The wages of competence: Obama, the economy, and the 2010 midterm elections.
The Democratic Party’s huge loss in the 2010 election, coming
after victories in 2006 and 2008 that had seemingly put them in charge
of the government, registered the voters’ verdict: the president
and his congressional allies had failed to measure up. While other
issues, most notably health care reform, played a role, most
commentators agree that the election was largely a reaction to the
economy. What explains the Democrats’ poor showing on the economy?
There are three obvious suspects.
First, critics and defenders alike blamed the president’s
leadership. In the run-up to the 2010 election, conservatives argued
that the administration could have restored prosperity by enacting the
Republican economic agenda; the Democrats deserved those historic losses
because Obama pursued the wrong policies. Liberals similarly insisted
that the Democrats would have done better if President Obama had exerted
better leadership on the economy. (1) This story line is familiar: in a
presidential system, the bulk of attention focuses on what the chief
executive does. But this perspective is inadequate as a foundation for
understanding policy, either as a response to economic conditions or as
a means to winning electoral support. It elides the fact that presidents
have only limited power to influence the economy. Second, the severity
of the financial crisis and the recession certainly constrained any
government’s ability to restore prosperity in the short run. As the
economic historians Carmen Reinhart and
show, over the
last two centuries financial crises have caused recessions that are deep
and prolonged, and that respond only slowly to fiscal and monetary
policy. (2) Third, the president has limited control over the relevant
policy instruments. Monetary policy is independent of the elected
branches, and the main fiscal policy instruments can only be used if the
Congress concurs with the president’s plan. And focusing on the
president slights the potential of the opposition in the U.S.
see Constitution of the United States.
separation of powers
Division of the legislative, executive, and judicial functions of government among separate and independent bodies.
system to block the administration’s proposals in
Congress and to frame the electorate’s impression of enacted
policies–a potential that the Republicans used to dramatic effect.
Understanding the dramatic decline in the Democrats’–and
Obama’s fortunes, in short, needs to consider three factors: the
dire economic legacy left by George W. Bush, the actions of the
president and his economic team, and Republican resistance in the
Congress and the highly mobilized conservative
pl.n. (used with a sing. or pl. verb)
1. People or society at a local level rather than at the center of major political activity. Often used with the.
2. The groundwork or source of something.
. The president’s actions are important, to be sure, but the
other two factors capture the key constraints on the president’s
power. Ignoring these not only errs in attributing blame or praise, but
undercuts the potential to learn from experience.
This article reviews the developments of economic policy making in
the first two years of the Obama administration in order to assess the
relative importance of these three factors. The objective is to sharpen
our account of the constraints and opportunities of the president in
dealing with an economic crisis. Given the real-world constraints, could
the White House have taken different actions that would have had a more
potent impact at reenergizing the economy, and that would have been more
favorably perceived by the public? The next section looks briefly at
economic conditions as a potential explanation, showing that objective
conditions take on political import only as they are framed in the
campaign and reported in the media. The article then goes on to
summarize the legislative history of the administration’s key
economic policy initiatives, the antirecession program and the financial
reform law, and then to put these policy actions into the context of
party competition by tracing the actions of the conservative opposition
in the legislative arena and in the election campaign.
The Ambiguous Political Implications of “Objective
It might seem as if simply looking to objective indicators would
give a valid picture of the economy’s political import. The
political business cycle literature shows that elections and objective
economic conditions are generally correlated, and the state of the
economy in November 2010 was certainly poor enough to
tr.v. fore·told , fore·tell·ing, fore·tells
To tell of or indicate beforehand; predict.
the governing party. But the aggregate relationship averages over a good
deal of variability in the impact of economic conditions on specific
elections, and the roots of this variability lie in the way different
incumbents and their challengers frame the economy as an issue for the
electorate. Forecasting models based on the political business cycle
technology, for instance, failed to capture the magnitude of the
Republican wave in 2010. (3)
In general, if objective conditions accounted adequately for
election outcomes, then we would expect comparable losses for the
incumbent party whenever conditions were similarly bad. In this respect,
the 1982 election makes a thought-provoking contrast with 2010. Both
follow a decisive presidential victory after a campaign promising
change, and both elections occur during severe economic decline. (4) In
2010, President Obama and congressional Democrats could rightly claim
that the recession was due to the worldwide financial crisis that had
occurred under the previous government; and they could point to two
significant measures–the stimulus and the banking reform bill–they had
enacted to address the recession and its primary cause. Given time, they
argued, the administration’s program would reverse the decline and
put future growth on a sounder footing. In 1982, President Reagan and
his copartisans also blamed the economy’s troubles on the previous
administration, and they emphasized that they had enacted a package of
policies that promised to set the economy on a more favorable path.
Objective economic conditions in both cases pointed toward severe
electoral punishment, but where voters summarily rejected the incumbent
party in 2010, Republican seat losses in 1982 approximated the average
for postwar midterms. (5) This seems paradoxical: if the objective
economy needed no framing or interpretation to condition its political
impact, then similarly poor economic conditions would be associated with
similar electoral outcomes.
Economic conditions are a crucial influence on elections, but the
simple fact that
n. (used with a sing. verb)
The study of the overall aspects and workings of a national economy, such as income, output, and the interrelationship among diverse economic sectors.
indicators are unfavorable does not
determine the outcome. Connecting conditions with specific policies is
difficult even for sophisticated analysts, and voters reasonably look to
candidates, parties, and the media as they attribute blame (or praise)
for the conditions they see or read about (Alt and Woolley 1982; Brody
and Sniderman 1977; Weatherford 1983). Similarly, extrapolating current
trends to forecast the economy’s future is fraught with pitfalls,
and the way media coverage and the political debate frame the
prospective consequences of policies powerfully shapes the public’s
impressions (Suzuki and Chappell 1996). The next sections turn to the
politics of economic policy making and electoral competition.
The Great Recession and the Government’s Response
The story of the government’s activist response to the
financial crisis and its wider economic impact begins nearly a year
before the 2008 election, with a series of conversations in the Bush
White House that led to the bailout. Launched in September 2008 and
continued by Obama after he took office in January 2009, the bailout
shaped Obama’s initial policies toward the banking sector.
The Banking Crisis, TARP, and the Bailout
Formulated by President Bush’s economic team, the Troubled
Asset Relieve Program (TARP), the most publicly visible component of the
bailout, was directed toward rescuing the financial system by pumping
some $700 billion into major banks (and eventually also General Motors
and Chrysler). (6) The idea of
the very institutions whose
reckless greed had caused the crisis was never popular, and Treasury
Secretary Henry Paulson finally gained the reluctant approval of
Congress on the strength of his promise that a substantial part of the
bailout would be directed toward stabilizing the housing market.
However, with the financial panic continuing to worsen in October 2008,
Paulson almost immediately changed course: rather than bail out mortgage
holders, he shifted to investing directly in bank equity in order to
keep financial institutions afloat. Although this had some calming
effect on the markets, for the public and Congress members, the move
propelled a spiral of incredulity and populist anger: “the Bush
administration, after eight years of preaching the virtues of free
markets, tax cuts, and small government, had turned the U.S. Treasury
and the effective guarantor of every big bank in the
country … it had stumbled into the most sweeping extension of state
intervention in the economy since the 1930s. (Cassidy 2009, 4).
By election day in 2010, public opinion on the bailout was strongly
negative: 49% believed the federal government’s loans to troubled
financial institutions did not prevent a more severe economic crisis;
63% thought the bailout was bad for the country; and 67% held that the
banks and insurance companies should have been left to succeed or fail
on their own. The overall impression was that rescuing the large
financial companies had cost taxpayers dearly and had accomplished
little more than enriching the bankers. Moreover, although voters blamed
President Bush for the recession, more people believed that TARP was
Obama’s program (47%) than recalled that it had been Bush’s
In fact, however, the economic evidence is
v. re·sound·ed, re·sound·ing, re·sounds
1. To be filled with sound; reverberate:
inconsistent with the interpretation of the bailout as a failure. From
the onset of the banking crisis, the consensus among economists has
consistently endorsed the bailout as essential to avoiding much wider
and deeper impacts on American businesses, jobs, and the housing market.
With nearly three years of evidence now in, it is clear that the
bailout–which includes not only TARP, but also the rescue of the major
mortgage finance agencies,
see Federal National Mortgage Association.
see Federal Home Loan Mortgage Corporation.
, special tax
exemptions for banks and insurance companies that received TARP funds,
Treasury and Federal Reserve purchases of mortgage-backed securities,
and returns to the
Federal Deposit Insurance Corporation
(FDIC), an independent U.S. federal executive agency designed to promote public confidence in banks and to provide insurance coverage for bank deposits up to $100,000.
