It was a year ago, on July 5, 2010, that I suggested that this crisis might well have started on September 11, 2001, that it might be nearing its end, and that it would not involve any regeneracy comparable to what the United States experienced during the Depression and the Second World War. A great deal has happened since then, including the Republican Congressional victory, the new war in Libya, the interruption of economic recovery, and the threatened debt crisis. In my opinion, as I plan to show today, most of what has happened suggested that I was right--but there are also possibilities looming on the horizon pointing in a different, and, sadly, even less inspiring direction.
The view I enunciated then, it is now clear, is most definitely shared by the President of the United States--but while I regretted the end of the crisis and the lack of any real regeneracy, he seems to be embracing it. Barack Obama is of course a Gen Xer, a Nomad in Strauss-Howe terminology, not a Boomer, or a Prophet like Lincoln (Transcendental) or FDR (Missionary.) And although he was born in the first year of JFK's presidency, he evidently dreams of emulating his fellow Nomad, Dwight D. Eisenhower. Just as Eisenhower accepted (sometimes reluctantly) the reforms of the New Deal and even the very high tax rates it bequeathed to the nation, Obama has not challenged the economic deregulation that has been going on for thirty years and reached a climax under George W. Bush. Like Eisenhower, he has embraced the (somewhat less sweeping) new foreign policy commitments that his predecessor made. (It is one thing, however, to embrace NATO, as Eisenhower did, and a completely different thing to embrace an indefinite American presence in the heart of the Muslim world.) The centerpiece phrase of Obama's State of the Union address--the "Sputnik moment"--was a clear reference to the late 1950s. The Obama Administration is playing roughly the same role in the gay rights revolution that the Eisenhower Administration played in the civil rights revolution. Nowhere, however, is Obama's affinity with Ike more obvious than in the debt reduction negotiations now taking place.
Both Eisenhower and Obama began their terms with majorities in Congress and lost them in their first mid-term election. (Obama, unlike Ike, still has a Senate majority, but given the evolution of Senate customs it is not big enough to accomplish anything.) And both have reacted by accommodating the opposition leadership to an extraordinary extent. Obama is more than happy to cut tens of billions of dollars in federal discretionary spending, putting more people out of work, and is even willing to discuss reductions in Medicare, Medicaid, and Social Security benefits. He wants to use the threat of a debt crisis to forge a grand compromise, a new consensus, which will firmly establish him as a strong leader and lay the partisanship of the last forty years to rest. And just as Eisenhower evidently realized that the New Deal was here to stay, Obama does not seem to care that that grand compromise would continue to promote income inequality and leave the United States with numbers of permanently unemployed comparable to the latter stages of the Great Depression.
Can he do it? There are two threats, one political and one economic.
Republican columnist David Brooks obviously wants Obama to bring this off, and last week he criticized Congressional Republicans for not meeting the President half way. But the Republican Party has just won a smashing Congressional victory by portraying Barack Obama as a political Antichrist for two years. Taking their cue from Rush Limbaugh, they have blamed everything on him and his supposed liberal allies. (Liberals, meanwhile, are finding out, as conservative Republicans did under Ike, that Obama is not much of an ally at all. I received an email from one of my Senators this week complaining, in effect, that the President was considering Social Security and Medicare cuts.) Although John Boehner seems tempted by the possibility of emulating 1950s House Speaker Sam Rayburn, Mitch McConnell shows no sign of wanting to be the new LBJ. (Just those comparisons show how far we have sunk.) The last thing the Republicans want is to announce that they have solved the country's problems with the help of Barack Obama. Boehner's reaction to yesterday's wretched jobs news suggests that the bad economy makes a deal less likely, because he and his troops think they have Obama on the run.
I do not think, however, that the Republicans will actually dare to plunge the country into default for more than a few days. Thus we will see a series of stopgap compromises, including a catastrophic agreement to continue the cut in the social security payroll tax that Larry Summers evidently talked Obama into before he left--really one of the stupidest moves by a Democratic President in my lifetime, since it is hastening a genuine crisis in social security payments. There will be no great compromise unless Obama is re-elected, holds the Senate and makes some gains in the House. (He is not going to win a majority back there.) And it is far from clear, given the state of the economy, that that will happen.
In either case the United States's decline is going to continue. We have not got the political will or the intellectual capital to attack our real problems, including long-term job losses, the power of the energy, food, and drug industries, and the cost of health care. Some left-wingers are indeed hoping that things will get so much worse that a stronger left-wing response will be necessary. I do not share those hopes.
To begin with, there simply isn't any strong organized left ready to assume leadership. We have not elected a truly liberal President on domestic issues since Lyndon Johnson. The Democratic Party may have worse relations with Wall Street and the energy industry than the Republicans but it is not offering a real policy alternative. The right is at least as likely to benefit from a further economic deterioration as the Left.
Make no mistake: the stronger the Republicans get, the worse the economy will get. I learned in my teens and twenties that today's Republican policies made the depression worse both in Germany and the United States. In Germany they brought Hitler into power; here they brought in FDR. We have no Hitler, but we also have no FDR. Our economy is going to stagnate for a very long time. Our interest is to have it do so at the highest level of employment possible, and I think the grand compromise probably would be, on balance, a good thing.