing ever since – but that it would be
raised has never been in doubt. (Even this time the markets never showed
the slightest worry.) It became a vehicle for blackmail because it was
convenient. It was convenient, because Obama failed to insist it be his
price for agreeing to extend the Bush tax cuts last December. Whether
that omission was accidental or calculated at the time is, for the
Obama's neglected options
Even as “crisis” loomed, the President had powerful options. The
Constitution of the United States flatly forbids default on debt or any
other public obligation. The President could have simply asserted his
duty and refused to negotiate.
Even more cleverly, he could – under a quirk of existing law – have
turned drama to farce by minting a large platinum coin – say for a
trillion dollars – and using that to buy back public debt held by the
Federal Reserve, so that the debt ceiling would never have been
breached. (There would have been an uproar but no other economic effect.)
These options were rejected or not considered at all. From which, one
has to conclude that the President really did want a big budget-cutting
deal. He just wanted – like any politician – the appearance of being
bullied into it.
So now the die is cast. Practically nothing to address any real economic
problem can now get done. Actual austerity will come slowly – the cuts
are not abrupt and some may yet be blocked – but unless there is a
radical change of events or mood it will come. Meanwhile as the economy
stalls and despair deepens, the deficits and debt will continue to climb.
The deficit lobbies are shifting: their next step will be to raise
doubts about the plan's credibility and about Congress's will to enforce
it. They will then make the self-protective assertion that still
stronger steps are needed. European observers of Greek/Irish/
Portuguese/ British/Spanish and Italian politics – not to mention Latvia
or Hungary – will find all of this familiar.
For European observers, one key to understanding how such things can
happen in America is to remember that our presidencies are short. The
professors who joined Obama for his opening act have already gone home.
The advisers who remain face dreary futures in think-tanks funded by the
likes of Michael Milken, our premier financial ex-felon.
Maybe, if they are especially loyal to their true masters, then like the
former budget director Peter Orszag they can go to work for a bank. This
surely accounts in part for their present actions.
And the President too is a young man. Unlike say Lyndon B. Johnson or
Jimmy Carter, when his term ends he won't be able simply to go home.
He'll need a big house in a gated suburb, with high walls and rich
friends. And a good income, too, from book deals and lecture fees. He
may be thinking about that now.
The good news is: it won't save him. For if and when he ventures out,
for the rest of his life, the eyes of all those, whose hopes he once
raised will follow him. The old, the poor, the jobless, the homeless:
their eyes will follow him wherever he goes.
James K. Galbraith holds the Lloyd M. Bentsen Jr. Chair in
Government-Business Relations at the Lyndon B. Johnson School of Public
Affairs, The University of Texas at Austin. His next book, Inequality
and Instability, is forthcoming from Oxford University Press.