See Federal Deposit Insurance Corporation (FDIC).
guaranteeing borrowing by impacted banks–forestalled what would have
been a worldwide financial
. The primary mechanism was the
government’s prompt action to restore liquidity to the system by
buying up securities and guaranteeing loans. Most of the assets the
government bought during the financial panic were at near-bottom prices,
and virtually all have recovered, so that the bailout has in effect paid
for itself. Allan Sloan, senior editor of Fortune, recently summarized
the evidence, from several separate analyses by private firms and
government agencies, concluding that “U.S. taxpayers are coming out
ahead on [the bailout]–by at least $40 billion, and possibly by as much
as $100 billion” (2011). (8)
The widespread public disapproval of the bailout cannot simply be
attributed to mistaken perception, however: beneath the aggregate
cost/benefit calculation, both the profile of beneficiaries and the
process of administering it rankled the public. The congressional debate
and the reaction to Paulson’s about-face had shown that the
politically volatile trade-off of benefits for Wall Street versus Main
Street had been mishandled. The most salient criticisms of the bailout
were that it asked so little of the banks in exchange for rescuing them
at taxpayer expense and that it favored big financial institutions over
homeowners and local businesses hit hard by the Great Recession.
President Obama’s initial actions showed that he understood
the need to strengthen accountability and direct more of the benefits to
homeowners. One of his first actions was to put in place procedures to
constrain banks’ ability to engage in highly leveraged activities,
and at the same time to give investors and the public crucial
information about the state of banks’ finances. Within a month of
taking office, the president ordered the nation’s 19 largest banks
to undergo stress tests to assess their capacity to weather further
deterioration of the economy: if its capital would be depleted by a drop
in housing prices or a rise in unemployment, the bank would have to
raise additional capital within six months (U.S. Federal Reserve 2009).
goal was to avoid
acquisition and operation by a country of business enterprises formerly owned and operated by private individuals or corporations. State or local authorities have traditionally taken private property for such public purposes as the construction of
or further infusions of
government rescue money by requiring the banks to hold capital adequate
to deal with a significant drop in asset prices; to dispel
investors’ and depositors’ uncertainty, by producing tangible
evidence about the soundness of big banks; and, by effectively raising
, to accelerate the process of de-leveraging the
of risky loans. The initiative was criticized by financial
industry groups, who argued that the banks should have the only voice
when it came to describing their fiscal soundness; but the idea of
assessing the banks against clear standards and publicizing the results
had the effect of strengthening the resilience of the private sector,
decreasing the need for government support, and lowering of the cost of
the bailout (Puzzanghera and Reckard 2009). By addressing an essential
element of systemic weakness, the initiative contributed to the
recovery, and it strengthened the accountability of banks for the
taxpayer rescue they had received.
The public was also looking for evidence of the president’s
commitment to helping with economic problems closer to home, and almost
immediately after his inauguration President Obama set up the Home
Affordable Modification Program (
HAMP Horizontal Avionics Modernization Planning
), intended to help up to four
million families by subsidizing the banks to modify mortgages. But the
program languished. When the initial design proved ineffective and
mortgage servicers refused to comply with program guidelines, the
Treasury did little to modify it or
tr.v. in·vig·or·at·ed, in·vig·or·at·ing, in·vig·or·ates
To impart vigor, strength, or vitality to; animate:
its implementation. Other
Treasury actions multiplied the negatives with what appeared overly
a. Anxious or concerned:
b. Expressing care or concern:
treatment of the biggest financial firms. (9) For instance,
senior managers of rescued banks were allowed to keep their jobs and
increase their salaries, and bank shareholders were protected from the
full impact of risky actions when the Treasury refused to force lenders
to take losses in exchange for the bailout. (10) In addition, the
Treasury’s administration of the program appeared intended to
hinder accountability: the initial dispersal of billions to large
financial institutions carried no requirement that the banks reveal how
the money was used, and program managers resisted articulating clear
goals or milestones for many of the TARP programs including HAMP.
Two different sets of actors hampered the effective implementation
of Obama’s attempt to address the housing crisis–the Treasury and
the banks. Ultimately, the president is responsible for the quality of
his administration’s actions to implement his programs, and Obama
showed his inexperience in not reacting with more pointed leadership to
Lacking spirit, liveliness, or interest; languid:
performance. More vigorous action by
the Treasury would have improved the program’s effectiveness, but
turning it into a success also required the compliance of banks and
mortgage servicers. The banks’ resistance reflected the fact that
they could profit more by foreclosing on delinquent mortgage holders
than by stretching out the payments and that the program would have
required them to acknowledge that the legal paperwork for administering
mortgages had become increasingly slapdash and chaotic during the
housing bubble. Getting the banks to comply is a different problem than
getting your Treasury to execute your orders, and it is not clear that
any president would have been able to turn such a powerful societal
interest (McLean and Nocera 2010). Although only part of the shortfall
can be laid to the president’s responsibility, the upshot is that
Obama missed the opportunity to produce results that would show that the
bailout could work for the public; and the bailout, which had always
been an easy political target, became all but indefensible as it
appeared to be nothing more than a giveaway to Wall Street executives.
Recession and the Stimulus Program
Although Obama endorsed TARP in September 2008, his emphasis
throughout the campaign had been on stimulating job growth rather than
restoring the banking sector. (11) U.S. economic performance had been
exceptionally weak all through the Bush years. Even before the financial
crisis, gross domestic product (
(guanosine diphosphate): see guanine.
) growth was the lowest of any
postwar president, job creation was adequate to absorb only 14% of the
yearly increase in new workers, and the stock market declined by an
average 5.6% annually. After six years of weak but positive growth, the
economy tipped into recession in 2007, and the financial collapse
accelerated the downturn. In the year preceding the 2008 election, the
stock market lost a third of its value, homebuilding and exports fell by
more than 20%, and the GDP declined by 6.2% in the final quarter. When
President Obama entered office, the economy was losing jobs at the rate
of 750,000 a month, and Americans’ economic expectations had fallen
to levels not seen since the
of the 1970s. (12)
No postwar president has entered office facing an economic crisis
as wrenching as the one Obama faced in January 2009, and as recession
threatened to turn into depression, there was little alternative–in
spite of his ambitious change agenda–but to put all his effort into
halting the slide and restoring growth. This lent the stimulus package
added importance as the president sought to establish a foothold for his
longer-run programs. The White House crafted the stimulus, the American
Act, to address three quite different goals:
short-term stimulus, tax cuts intended as a concession to congressional
Republicans in an effort to build a bipartisan coalition, and
significant long-run initiatives that amount to a “down
payment” on his substantive policy agenda.
The administration’s proposal included funding for hard-hit
state governments, along with provisions to shore up the safety net by
expanding the coverage and lengthening the duration of unemployment
compensation and extending Medicaid and health insurance eligibility to
unemployed workers (Calmes and Herszenhorn 2009; Calmes and Hulse 2009b;
Leonhardt 2009). Obama had repeatedly vowed to seek bipartisan support
for a program to combat the recession, and his outreach to the
Republicans started in the White House, as he settled on a smaller
stimulus than his economic team recommended and committed some $300
billion (40% of the total stimulus) in the form of tax cuts, which would
be drafted in consultation with the Republican leadership. (13) Obama
met with congressional leaders before the inauguration, and he used his
first speech as president to emphasize his commitment to building
bipartisan support. He went to Capitol Hill to meet with the Republican
caucus, declaring that he had “no stake in pride of
ownership,” (Obama 2009a) and he invited GOP leaders to the White
House for a Super Bowl party. In addition to stimulating recovery, Obama
emphasized his goal of strengthening the supply side of the national
economy, noting that “This is not just a short-term program to
boost employment. It’s one that will invest in our most important
priorities like energy and education, health care and a new
infrastructure that are necessary to keep us strong and competitive in
the 21st century” (Obama 2009a). The American Recovery and
Reinvestment Act included funding for research and development in green
energy, extending broadband to underserved areas, improving medical
records, shifting the tax burden back toward the affluent, along with
school construction and an increased commitment to education reform
(Baker 2009; Calmes 2009; Obama 2009a). Although Minority Leader John
Boehner gave Obama “high marks for outreach,” he adamantly
urged all his party colleagues to vote against the bill (Calmes and
Hulse 2009a; Otterman 2009; Zeleny 2009; Zeleny and Herszenhorn 2009).
