Pete Souza/White House
An old friend's funeral services took me to Washington, D.C. last week before, during, and after the debt-ceiling debate. I used the time to meet with a number of capital regulars who, for the most part, had big jobs in previous Democratic White Houses and administrations, the Congress, and the media. The regulars were just as irritated and impatient with the current state of policy and politics as ordinary voters out in the country. More on that below.
As expected (see my July 10 blog post on the subject), the lifting of the debt ceiling was accompanied by some modest short-term policy changes, while more difficult taxing/spending decisions were bucked to a bipartisan Senate-House committee yet to be appointed. At the end of the week, Standard & Poor's issued the first downgrade in history of the U.S. credit rating. Since financial markets had shut down for the weekend, the downgrade's effect will not be felt there until early this week. There was immediate and strong international reaction among governments and finance ministers, however.
The Chinese, perhaps not surprisingly, lectured us about the size of our continuing residual debt. We have to listen because they hold a good share of that debt and could wreak havoc by dumping it. Domestic economic data, released about the same time, were disappointing and raised fears of a double-dip recession.
Some facts to bear in mind:
•Despite the incremental measures taken in the debt-ceiling deal, federal debt is headed toward $15 trillion.
•Unemployment remains above 9 percent; the number is 18 percent if you include those who have stopped looking for work or are only partially employed. The present economic growth rate, below 2 percent, is not sufficient to make even a small dent in those numbers.
•The effects of the 2009 stimulus package, modest at best, have run out and public-sector layoffs at state and local level are increasing; private-sector employment is rising very slowly.
•Home values have fallen by about one third in the past five years and will fall further until the market has cleared the backlog of unsold and foreclosed homes. A huge percentage of post-2005 homeowners are "under water" on their mortgages; that is, their mortgages exceed the total value of their homes.
The available policy options do not promise early turnarounds.
The 12-person debt-reduction committee, to be appointed by Democratic and Republican congressional leaders, is supposed to submit its recommendations by Thanksgiving. Its proposals are likely to be quite close to those made by last year's Bowles-Simpson commission, appointed by President Obama, and the independent Rivlin-Domenici commission.
That means changes will be recommended in Social Security, Medicare, and Medicaid formulae which will put those programs on a sounder long-term basis while cutting their overall costs. Benefit levels will remain near their present levels and no one presently over 55 will feel much impact. Its most beneficial recommendations will be for tax reform. Not only are big subsidies and loopholes (the infamous ethanol subsidy is most cited) likely to be proposed for elimination but such provisions as the home-mortgage deduction could be pared back — for instance, by capping the deduction for bigger mortgages. Its tax-reform recommendations could call for lowering rates in all brackets, thus helping near-term growth.
Just as with the debt-ceiling negotiations, discussion of the commission recommendations will go right to the wire. But public anger about the debt-ceiling fumbling — and anxiety about a new rating-agency shock — will in the end lead to acceptance of the commission's main proposals.
Obama, the Congress, and the Federal Reserve face a daunting task in averting a double-dip recession. The 2009 stimulus package was sloppily conceived and designed, and Congress will not pass an expensive second package. Interest rates already are effectively at zero. The Fed recently ended "quantitative easing" — that is, massive government bond purchases — but is likely to resume it if growth numbers remain flat or turn negative.
Obama likely will propose and get an extension of payroll-tax relief. Unemployment benefits can again be extended, although they do not serve growth. Infrastructure spending, just as stimulus spending, is in bad repute since, as Obama said, those "shovel-ready jobs proved not to be shovel-ready." But a large, more carefully conceived infrastructure program, favored by the White House, could be mounted. But there, too, the payoff in growth would not be immediate.
The core of our troubles — just as the troubles of other major countries — lies with our huge overhang of public and private debt. We cannot eliminate that debt rapidly, just as you cannot abruptly stop a speeding train just as it enters the station. But we must work through it without at the same time crushing badly needed near-term growth and job creation.
We're talking about a decade of slower growth and higher unemployment than we have grown accustomed to tolerating. In that context, short-term Tea Party or Left ultimata and demands are unreasonable and undoable.
Now, reactions to the opinions of those long-time capital regulars:
•Without exception, all expressed disgust at the polarization and partisanship that now plague the policymaking processes. There was a nostalgia for the time when leaders of both political parties "could disagree without being disagreeable" and when consensus could be sought in a spirit of goodwill.
•I had grown increasingly impatient with Obama's halting and inconsistent leadership style but was a bit surprised to find that even hard-core Democratic partisans also had run out of patience with him. I also was surprised to find the depth of irritation with Obama held by even the most senior Democratic Hill leaders. Ranking House Democrat Nancy Pelosi, for example, said publicly until the last minute that she was undecided about supporting Obama's debt-limit deal with Republicans; she finally relented and voted "yes."
One senior Senate and one senior House Democrat each told me they found Obama to be aloof and outrightly unfriendly to them. Several noted the historically high White House staff turnover and laid it to Obama's similarly abrupt and frosty in-house style. All of this became evident late in the debt-ceiling negotiations when House Speaker John Boehner walked out of bargaining with Obama and Senate Democrats, led by Sen. Harry Reid, entered into independent negotiations with Boehner, leaving Obama a spectator for several awkward days. Another frequent complaint: That the White House increasingly was dominated by short-term political considerations and that 2008 campaign manager David Plouffe had become the dominant player there.
Sniping at incumbent presidents, even by leaders of their own party, is not unusual. But it is important now because the overall political climate is difficult for Obama, headed toward 2012, and he needs committed allies in his party. Presidents Kennedy, Johnson, and Clinton, for instance, got through some difficult patches in their presidencies because of their personal relationships with key congressional and party leaders. Obama, like President Carter, suffers from a lack of true friends and allies in his own party. This lack is especially important when interest groups tied to his party are angry and restless.
•There was consensus that Republican presidential front-runner Mitt Romney's Mormon religion would be a greater obstacle than anyone now foresees. "I could never vote for a Mormon," a well known southern civil-rights advocate told luncheon companions. "A worse problem for Romney than Catholicism was for Kennedy," another said; "poison in border and southern states." Romney's Mormonism likely would cost him up to 2 percentage points in a national election, was the general opinion. (It should be noted that Mormonism has taken a beating recently with the "Big Love" series on HBO, the "Book of Mormon" hit musical on Broadway, and the Warren Jeffs' conviction receiving headline cable-news treatment).
•Few thought the Tea Party would be important much longer. The 85 House frosh, closely tied to the Tea Party, made a huge short-term impact this year with their unyielding stance on the debt-ceiling talks. But the exercise has left many of them with a greater sense of realism about what is and is not possible in the capital and Congress. And, just as other politicians, they can see that anger and rigidity do not get many votes long-term. (As last week went on, many tempered their statements and postures toward an eventual legislative compromise). Only the practical members of the class, it seems likely, will be reelected in 2012. Hard-core true believers are likely to be one-term wonders.
I left Seattle looking forward to discussion with friends I had known and respected in politics. It was good to get back to Seattle.
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