Evaluating 2009: What The Dems Did Wrong, Part 1 - "It's Very Stimulating"

If you wish, you can dismiss it as mere Monday morning quarterbacking.  I prefer to call it taking advantage of hindsight.  What follows here is my take on the major mistakes of the Democratic party during the first year of the Obama administration.  It's my opinion, straight up.  Take it or leave it.

This is the first of three installments.

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Whether or not you consider yourself a Democrat, whether or not you are or were a supporter of Barack Obama, there seems to be wide agreement at this point that things have not gone well for the Obama administration and Democratic governance over the last year.  The Obama administration started out with a very high measure of public support and the largest congressional majorities in decades.  One year later, the Obama's approval numbers are middling and the numerical congressional majorities seem not to mean much at all.  Already into the 2010 election cycle, the Democratic party seems incredibly vulnerable.  What happened?

In my opinion, the first major mistake was the stimulus package.  Economic analysis called for a stimulus of approximately $1.2 trillion to compensate for lack of aggregate demand.  The stimulus package that was passed was $500 billion short of that.  The typical explanation for this is that the package that was passed is the one that was "politically possible."

I find this notion to be specious in general, especially as it has been issued over the last year.  The limits of possibilities are revealed.  The way that this phrase gets used has been to provide cover for beginning negotiations from a decidedly weak position.  It goes something like this:

Well, the other side will not give us what we want, so we shouldn't even bother to ask for it.

This is the first reason that the Democratic approach to the stimulus was a mistake: It signaled to the GOP that Democrats were all too willing to negotiate from a position of weakness. The GOP learned early on that this Democratic party was not going to negotiate from a position of strength and that they could very easily be made to capitulate.

Furthermore, it raises the question of whether the Democratic leadership even believes in the economic theory that recommends such a stimulus.  One is inclined to think that they must believe in it in some measure since they championed and passed some form of it, but I'll employ an analogy here to illustrate why I question whether they really understand and/or believe the theory.

Imagine that you wish to build a bridge across a river.  Your engineers assess what will be required to build this bridge.  You decide to proceed by allotting the construction crew about two-thirds of what the engineers say will be required.  The result is two-thirds of a bridge.

Perhaps this gets you across the deepest part of the river, but you're still going to get wet.

This places the Dems in a sort of political double-jeopardy.  There are two reasons for this.

The first: It leaves the Dems facing elections in the face of high unemployment. Everyone knows the conventional wisdom here.  The incumbent party always suffers when there is high unemployment.  This is my main reason for questioning whether they believe the economic theory behind fiscal stimulus.  It's all about a lack of aggregate demand.  If you don't make up for the lack of demand, you'll still have unemployment.  If you accept the conventional wisdom about how this becomes detrimental to the incumbent party, then they should have avoided this outcome at all poltical costs.  Even if all you care about is winning, this was a sink or swim initiative if you believe the conventional wisdom.

Ah, but the stimulus prevented things from being much worse than they otherwise would have been, right?  This is true, but it's hardly relevant in political terms.  Most people don't understand economic theory (again, I'm not even convinced the Democratic leadership does).  What people understand is this: The government spent $750 billion dollars and there's still double-digit unemployment.  Put otherwise, we have the second reason why this has resulted in political double-jeopardy: The Dems must now argue the counter-factual.

The GOP is now free to argue exactly what I've stated above.  It doesn't matter whether or not it's true.  It sounds like it could be true and the only rebuttal is something that can't be proved.  Indeed, the GOP has now moved to hammering on the deficit, which is a direct attack on the ability of the Obama administration to have any fiscal latitude in addressing the issue of unemployment.  Again, it's not at all relevant that these attacks are contradictory within the framework of economic theory.  What's relevant is high unemployment for the short-run and widespread fear of deficits for the long-run.

Finally, and perhaps most regrettably, Obama passed up what I believe will prove to have been his best (and perhaps only) opportunity to use his oratory and charisma in order to persuade a nation at a crossroads of a bold, new vision for the future.  That $1.2 trillion could have been invested in a vast new array of infrastructure and R&D projects to create the energy and transportation technologies of the future.  Platitudes about "going green" and becoming less dependent on foreign oil are just that.  Without investment, it's just talk.  And without investment in these areas, America is destined to slip economically.  In the long-run, it's all about being on the cutting edge of technology.

There are so many reasons to have done this, but really only one not to: Being afraid to put your political career on the line for something truly audacious and visionary.

In the parlance of Rahm, the crisis has been wasted.  Fear has returned to eclipse hope.  Even Obama's biggest detractors are willing to acknowledge his exceptional skill in working a crowd.  The moment to parlay both that skill and the political moment of early 2009 into a political agenda that would have been truly historic, not just in terms of price tag, but in terms of scope and vision, is gone.

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This has been the first installment of three.  The next installment: Be Aggressive