The president pushed hard for quick enactment, as each week’s
data showed the recession widening. Even before the economic team had
been confirmed, they were called on for a prediction. Quickly assembling
a forecast, they drew on data from previous postwar recessions to
predict that unemployment would not exceed 8% if the stimulus were
enacted (Romer and Bernstein 2009). The president was understandably
eager to accept this optimistic prediction: turning the economy around
depended on the psychological optimism of consumers and business, and
liberal Democrats in Congress were threatening to bolt if the stimulus
was not large enough. In retrospect, it became clear that the analysis
underestimated the exceptional severity of the systemic financial
crisis, but that was little comfort when–a few short months later–the
worsening recession proved the forecast wrong. If the optimistic
forecast had set the public up for disappointment, the Republican
opposition worked effectively to convert that into resentment.
When the early-February report showed continuing decline in
business activity, commentators predicted that the pressure of the
economic emergency would moderate partisan hostility. But Republicans
were adamant in their opposition: Minority Leader Boehner railed against
the bill in his response to Obama’s weekly address; and the
Democratic majority in the House finally passed the stimulus with no
Republicans votes. In the Senate, however, the bill bogged down; the
term used to designate obstructionist tactics in legislative assemblies. It has particular reference to the U.S. Senate, where the tradition of unlimited debate is very strong. It was not until 1917 that the Senate provided for cloture (i.e.
would require the administration to assemble a
three-fifths majority to bring the bill to a vote. Senate Democrats
announced a list of issues on which they were willing to compromise, and
several prominent Republican governors spoke up in favor of the bill;
but the Republican leadership marshaled fierce pressure to keep GOP
senators in line (Harwood 2009; Otterman 2009; Steinhauer 2009). The
administration strategy focused on four Senate moderates, and President
Obama personally joined the negotiations to cut some $110 billion from
the bill to win their support, finally clearing the filibuster on
February 10 and gaining Senate passage the next day. The conference
committee required further hard bargaining to meld the Senate and House
bills, but the stimulus was passed by both houses on February 13, 2009,
less than a month after its introduction. (14)
Assessing the Stimulus. If passing the stimulus in the face of
concerted opposition was an achievement worth remarking, even more
surprising is the evidence that it utterly failed to generate any
political reward for the president and his allies in Congress. The White
House had reason to believe that the party would gain some electoral
payoff from the hard-fought legislative struggle: not since Franklin
Roosevelt had a new president confronted such an economic crisis, and
Obama had managed to address the recession without losing sight of his
long-term goals. Moreover, the economic evidence shows that the
administration’s program succeeded in stemming the decline. The
analysis shows that the stimulus raised the
real (inflation-adjusted) GDP by as much as 4.5%, reduced unemployment
by more than a full percent, and increased the number of full-time jobs
by between 2 and 4.8 million. The econometrically sophisticated analysis
of Princeton and Mark Zandi of Moody’s Analytics
controls for monetary policy, and it shows that the
administration’s explicit fiscal actions raised real GDP by about
3.4% and lowered the unemployment rate by at least 1.5%: the recovery
was under way by spring 2010. (15)
Comparing the economic impact of the Obama stimulus to similar
measures by other presidents, and taking into account the historic
magnitude of the Great Recession, the administration’s recovery
program merits substantial praise. But the public saw a different
picture: close to a majority expected that conditions would be about the
same (36%) or worsen (19%) in a year, and 62% said the stimulus had not
helped the job situation. Among Republicans and Independents less than a
quarter (23%) had a favorable view of the stimulus, and even among
Democrats, only a bare majority (51%) saw the policy as helping the job
Pew Research Center
2010a). Could the White House have
designed the stimulus in a way that would have made its impact more
transparent and more readily enabled the president and congressional
Democrats to claim credit for at least putting a floor under the steeply
falling economy that Obama inherited? Three considerations–policy
design, the content and tone of the legislative process, and media
coverage–illuminate this question.
Policy design has great potential for influencing the public’s
understanding: the more visible the benefits and the more easily
traceable to identifiable policy actions, the more readily politicians
will be able to claim credit. Unfortunately, the economics of good
stabilization policy run against the politics of electoral campaigning,
and the president and his economic advisors consistently opted for
policy instruments that maximized economic effectiveness but hampered
political visibility. This included phasing in the tax cuts over several
paychecks (rather than as a
, which past research shows that
recipients hoard instead of spending); directing money to state
governments (where it saved, but did not create jobs); extending
benefits to unemployed workers (out of sight for most of the employed);
spreading expenditures into 2010 (making for a smaller impact in 2009
but lessening the risk of a
An extended decline in economic activity following an aborted recovery from a previous recession. A relatively weak economic recovery sometimes causes investors to worry about the economy entering another recession.
); and allocating a
portion to investments (which foster productivity gains in the future
but are less visible than the
Construction projects, such as highways or dams, financed by public funds and constructed by a government for the benefit or use of the general public.
projects of the New Deal).
Perhaps the most telling evidence of the program’s invisibility to
the public is that Obama’s tax cut–lowering taxes for 94% of
Americans and diminishing total federal taxes by $240 billion–was
misperceived by virtually all voters. A third of the public thought
taxes had increased under the Obama administration, and only 8% said
taxes had gone down (CBS/New York Times Poll 2010).
The legislative process was defined by the hype-partisan nature of
recent congressional competition, magnified by the ambitiousness of
Obama’s program, which only heightened the
n. pl. sa·li·en·ces also sa·li·en·cies
1. The quality or condition of being salient.
2. A pronounced feature or part; a highlight.
differences. Through a combination of appeals to party ideology and
adroit use of the Senate’s opportunities for extended debate, the
Republican leadership constructed an opposition out of proportion to its
minority status (Sinclair 2012). The bill’s near-death experience
in the Senate brought home two uncomfortable facts: the
administration’s request was not large enough to produce a
sustained recovery, but enacting a second stimulus was impossible; and
the investments in the bill were especially susceptible to the
Republicans’ filibuster threat. (16)
The exceptionally contentious legislative process also had an
impact on the public’s view of the quality of Obama’s
management of the economy. American voters are notoriously impatient
with the mechanics of legislative bargaining (Hibbing and Thiess-Morse
2002), and the proponents of change inevitably suffer from delay. But
1. Fiery intensity of feeling. See Synonyms at passion.
2. Strong enthusiasm or devotion; zeal:
Refusing to moderate a position, especially an extreme position; uncompromising.
[French intransigeant, from Spanish intransigente :
of the Republican opposition went beyond the
conventional strategy of holding out for an advantageous compromise.
Against the background of the two-decade rise of polarization in the
American political elite, and the divisive
presidency of George W. Bush
the 2008 election further perfected the alignment of ideology and party
(Abramowitz 2011; Fiorina and Abrams 2009; Levendusky 2009; Quirk 2011).
Party-line voting in 2008 was exceptionally high; Republican partisans
were unprecedentedly intense in their personal hostility to Obama, and
they accepted the McCain-Palin campaign’s portrayal of him as a
radical leftist, placing him further to the left than opposition
supporters had placed any previous presidential candidate; and
Republican voting was historically unified all up and down the ticket
(Jacobson 2009). (17) The upshot was to give congressional Republicans
virtually no incentive to compromise and every reason to publicize their
vehement opposition. Mitch McConnell captured the new politics when he
announced that “The single most important thing we want to achieve
is for President Obama to be a one-term president.” (18)
The media’s treatment of the recession and the debate over the
stimulus further undercut the administration’s hope of winning
public recognition for its recovery program. The Pew Foundation’s
Project on Excellence in Journalism found that stories on the stimulus
typically highlighted personal anecdotes or short-run statistics, making
it difficult to discern any overall theme, and that coverage was all but
absent when it came to the economic ideas behind the investment
component. The typical story line was not about the economy or the
stimulus proposal, but rather the personalities and rhetorical claims in
the contentious fight in the Senate, where the slow cumulation of arcane
bargains needed to defeat the Republican filibuster only served to
fulfill the popular stereotype of Washington politics. Nor did the media
function effectively to deliver news about the recession and the economy
in general. The Pew Foundation regularly compares the level of the
public’s interest in news on particular issues to the level of
coverage of those issues in the media. Where the public’s news
interest is matched by media coverage, the ratio is 1:1.
On the eve
the election, the proportion of the public reporting that they were
highly interested in economic news was three times the proportion of
media coverage devoted to the economy–there were many more voters
wishing to follow economic developments closely than there were
corresponding stories in the media. The news did, however, underline the
narrative of partisan battle: the proportion of media coverage given to
the congressional elections was twice the proportion of the public
saying they were following the election contest closely. (19)
Summary. Critics have asserted that Obama’s response to the
Great Recession was flawed and that the administration could have done
things differently and thereby gained more public approval. How do the
counterfactuals that motivate these criticisms stand up? The decision to
follow the Bush administration’s lead in centering the bailout on
the banking system surely counts as a significant missed opportunity.
