Obama’s Economic Paralysis

“Instead of deep, across-the-board cuts in many important investment programs, ranging from infrastructure to research and development, we need to protect those initiatives while adjusting our social welfare programs to live within our means and protect the truly needy,” – Steve Rattner, making the kind of sense the current GOP doesn’t want to understand.

There are all sorts of arguments to be made about if and whether a Grand Bargain on entitlements, defense and taxes is possible, given the near-pathological refusal of the GOP to raise any serious revenue. But my fear is that it is precisely the failure to come close to the broad Bowles-Simpson framework that has imposed the ridiculously crude sequester that has clearly boomeranged on Obama – and made recovery much weaker. We can all enjoy hindsight, but I wonder if Obama had actually embraced the full Bowles-Simpson when it came out, broke with his 042913austerity11party, and ran for re-election on it, he wouldn’t be in a much stronger position than he is today. This is his mistake – but not his fault, if that distinction makes any sense. It’s his mistake because he lacked the daring to grasp Bowles-Simpson when it could have mattered; but it is not his fault that even if he had done the right thing, the GOP (and the Democratic base) would have turned around and accused him of slashing entitlements, or raising taxes, and success may have been as elusive as it turned out to be, but include his humiliation.

What’s left is a gnawing sense that there is no functioning rational government in Washington. Obama may not want this, and may not be primarily responsible for this, but it will stick to him, as it already has with the younger generation. Many Democrats hated Bowles-Simpson; but they may look back one day and realize it was essential to getting government back from effective permanent bankruptcy to do the things it truly must do – infrastructure, research, education. Maybe the sequester’s grim onslaught – and its effect on current growth and defense spending – will force Washington’s hand. But the private sector is still chugging along sufficiently not to force a crisis (see chart from Pethokoukis) – and after Obama caved so swiftly on the FAA, I get the sinking feeling that the rank and harmful partisanship of today’s politics will not end under his watch. That hope, it may turn out, was too audacious.