Is the idea that overspending is the cause of the economic downturn today’s equivalent of the widespread myth that Iraq was responsible for the 9/11 attacks?
At the recent Republican convention, speaker after speaker, culminating in the presidential and vice-presidential nominees, decried overspending as the source of the nation’s economic ills. “The choice is whether to put hard limits on economic growth or to limit the growth of government,” declared Paul Ryan, as if reciting a mathematical equation.
By contrast, seemingly no one mentioned a lack of restraints on financial speculation by banks, or lax underwriting standards for mortgages. Those were the established causes of the collapses of Bear Stearns and Lehman Brothers, and the meltdowns that hobbled so many other financial institutions, thereby triggering the Great Recession.
But none of the top GOP speakers bothered to address that problem, even to reiterate the GOP’s opposition to the Dodd-Frank bill that imposed new limits on financial speculation; like Arizona-style crackdowns on illegal immigration, opposition to Dodd-Frank is unpopular among moderate voters, and thus was largely ignored at the Tampa convention. Instead, speakers offered a simpler narrative of a government living beyond its means, while citizens watched their own incomes shrivel.
This is the story that worked so well for Ronald Reagan in 1980, and it’s arguably even more apt today, with a long-term structural deficit due mainly to increased Medicare costs. But it’s simply not what was responsible for the economic meltdown of 2008-09, and it’s absolutely not what’s keeping young people from getting jobs today.
Government deficits can fuel higher interest rates, choking off economic growth — Ryan is absolutely right about that — but it hasn’t happened yet, as anyone who’s sought to refinance a mortgage can attest. Future generations may well suffer, but today’s suffering would only be worsened by quick, decisive action on the deficit. (Even Romney has suggested he would not make sharp cuts in his first year, to avoid choking off the recovery.)
So the Republicans are trying to tie a future economic threat (the deficit) to an economic disaster that’s already occurred (the financial crisis), and hope that voters don’t notice the difference; the political implications, of course, are enormous, because voters are likely to hold President Obama guilty of inaction on the deficit, but innocent of any responsibility for the financial crisis.
It’s quite a tangle, but something of the sort has happened before. In 2004, George W. Bush had one crucial task: He needed to make voters believe that his decision to go to war in Iraq was a natural response to the 9/11 terrorism attacks. Bush and, especially, Dick Cheney equated the two so often that tens of millions of Americans actually believed that Iraq was responsible for 9/11. At bottom, Bush and Cheney were trying to tie a future national-security threat (Iraq’s alleged WMD program) to a national-security catastrophe (9/11), while asserting unspecified linkages between the two.
The political wrangles of 2004, and the divisions they engendered, provide a painful backdrop to 2012, because the true believers on either side (Iraq hawks on the right, antiwar voters on the left) stuck furiously to their positions, while many voters in the middle felt confused and, ultimately, misled.
Democrats, meanwhile, felt caught in a trap, unable to communicate the differences between Al Qaeda and Iraqi leader Saddam Hussein without appearing weak and equivocal. To many, the choice seemed to be between action and no action. That’s the trap that Obama faces in confronting the deficit. If he urges big steps to reduce it, he appears to validate the Republican narrative; if he insists it’s not the cause of the nation’s economic woes, he appears unresponsive.
In 2004, many voters seemed to choose clarity (Bush’s “you know where I stand”) over nuance, certitude over caution. Better to have a theory and a plan than appear to be making it up as you go along. But those voters soon came to regret their choice. Sometimes, a pragmatic, nuanced engagement with multiple threats on multiple fronts can be more effective than a single-minded focus on one villain. Obama has provided such leadership on foreign policy; now he has to make a case for it on the economic front. But it won’t be easy.