Obama’s initial action was on the right track: the bank stress
tests put financial institutions on notice that they would be held
accountable for the taxpayers’ bailout; and the HAMP program was
intended as a substantial effort to rescue homeowners. But when his
mortgage assistance plan sputtered in the face of resistance from banks
and lax implementation by the Treasury, the president failed to take
control and reenergize the commitment. A second criticism is that the
stimulus was too small, and it was
: by raising the
public’s expectations, the administration set itself up for a
reaction of anger and
loses innocence through WWI experience. [Am. Lit.: “The Killers”]
Angry Young Men
disillusioned postwar writers of Britain, such as Osborne and Amis. [Br. Lit.
. It is true that the stimulus was
not as large as the recession merited, but the counterfactual–that a
more ambitious bill could have been enacted if the president had called
for it–is not credible. The history of the legislation gives ample
evidence that a larger stimulus would not have survived a Senate
filibuster. That the stimulus was oversold was clearly a political
mistake. But it is never possible to predict with precision the future
effects of a major policy, and it is not in the least unusual for
politicians to stretch their forecasts. Recall, for instance, that
Reagan’s massive budget and tax policy initiatives and George W.
Bush’s huge tax cuts were vastly oversold; but neither appears to
have attracted electoral punishment. The appropriate question, then, is
not “Did the President make an excessively ambitious claim for his
proposal?” but rather “How did the opposition take advantage
of the President’s missteps?”
The Republican Party’s 2009-10 strategy of total opposition to
the Obama agenda took shape during the fight over the stimulus, and the
long struggle over health care honed a playbook of parliamentary
tactics. If the opposition to the stimulus revolved around
conservatives’ effective use of legislative obstruction and
partisan media, the fight over financial reform also mobilized the
concerted efforts of powerful interest groups. When Congress took up
financial reform, the opposition was even more intransigent.
The Financial Crisis and Banking Regulation
When the market for subprime mortgages collapsed in the summer of
2007, many banks were left holding assets that could not be sold at any
price. With no trustworthy mechanism for valuing assets, banks refused
to advance loans not only to other financial institutions, but even for
traditional commercial purposes, converting an
adj beginning, initial, commencing.
beginning to exist; coming into existence.
a potential Depression. If the economic crisis and the collapse into
recession were the immediate economic concern, it was clear that the
incoming administration also needed to set out some new rules for the
banking sector to avoid another crash. When it came to the politics of
banking regulation, the financial crisis itself had the effect of
opening a brief window for reform.
The depth of the economic decline caused by the banking crisis, and
its pervasive impact across the nation, not only called into question
the Wall Street-centered policy network that had dominated finance
policy making, but also gave the public and the media a strong incentive
to attend to the arcane politics of financial regulation. Increasingly
over the postwar period, both Democratic and Republican administrations
have made key appointments in the White House and the Treasury from
large Wall Street banks and from think tanks and academics skeptical of
regulation. This “gilded network,” as historian Daniel
Carpenter names it, fostered financial
, from the
n. a banking and lending institution, chartered either by a state or the Federal government. Savings and loans only make loans secured by real property from deposits, upon which they pay interest slightly higher than that paid by most banks.
industry under Reagan, to repealing the Glass-Steagall Act
under Clinton, to weakening the enforcement powers of the SEC under
George W. Bush (Carpenter 2011; Cassidy 2009; Johnson and Kwak 2010).
1. Characterized by or performing acts of kindness or charity.
2. Producing benefit; beneficial.
[Probably from beneficenceon the model of such pairs as
market forces would prove regulation
unnecessary, financial influentials failed to predict the bursting of
the housing bubble; and the issues on which they had enjoyed
unchallenged authority were now open to participation by labor unions,
consumer advocates, and academics from outside the business schools.
At the same time, the loss of jobs and health insurance, homes and
equity, created a historical moment when the public’s attention was
riveted on the financial sector and energized by a degree of aggrieved
anger that was historically exceptional in the context of America’s
usually low-engagement politics. (21) The upshot was to further
tr.v. de·moc·ra·tized, de·moc·ra·tiz·ing, de·moc·ra·tiz·es
To make democratic.
the finance policy process by breaking down the distinction
between the consumer-oriented banking issues familiar to ordinary
voters–home mortgages, credit cards, and small business loans–versus
systemic issues. The latter involve bank-to-bank relationships–for
instance, products such as collateralized debt obligations, derivatives,
and securitized assets and mortgages that were the vehicles for big
banks to amass the huge debt structure that finally collapsed in
mid-2007–that are usually too complex to generate public involvement on
their own and too arcane to be used even by ambitious politicians to
gain favor with voters. The financial crisis bridged this divide, not by
making voters experts at the
A plural of arcanum.
of Wall Street “products,”
but by revealing numerous examples in which banks had used their
informational advantage to create and market financial instruments that
investors could not evaluate properly. It was these
Conspicuously bad or offensive. See Synonyms at flagrant.
that, as with the famous Pecora hearings during the New Deal, raised the
salience of systemic issues and briefly opened a window of opportunity
in which the populist outrage at banks and mortgage lenders carried the
potential for significant, nonincremental reform.
Financial reform had been a priority for Obama throughout the
campaign, and he had played a prominent part in the September 25, 2008,
meeting in which President Bush, the candidates, and congressional
leaders hammered out the compromise needed to pass the bailout (Alter
2010; Obama 2008). He and his advisors realized, however, that going up
against the country’s richest and most powerful interests would
intr. & tr.v. de·railed, de·rail·ing, de·rails
1. To run or cause to run off the rails.
other initiatives, and they decided to delay financial reform
until the stimulus had been approved and the health care bill was well
on the way. When he unveiled his financial reform plan in mid-2009, (22)
the immediate crisis had largely passed, so that the White House could
not depend on the pressure of circumstances to generate momentum in the
legislative process. Moreover, the reform proposal would face the
opposition of a financial sector that–aided by the government
bailout–had returned to profitability much faster than the economy as a
whole and was prepared to mount a well-coordinated lobbying blitz.
As the legislative process began, financial interests, long the
leading sector in contributing to candidates’ campaigns for federal
office and in spending on lobbying, undertook an unprecedented drive to
block or modify the administration’s reform proposal. When the bill
was before Congress in 2009 and early 2010, the financial sector spent
nearly $600 million, contributing to the campaigns of both Democrats and
Republicans. The lobbying effort, led by the American Bankers
Association and the U.S. Chamber of Commerce, was bolstered by the
active participation of think tanks, such as the American Enterprise
Institute, who sponsored conferences publicizing the danger that reform
would stifle financial innovation, and coordinated with additional
lobbying by community banks across the nation (Americans for Financial
Center for Responsive Politics
2011; Dennis and Mufson
2010; Mallaby 2010; Sorkin 2009).
In spite of this opposition, on several of the most important
provisions of the financial reform bill, the administration or advocates
in Congress were able to mobilize public pressure to overcome interest
group opposition. In some cases, the eventual legislation enacted rules
that were more restrictive than the administration had proposed, as with
capital requirements and the regulation of derivatives. In others, the
administration set an ambitious target and rose to the challenge through
1. Possessing or exercising skill; expert. See Synonyms at proficient.
2. Characterized by, exhibiting, or requiring skill.
coalition-building in the Congress and the president’s
personal efforts at “going public,” as with the regulation of
, circumscribing the role of
credit rating agencies
and the historic establishment of a new Consumer Financial Protection
Agency. These episodes have been chronicled elsewhere, and the resulting
picture of a policy process in which interest group dominance was
momentarily weakened has been celebrated with some optimism (Carpenter
2010, 2011; Weatherford 2011). But the story of these provisions does
not give the full picture of the politics of financial regulation, and
it would be premature to draw the inference that the political process
successfully parried the opposition of the nation’s most powerful
economic interests, without looking closely at the fight over the reform
proposal that most directly challenged the banks. The story of the
administration’s proposal to diminish the favored political
economic position of finance, by making large banks, rather than
taxpayers, responsible for all the losses in any future meltdown,
reveals a much more sobering lesson.
“Too Big To Fail”–Break Up, or Try to Regulate?
