There is a reason the phrase “New Deal” has stuck in our collective memory for nearly eight decades, and Barack Obama’s version of it, his “New Foundation,” has been forgotten a mere 18 months later. The “New Deal for the American people” promised by Franklin Roosevelt in 1932 was just that—something truly new, a grand simultaneous transformation of the economics and politics of the nation. Many commentators have already noted that we failed to get a New Deal-sized fix this time around, despite a nearly Depression-sized economic crisis. But the problem is much worse than that. The very opposite of the New Deal consensus is occurring now.
Today, as in the 1930s, the United States confronts an existential challenge, one with both economic and national-security implications in terms of our relationship with China and other rising nations. Yet instead of responding as we have in the past, by converging around a new course of action forged by strong leadership—something that happened as recently as the late Reagan years—we are fractionating. Instead of building political bridges to deal with a threat as great as “if we were in fact invaded by a foreign foe”—FDR’s words at his first inaugural—we have fallen into a leaderless chasm. Even establishment figures are resigned to the problem; Harvard economist Martin Feldstein recently expressed the forlorn hope that if the world continued to lose faith in Washington, at least the dollar might depreciate dramatically, which would help make our economy more competitive despite ourselves.
Perhaps the fundamental problem is this: Our thinking about economics needs to go in one direction, but our politics have careered off in the opposite direction. The economic situation demands that we have a profound discussion about the interaction of government and markets. About smarter government and the balance between economic growth and social equity. About redirecting market incentives so that our best talent does less financial engineering and more real engineering.
The political situation, which pretends that a bugaboo known as Big Government is the only problem, forbids any such discussion much less any action, especially across party lines. Our leaders in Washington, even President Obama, have lost control of the agenda to a latter-day “Know-Nothing” movement from the angry heartland.
The economic crisis and all that we have learned from it about the ills of our society—the nation’s yawning income gaps, the disappearance of a middle class whose “prosperity” was the mere smoke and mirrors of endless debt, an outsized financial system that has become our economy’s implacable taskmaster—have resulted in a situation that cries out for a new economics and a new politics. It mandates that, at the very least, we have a mature national discussion about an economic dependency on China and other massive buyers of U.S. debt that is undercutting America’s strength abroad, now that a newly confident Beijing has discarded its coyness about its currency-depreciation policies and simply told us, and the rest of the world, to shut up.
Instead, the national agenda has come to be dictated by the unreconstructed rhetoric of a minority political party, the GOP, terrified of its own extremists. How else to explain the Alice-in-Wonderland surrealism of a “debate” in which the biggest problem to many is too much government, when the financial catastrophe that led to this was so clearly brought on by too little government—too little supervision of Wall Street, too little oversight of financial products? And when any economist worth his Ph.D., even one as conservative as Feldstein, says that only another huge government stimulus will help?
Virtually every official estimate now predicts slow growth and high unemployment as far as the eye can see—and a great likelihood that we are sinking into a Japan-like slough (albeit with more joblessness). The answer must be, again, a vigorous debate among our politicians about more stimulus, more targeted government programs, better education and training programs, smarter tax cuts. But the twin Gorgons of record stagnation and record debt seem to have stupefied Washington, particularly during an election year; they are simply too much for our stunted politics. A close look at the economic plans from both Democrats and Republicans reveals that none is within even hailing distance of what is needed.
The failure of leadership is largely Barack Obama’s. The president seemed to recognize at the outset how extraordinary the challenge was—that it was “more than most Congresses and most presidents have to deal with in a lifetime,” as he said in his speech in April 2009 calling for a “New Foundation for growth and prosperity.” Yet in trying to be both transformational and bipartisan, he was neither. He settled for half measures in economic growth, financial reform, and health care (not to mention climate change). Granted, the Republicans made his task nearly impossible, and so they share in the blame. But Obama’s decision to devote so much political capital to health care, especially, while failing to take on the deeper systemic ills of the Great Recession appears in retrospect to have been a tipping point. Health care was simply a government program too far. That miscalculation helped to stoke the tea party brushfires of 2009 into the agenda-changing conflagration of 2010—and it made a necessary new stimulus politically impossible.
Some evidence of what is politically possible can be found, humiliatingly enough, across the Atlantic, where such countries as Greece and Spain have responded to their own brush with economic oblivion during the euro crisis by reaching a consensus on budgets and social responsibility.
The question now is whether the Republicans, with newfound power on Capitol Hill, will find in themselves a willingness to govern—to begin to close the chasm. We can only hope this happens. But in the end, it may well fall to the one unelected official in Washington with real power—Federal Reserve Board Chairman Ben Bernanke—to bring us out of this by printing trillions more dollars. And that’s a devastating statement about the failure of our political system.