The question of how to deal with the largest financial entities
encapsulates both the immediate populist distrust of extremely powerful
institutions and the larger policy challenge created by increasing
concentration in a sector already densely populated by well-organized
and influential interest groups. The landscape of American banking has
become much more centralized over the last 30 years: in 1980 there were
14,000 commercial banks, and the largest five controlled assets worth
about 14% of GDP; by 2010, there were fewer than 7,000 banks, and the
assets of the five largest were equivalent to nearly 60% of GDP–the 20
largest (including several of the institutions that nearly brought down
the U.S. economy) control assets worth 86% of GDP. Over the same period,
interest groups representing finance have been the biggest contributors
to candidates and the biggest spenders on lobbying (Center for
Responsive Politics 2011). In addition, the
v. i·de·at·ed, i·de·at·ing, i·de·ates
To form an idea of; imagine or conceive:
resources of the
banking industry extend from widespread subscription to the ideology of
the market among political and media influentials to the specific
beliefs and policy images held by key members of Obama’s economic
, the head of the National Economic Council,
Treasury Secretary Timothy Geithner, and Chief of Staff
all held high-powered positions in finance and had close contacts with
top Wall Street financiers. Critics of this connection do not suggest
that they were serving the interests of Wall Street, but the ongoing
ties typically meant that big banks had easier access than reform
advocates and, more subtly, that these officials share expectations
about how government policy toward Wall Street would affect the economy
(Becker and Morgenson 2009; Johnson 2009; Stiglitz 2010; Suskind 2011).
The Policy Options. The flurry of commentary following the Wall
Street meltdown brought out a host of ideas for coping with the
challenge posed by huge, densely networked banks. Among these, three are
notable: (1) break up the largest financial institutions and cap the
size of future entities; (2) create a bank-funded reserve to bailout
“too big to fail” banks, by taxing financial institutions in
proportion to their size; (3) create a “resolution authority”
that would supervise orderly
if a large, interconnected bank
became insolvent. These options provide a useful perspective on the
legislative debate: they mark out different degrees of change from the
; they draw on sound research and were proposed by reputable
experts or institutions; and they were widely discussed among the
international policy elite during the period when Obama’s financial
reform was being debated in the Congress. If the story of other key
components of the Dodd-Frank bill is one in which reformers managed to
capture popular support for regulations that were more stringent than
vested interests wished, the story of “too big to fail”
inverts the narrative: powerful interest groups mobilized to keep off
the agenda alternatives that directly threatened their key political
The first proposal envisioned the largest change from the status
quo: break up the financial institutions that have grown so large that
their missteps can damage the whole economy. Not only the public’s
diffuse anger at big banks, but expert observers across the political
spectrum have focused on the systemic danger posed by the growth of a
few giant banks, and they have questioned the ability of any government
to regulate such an economically dominant sector. Advocates of this
approach point out that breaking up the largest banks would not be as
radical a move as it might appear. The size and power of these financial
institutions is not, they argue, the result of free market competition
but the cumulation of a series of
political and administrative
responses to previous crises or to powerful lobbying by the banking
industry, which had the effect of stretching the safety net intended to
stabilize the banking system as a whole to cover large individual banks.
Ironically, the wealth of the U.S. economy means that a bank too big to
fail will not be too big to save, via a government bailout–and that
gives such financial businesses even more influence vis-a-vis
politicians and regulators. (23) Thomas Hoenig, the conservative
president of the
Federal Reserve Bank of Kansas City
, points out that
the result is “increased concentration and … less financial
stability”(Hoenig 2011, 4) via three mechanisms that
tr.v. in·cen·tiv·ized, in·cen·tiv·iz·ing, in·cen·tiv·iz·es
To offer incentives or an incentive to; motivate:
risky speculation and undermine the capacity of regulators: protected by
the expanded safety net, large banks can increase their returns by
lowering capital levels and increasing leverage; with the elimination of
Glass-Steagall, large banks can engage in aggressive trading and
in finance, a highly speculative, largely unregulated investment device. Originating in the 1950s, the funds “hedge” by offsetting “short” positions (borrowing a security and then selling it at a higher price before repaying the lender) against “long”
activities; the perception that these firms would be bailed out has
weakened both market discipline and accountability to regulators.
Compared to the historic terrain of the industry–with many small
and medium-sized banks competing–Hoenig describes today’s banking
industry as a “financial
[Gr.,=rule by the few], rule by a few members of a community or group. When referring to governments, the classical definition of oligarchy, as given for example by Aristotle, is of government by a few, usually
,” whose dominance was
achieved not by market competition but by influencing politicians and
regulators. Speaking for opponents of concentration from both the left
and the right, he concludes that the danger these banks pose to the
financial system and the wider economy justifies significant
intervention if future crises are to be avoided.24 This interpretation
casts doubt on the idea that the largest banks are only different in
size from ordinary commercial banks and that procedures analogous to
those followed by the FDIC in liquidating a failed local bank would
yield the same orderly results. In practice, regulators might be left
with the same choice they faced in 2008: bankruptcy–and the possibility
Surgery A popular term for any undesired but unavoidable co-morbidity associated with a therapy–eg, chemotherapy-induced CD to the BM and GI tract as a side effect of destroying tumor cells
, as with Lehman Brothers–or
bailout–entailing the expenditure of billions of taxpayer dollars, as
with A.I.G. This reading of history suggests that financial institutions
that are too big to fail are also too powerful to be effectively
regulated; the best route to avoiding another financial crisis is to
break up the largest banks and set a cap on the maximum size of
The second idea takes the size distribution of banks and the
industry concentration as given but would require the banking sector to
create an insurance fund to pay the costs of any future financial
crisis. The idea, which originated with the International Monetary Fund
See International Monetary Fund (IMF).
), proposes to address the problem of “too big to fail”
with two taxes on financial institutions. These would generate a
bank-funded reserve, and together they would have the effect of making
risky trading more expensive and improving the conditions for fair
competition in the banking sector. (25) The financial stability
) would compensate for the implicit public subsidy the
biggest banks enjoy vis-a-vis smaller banks when they borrow money:
knowing that the government will bail them out in a crisis, investors
are willing to lend to these banks at rates that are abnormally low
compared with their risk levels. The conservative Economist (2010)
summarizes the case in favor of taxing back the “too big to
This public subsidy is at the heart of many evils. It is why bankers' fat bonuses, paid from profits boosted by cheap funding, are unfair. It gives banks a potentially dangerous incentive to maximize their leverage and size. And it is why badly run, opaque or risky firms can still command market confidence. Thus it is not difficult to make a case that, for as long as the subsidy exists, taxing it back is both just and essential.
The other tariff, a “financial activities tax,” is a levy
on the banks’ gross profits. This would provide a mechanism for
restraining the pay of bank executives, without directly intervening in
compensation decisions. The bank tax proposal has been criticized both
from the Right and the Left, (26) but from the perspective of a G-20
government, the proposal has notable advantages. It would produce
revenue when other sources are unavailable; it responds to popular
pressure to make the banks pay more for their misdeeds; it addresses the
problem of cross-border asset holdings, which are beyond the
jurisdiction of a domestic resolution authority; (27) and it has the
imprimatur of the IMF, “capitalism’s policeman.”
The third option proposes to create a new resolution authority,
applicable only to the largest banks, that would step in after a bank
became insolvent and ensure that its assets were liquidated in an
orderly way. This reform takes the structure of the financial sector as
given, and it assumes that insolvent banks, even ones with extremely
large and complex portfolios of assets and liabilities, can be retired
without undue disruption of related institutions or financial markets in
general. Patterned after the Federal Deposit Insurance Act, the
regulation would require that financial institutions regularly submit a
“resolution plan” to regulators, specifying the ownership
structure of the company’s contractual obligations, (28) and, as
with the FDIC, it gives regulators the authority to negotiate with
buyers to sell the assets of the failed institution. (29) Advocates
claim that the resulting “living will” arrangement, along with
the experience of the FDIC, will allow for orderly resolution if even a
very large bank goes bust, (30) but they admit that the reform would
leave unchanged a financial sector that has become even more
concentrated and economically powerful since the crisis. Opponents argue
that setting up a special procedure for the largest banks further
weakens competition, by giving official recognition to the implicit
public subsidy that advantages the biggest banks. Second, it assumes
that regulators will have the capacity and resolve to impose costs on a
dominant interest in the face of an emergency, an assumption that is not
borne out by the experience of recent financial crises. In none of the
important cases–the 1998 failure of the hedge fund Long Term Capital
Management, the 2008 cases of Bear-Stearns and
, and the
near-failures of several other major banks and the financial insurance
company A.I.G.-were the firms or the regulatory authorities able to
unwind the contracts and commitments involved in an orderly fashion.
Where the firm was allowed to fail, as with Lehman Brothers, the impact
on financial markets was horrendous. But where regulators and Treasury
officials tried to bridge the insolvency of other
adj. with the same problems and circumstances, referring to the people represented by a plaintiff in a “class action,” brought for the benefit of the party filing the suit as well as all those “similarly situated.
banks, they were inevitably reacting after the fact; they never had
information adequate to choosing the best short-run option or predicting
the medium-term consequences of their actions; and they were forced to
[-bling, -bled] to put together clumsily:
programs that stretched agency mandates and went against
free-market principles. The politics of the bank rescue were, if
anything, more chaotic than the economics: because the policy had not
been well thought out beforehand, neither Bush nor Obama administration
officials were able to provide a reasoned justification to the Congress
or the public. The result was that the actions typically neglected more
distant claimants (such as homeowners) and were inevitably viewed by
most voters as illegitimate exercises of raw power.
Enacting a Reform: The President, Congress, and Interest Groups,
The two sides gave opposite rankings to these three alternatives.
Progressive reformers made an ardent case for limiting the size of the
largest banks; requiring the financial sector to prefund a reserve to
deal with insolvent banks was their second best; but setting up a
resolution authority appeared to do little more than formalize the
status quo in which banks’ speculation had produced the crisis. The
banking industry and conservatives in Congress preferred no change bur
would settle for a sympathetically crafted resolution authority; they
were fervently opposed to structural intervention or to a bank-funded
reserve. Although the public’s diffuse animosity toward the banks
persisted, reformers were never able to channel enough outside pressure
to overcome the financial community’s advantages in organization,
access, and resources.
The biggest banks lobbied vigorously against the most ambitious
change, defending the advantages that size brings. Against the argument
that their favored status was largely the outcome of political and
regulatory decisions and not objective market criteria, they emphasized
that large financial institutions have not all done well, so that the
variation in success must be due at least in part to management
decisions that made some more profitable than others. Thus, they argue,
government intervention would be opposing the verdict of the market. In
addition, given the international nature of financial markets, large
size enables U.S. banks to compete on the world stage. Finally, the
financial crisis, they argue, was not the fault of the large banks whose
risky actions brought them to insolvency; rather such financial busts
are unpredictable events, just “the kind of thing that happens
every five to seven years.” (31) In the context of America’s
individualistic economic culture, these arguments erect a substantial
barrier to the idea that government should intervene before a bank is
deemed insolvent. The Obama administration’s reform proposal
implicitly accepted this stance, setting aside approaches that attack
the problem via structural change; and the idea never gained traction in
The idea of a bank-funded insurance reserve to bear the costs of a
future crisis, however, appeared to be a feasible compromise. The
Treasury’s initial blueprint did not include a prefunded reserve,
and administration officials maintained that other regulations in the
bill, including capital requirements and the Volcker rule, would go most
of the way to solving the “too big to fail” problem. Treasury
Secretary Geithner, however, implied that the measure might be
acceptable. In an interview with the
Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of
Leonhardt, Geithner likened the IMF proposal to President Obama’s
TARP tax intended to recoup the cost of the bailout, and admitted that
“There is a very good argument [that] you should put a fee on
finance, like a tax on pollution.” (32) In the Congress, the idea
of a prefunded reserve gained surprisingly broad support. House
pushed this provision,
and the full House approved his proposal for a “Systemic
Dissolution Fund,” a bank-funded reserve whose size would be
determined by the FDIC.
, chair of the Senate Finance
Committee, came out in favor, and the White House signed on.
Significantly, the lead Republican in the negotiations, Senator
(R-TN), also signaled his approval of a slightly smaller $50
At the moment when it appeared that the deal would go forward,
however, Senate Minority Leader McConnell went on the attack, calling
the reserve a “bailout fund” and making opposition to it a
A test for chemical acidity or basicity using litmus paper.
for Senate Republicans. Business groups, led by finance
industry lobbyists and the Chamber of Commerce, quickly publicized the
attack; it was picked up by conservative media as a partisan issue and
then widely reported. The immediate effect was that both Republicans and
Democrats began distancing themselves from the idea. The President in
his weekly White House address accused McConnell of making “the
cynical and deceptive assertion that reform would somehow enable future
bailouts–when he knows that it would do just the opposite.”
Congressional Democrats called attention to the fact that McConnell and
(R-TX), the chair of the Republican
1. Of, concerning, or befitting a senator or senate.
2. Composed of senators.
Campaign Committee, had held a fund-raising meeting with a small group
of Wall Street executives during the week before McConnell’s
attack, and they accused him of killing the provision as a favor to big
banks. Questioned about it on the Sunday news programs, McConnell
admitted that the main topic of discussion had been financial reform and
that “the Wall Street people have concerns about the bill,”
but he insisted that his intention was only to force the Democrats to
“go back to the drawing board.” McConnell’s attack, along
with his insistence that opposition would be a matter of party
principle, undermined the fragile coalition supporting the prefunded
reserve, and the White House fearing that advocating a bank levy as part
of the president’s broader reform would enable opponents to kill
the whole bill–shelved the idea. (33)
The third proposal, to set up a procedure under which the
government would monitor the orderly resolution of a large bank about to
fail, is at once less disruptive of the private-sector arrangements that
were in place before the financial crisis, but much more ambitious in
its aims for designing and staffing new government oversight for these
banks. Acknowledging that they could not prevent the Congress from
taking some action to strengthen the regulation of large banks,
financial industry leaders and lobbyists backed this option from the
start. In the end, this alternative was written into the Dodd-Frank Act
with the creation of the Orderly Liquidation Authority. It sets up the
FDIC as receiver and delegates to the FDIC the task of establishing
rules for dealing with the default of a “covered financial
company,” one that poses “significant risk to the financial
stability of the
officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world’s third largest country in population and the fourth largest country in area.
Given that this approach would entail a larger and more intrusive
government role in overseeing the largest banks, it is uncharacteristic
that they lobbied for it. Several considerations suggest, however, that
the course was strategically
adj. can·ni·er, can·ni·est
1. Careful and shrewd, especially where one’s own interests are concerned.
2. Cautious in spending money; frugal.
. The most successful large banks
assume that the procedure would be applied only to their competitors,
not to them; and the experience of bankers who were involved in the
bailout shows that, even in the case of insolvency, they would have a
large role in setting the terms. In addition, the banks have now turned
their attention to lobbying the agencies that are writing the
regulations and appointing the personnel who will be enforcing the
rules, and they anticipate being successful at shaping the
implementation of the act. (34) The FDIC has promulgated a
“roadmap” laying out the substantive and procedural rights of
creditors and the priority of claims, and Chair Sheila Bair has admitted
that defining “too big to fail” and crafting regulations in
such a way as to ensure that insolvent banks can be resolved without
endangering the financial system remains an economic and political
challenge. (35) The “too big to fail” component of the
financial reform lays out the “living will” more clearly and
in more detail than previously, but it will not create a regulatory
environment that is substantially more constraining on the activities of
the largest banks than what existed in the period when the housing
bubble was inflating during the Bush years.
Summary. The Dodd-Frank Act, while not as far reaching as some
reformers wished, addressed many of the elements that enabled the
financial sector’s speculative excesses. These include more
stringent capital requirements, limits on proprietary trading and
derivatives, clearer and tighter regulation of credit rating agencies,
and the establishment of a
. The administration was out
front on some of these initiatives, but on others where congressional
reformers successfully pushed to strengthen the administration’s
proposals, critics contend that the president was too cautious and could
have gained a more robust reform if he had been willing to take on
financial interest groups at the outset. This argument deserves some
weight, but it falls short as a convincing indictment, because the
proposals for stricter regulations would certainly have attracted more
concerted opposition, from Republicans in Congress and organized
interests outside, if they had arrived with the president’s
endorsement. Proponents benefited, that is, from being able to advocate
their ideas as responses to popular demands rather than as party or
presidential positions. This interpretation is supported by the fate of
proposed reforms to address “too big to fail,” the
1. A locking pin inserted in the end of a shaft, as in an axle, to prevent a wheel from slipping off.
the political economic status that enabled large banks to take risky
positions knowing that the government was all but certain to limit their
losses. If the implicit public subsidy of too big to fail were
removed–either by breaking up large financial institutions, so as to
diminish the systemic impact of a failure, or by taxing away the value
of the subsidy and dedicating the revenue to an insurance fund to cover
the cost of a systemic failure–the effect would have been dramatic.
Deprived of the threat that their failure could bring down the financial
system, the big banks would compete in a more evenly balanced market,
with much less leverage over politicians and regulators. When the
administration came out in favor of a bank tax, the financial sector
mounted a lavishly funded, strategically sophisticated campaign, against
which the congressional leadership and even the president’s attempt
to rally public support were ineffective. In the end, organized
interests defeated the president and his party’s congressional
majority: the resolution authority written into the act
1. Open to argument:
2. That can be argued plausibly; defensible in argument:
strengthens the competitive position of large banks by formally
recognizing their special status.
Giving the Conservative Opposition Its Due
The president’s leadership on antirecession policy and
financial reform, his two signature economic policy initiatives, was far
from flawless. Whether rookie mistakes or indicators of deeper problems,
however, these missed opportunities hardly appear adequate to account
for the gap between policy accomplishment and popular approval that was
registered in the 2010 elections. What the public thinks of the
government’s actions is, of course, also due to the way the
opposition paints them, and economic policy brought together Republican
legislators, business conservatives, and Tea Party activists in an
exceptionally concerted campaign.
Carrying forward the disciplined opposition that had blocked the
Democratic congressional majority during President Bush’s last two
years, Republican leaders used the long fight over the health care bill
to mobilize valuable allies among conservative business leaders and Tea
Party ideologues, shaping an overarching narrative to encompass health
care reform and Obama’s economic program (Jacobs and Skocpol
2010).36 The president was portrayed as
enacting new liberal
spending programs that would force hard-pressed working families and
small businesses to pay higher taxes to provide health insurance to
less-deserving people and bailouts to irresponsible bankers and large
corporations. (37) The rise of Tea Party conservatism as an influence on
Republican ideology and nominations
/sen·si·tized/ () rendered sensitive.
see sensitization (2).
moderate incumbents to
the danger that compromising could cost them their seats, and the flow
of campaign contributions from conservative interest groups favored the
most outspoken opponents of the president’s program (Lepore 2010;
Williamson, Skocpol, and Coggin 2011; Zernike 2010). Months before the
2010 election, insurgents could count on financial contributions from
conservative business elites–whose concern with reducing government
regulation and social entitlements made financial reform a
a rod made of materials, especially metals, that are good conductors of electricity, which is mounted on top of a building or other structure and attached to the ground by a cable.
; ample and sympathetic coverage from conservative media; and public
demonstrations of support from Tea Party activists who, although they
might part company with business conservatives over federal social
programs, are very much in harmony when it comes to taxes and
In the Congress, the Republicans’ repeated use of the
filibuster in the Senate forced a raft of specific changes in the
stimulus and the financial reform bill, but it also made the
coalition-building process much more difficult. By heightening the
visibility of the contentious bargaining that the public associates with
dysfunctional government, the
process swamped the specific
components of the legislation with a
tr.v. styl·ized, styl·iz·ing, styl·iz·es
1. To restrict or make conform to a particular style.
2. To represent conventionally; conventionalize.
narrative of party
competition over minor issues. Drawing on her analysis of several
decades of congressional policy making, Sinclair shows that, by
regularly exploiting the advantage
rules give conservative
opponents of change, Republicans have gained a degree of leverage over
the content and fate of legislation that cannot be completely reversed
even by the president’s ability to “go public” and appeal
directly for popular support (2012, chaps. 7, 8, 10). (39) The strategy
of forcing the president’s party to mobilize a supermajority to
pass any provision that is at all controversial substantially weakened
the very features that Obama hoped would define his economic program,
for instance, the “investments” in the stimulus bill and the
tax on banks’ risky assets in the financial reform. The impact on
the public was to cement the impression that Obama had failed in his
promise to distance his government from the empty, theatrical symbolism
of a gridlocked system, and that the administration had sold out to
bankers and large corporations (Alterman 2011). (40)
Interest group lobbying, particularly on the financial reform bill,
also shaped the public’s perception of Obama’s economic
program. President Obama acknowledged the power of the banking lobby
when he traveled to Wall Street in September 2009 with a message that,
although critical of the narrowly self-interested practices that had led
to the financial crisis, was hardly hostile to the industry and that
concluded with a frank request that the bankers
v. re·lent·ed, re·lent·ing, re·lents
To become more lenient, compassionate, or forgiving. See Synonyms at yield.
wholesale opposition to reform (Obama 2009d). The banking lobby won on
several big issues, defeating the idea of breaking up large banks and
weakening the Volcker Rule intended to restore the stringent
Glass-Steagall restraint on risky speculation; but they lost on one of
the most widely publicized issues, consumer protection. If implemented
vigorously, the new agency will have the power to end some of the most
egregious lending abuses, and over time it may contribute to
establishing the norm that the safety and soundness of banks should be
measured by their impact on consumers rather than only by profitability.
On the reform that most directly threatened the advantaged political
economic status of “too big to fail” banks; however, the
financial lobby triumphed over the president and his congressional
allies. Nor is it certain that the Dodd-Frank Act will be implemented
effectively enough to measure up to reformers’ expectations. Since
its enactment, financial interests have lobbied the agencies that will
implement and enforce the law, brought court cases against key
provisions, and worked with the Republican majority in the House to
advance bills that would
some of the law’s oversight
authority (Protess 2011a, 2011b; Sorkin 2011).
Outside Washington, conservative interest groups and Republican
campaign leaders mounted a drive to influence public opinion and to
shape the electorate’s view of the economic issues at stake in the
election. The legal context for interest group participation in
elections had changed significantly since 2008, as a result of the
Supreme Court’s Citizens United decision, which reversed the
long-standing prohibition on direct corporate spending in federal
elections and relaxed the requirement that electorally-active groups
disclose their donors. (41) In the months before the 2010 election, new
types of organizations emerged to take advantage of the altered rules,
including SuperPACs (political action committees), established with the
sole purpose of undertaking independent expenditures, and tax-exempt
501(c) organizations (which are not required to disclose donors). The
result was a huge flow of new money into the campaign and a shift toward
spending by nonparty groups. This in turn influenced the content and
tone of the campaign communications reaching the electorate, because
these groups are less likely than parties and candidates to disclose the
sources of their funding, more likely to run ads in opposition than in
support, and more likely to rely on negative ads. (42) The bulk of the
increased spending by nonparty entities is accounted for by conservative
groups, who capitalized on the poor economy to focus attention on the
president and his policies, recruit and finance promising challengers,
and mobilize large sums of money to run “independent” ads
against vulnerable Democratic incumbents. (43)
Ultimately, however, the election was framed by the content of the
campaign and the strategic use of resources, more than the disparity in
total resources available to each side. Here the key development was the
success of Republican and conservative campaigners at framing the
election as a referendum on Obama and Democratic Party government.
Campaign messages heightened the salience of symbolic considerations
associated with party and ideology, drawing on the simple, consistent
Republican opposition to taxes and big government, which has regularly
bested Democratic appeals since the Reagan years (Smith 2007), and
emphasizing the link between President Obama and congressional Democrats
by targeting House Speaker Nancy Pelosi with an unprecedented
Voters’ views reflected the strongly nationalized character of the
election. More than in any previous
1. The middle of an academic term or a political term of office.
a. An examination given at the middle of a school or college term.
b. midterms A series of such examinations.
election, American voters
reported that their choice for Congress would represent a vote for or
against the president; congressional election results correlated
strongly with the district’s vote for president in 2008; and the
local issues that usually give incumbents an advantage were at their
weakest level since the 1960s. (44) Although the electorate was about
evenly divided between supporters and opponents, those who disapproved
of the president were much more intense in their feelings and
consequently more likely to voice their opposition, contribute time and
money, and turn out to vote. The extraordinary intensity of the
opposition to Obama made for an electoral environment in which outside
groups concerned with ideological issues took unusually hostile stances.
As Jacobson (2011) notes, the exceptionally fervent ideological drive of
Republican supporters, abetted by a national media landscape fragmented
along partisan lines, fostered and sustained misperceptions that
short-circuited the potential for communication or learning across party
Giving the conservative opposition its due recognizes the success
with which the opposition to Obama’s program mobilized
tr.v. dis·grun·tled, dis·grun·tling, dis·grun·tles
To make discontented.
[dis- + gruntle, to grumble (from Middle English gruntelen; see
voters and self-interested financial backers, and coordinated outside
pressures with a relentlessly disciplined and often quite resourceful
strategy of legislative obstruction. If the strategic
v. so·phis·ti·cat·ed, so·phis·ti·cat·ing, so·phis·ti·cates
1. To cause to become less natural, especially to make less naive and more worldly.
perseverance of the opposition are worth recognizing, no less notable is
the historically exceptional nature of conservatives’ decision to
[O.Fr.,=throwing], in maritime law, casting all or part of a ship’s cargo overboard to lighten the vessel or to meet some danger, such as fire.
the potential for the separation of powers to foster
1. Assembled or organized for deliberation or debate:
2. Characterized by or for use in deliberation or debate.
compromise, in favor of sustained combat.
In presidential systems, the attention of the public and the media
focuses on the chief executive, and the president’s
figure of speech in which inanimate objects or abstract ideas are endowed with human qualities, e.g., allegorical morality plays where characters include Good Deeds, Beauty, and Death.
of the government inevitably biases the attribution of responsibility
for policy performance. The president’s critics, including
progressives who are disappointed with his centrist policies and
independents who hoped Obama would resolve Washington’s
share this bias; it is at the root of the claim that he could have
created a record of more far-reaching change, if only he had done things
differently. This is a plausible claim, but it deserves careful
examination. Counterfactual analysis can serve as an antidote to the
bias toward attributing policy failures (and successes) to the
executive, in a system where the actual exercise of power is distinctly
The detailed case histories of Obama’s key economic
initiatives reveal only a few substantial missed opportunities, and
overall the administration’s economic program delivered
consistently positive economic results in the face of the exceptionally
severe challenge of financial crisis and potential Depression. That the
policies did not make a clear impression on the public and command a
correspondingly positive electoral response is, this analysis suggests,
attributable less to the mistakes of the administration than to the
strategic success of its opponents at limiting the president’s
legislative accomplishments and framing the public’s interpretation
of his program. The strategy succeeded in presenting the midterm
election as a national referendum on the president and his party, and in
doing so made effective use of the symbolically focal status of the
presidency in the public’s view of the government. Although the
Republican Party had employed this strategy with notable success in
1994, the opposition in 2010 was altogether more focused and consistent;
the campaign began not in the run-up to the election, but in the
earliest days of the new administration, and took its lead not from
election strategists but from the party’s legislative program.
Although more research will undoubtedly be necessary to flesh out
and test this interpretation, these case histories of economic policy
suggest that the notable feature of the huge gap between economic policy
accomplishment and electoral outcome in 2010 is less a story about the
election than about a shift in the opposition party’s posture
toward interbranch relations. From the 1940s to the 1980s, political
parties were more ideologically heterogeneous, and congressional leaders
bargained hard but were ultimately
/def·er·en·tial/ () pertaining to the ductus deferens.
Of or relating to the vas deferens.
pertaining to the ductus deferens.
to the claims of the
presidency to represent the nation’s preferences. From Johnson and
Rayburn, Albert and O’Neill, to Dirksen and Dole, legislative
leaders not only moderated the tone of their antagonism to presidents of
the opposite party, but regularly collaborated in working out
compromises that addressed pressing national problems along lines
defined by the president’s agenda. (46) This was not an edenic
conflict in Southeast Asia, primarily fought in South Vietnam between government forces aided by the United States and guerrilla forces aided by North Vietnam.
and the Nixon years, both parties
experimented with the rhetoric of
tr.v. de·mon·ized, de·mon·iz·ing, de·mon·iz·es
1. To turn into or as if into a demon.
2. To possess by or as if by a demon.
, and the old
adj. court·li·er, court·li·est
1. Suitable for a royal court; stately:
2. Elegant; refined:
was never completely restored–and yet there were very few issues,
mostly centering on race, where partisans were willing to stalemate the
Compared to the way congressional leaders and presidents saw
themselves and acted on their different electoral mandates during much
of the postwar period, the remarkably consistent negative the Republican
Party exercised in the 111th Congress is striking. The Republican
leadership worked to reject or substantially
tr.v. cir·cum·scribed, cir·cum·scrib·ing, cir·cum·scribes
1. To draw a line around; encircle.
2. To limit narrowly; restrict.
3. To determine the limits of; define.
administration’s initiatives in the Congress and to explain that
rejection in terms of an encompassing ideological image of the stakes at
issue; and the success with which conservatives coordinated this stance
with interest groups and the grassroots had the effect of amplifying and
solidifying the opposition, weakening the incentives for pragmatic
compromise, and removing the stigma from governmental gridlock. (47) The
relentless, and resourceful, conservative opposition left its mark on
virtually every administration initiative but nowhere more
significantly–for the legacy of Obama’s presidency and his
prospects for reelection–than in blocking the string of White House
proposals to strengthen the economic recovery. Although polls regularly
show that voters want the government to do something about jobs, and
that they view congressional Republicans as mainly responsible for the
gridlock in Washington, history points to the incumbent president and
his party as the likely losers in an election fought with unemployment
hovering near 10%. (48) Ironically enough, the story of the politics of
economic policy in the Great Recession is less about the
president’s management of fiscal policy than about the conservative
opposition’s successful pursuit of a strategy that values creating
election issues over enactments.
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, and Andrew Rudalevige. Washington, DC: CQ
Williamson, Vanessa, Theda Skocpol, and John Coggin. 2011.
“The Tea Party and the Remaking of Republican Conservatism.”
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Zeleny, J., and Herszenhorn, D. M. 2009. “Obama Seeks Wide
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M. STEPHEN WEATHERFORD
(1.) Economic conditions have historically been the most
influential determinant of national election outcomes (Lewis-Beck and
Stegmaier 2000); and they dominated voters’ concerns in 2010, when
the campaign was exceptionally focused as a referendum on President
Obama and his leadership of the government (Jacobson 2011).
(2.) Reinhart and Rogoff (2009) analyze data from an exhaustive
survey of financial crises, not only in the United States, but in other
(3.) The two most authoritative models fell far short: Hibbs (2010)
predicted that Democrats would lose 45 seats; Lewis-Beck and Tien (2010)
(4.) In the first two years of the Reagan administration,
unemployment rose faster than in any previous postwar recession,
reaching 10.8% late in 1982. In November 2010, unemployment stood at
9.6%, its highest level since 1982.
(5.) In 1982, the president’s party lost 26 seats in the
House; the postwar average is 25. In 2010, the president’s party
lost 63 seats.
(6.) The auto companies went to the White House in December 2008
requesting bailout funds to avoid bankruptcy; in January 2009 a portion
of the bailout was allocated to GM and Chrysler.
(7.) Pew Research Center (2010a); Newsweek Poll (2010); CBS/New
York Times poll (Broder and Connelly 2010).
(8.) Credit for this success should go to both the Bush and Obama
administrations. The program was enacted under Bush, although candidate
Obama played a key role in formulating a bill that Congress would
approve. And the Obama administration’s implementation of the
program, including creating and administering stress tests of bank
solvency, along with several public-private arrangements that avoided
tr.v. na·tion·al·ized, na·tion·al·iz·ing, na·tion·al·iz·es
1. To convert from private to governmental ownership and control:
failed banks, strengthened its financial soundness
and fostered a larger return to taxpayers.
, city (1990 pop. 65,026), capital of Drôme dept., SE France, in Dauphiné, on the Rhône River.
of the public’s views is unmistakable: just
12% blame borrowers for the mortgage crisis, while nearly half blame the
banks and mortgage lending companies, and about 30% blame the regulators
overseeing the lenders (CBS News/New York Times poll (2011).
(10.) The decision to pay banks in full for their deals with the
insurance giant A.I.G. was, for instance, a clear contrast with the 2009
bailout of Chrysler, when the White House insisted that lenders share in
the losses. This section draws on Barofsky (2011); Congressional
Oversight Panel (2011); Story and Morgenson (2010).
(11.) Obama emphasized the need for economic stimulus in spring
2008, at the very beginning of the campaign, and Speaker Pelosi sought
to keep the issue in the public eye. The Democratic majority in the
House passed stimulus legislation in September and continued to hold
informational hearings, although President Bush’s promised veto
halted the bill’s progress (Peters and Rosenthal 2010).
(12.) For business cycle dates, see http://www.nber.org/cycles.html
(accessed December 14, 2011); GDP,
http://www.bea.gov/national/nipaweb/(accessed December 14, 2011);
personal financial condition and consumer sentiment,
http://www.sca.isr.umich.edu/main.php (accessed December 14, 2011).
(13.) The incoming Council of Economic Advisors initially
recommended a bill totaling $1.2 trillion. (GDP had already dropped by
$2 trillion, and some economists were calling for a stimulus large
enough to balance this.) Obama’s proposal was for $775 billion. The
administration’s preference was to put most of the fiscal shift
into spending, which economic research shows to have a larger and
quicker stimulative impact than an equivalent tax cut (Andrews and
(14.) The crucial swing votes were
(D-NE), Maine’s two moderate Republican Senators,
, and Pennsylvania Republican Arlen Specter (Herszenhorn
2009a, 2009b, 2009c, 2009d; Herszenhorn and Hulse 2009). On the
conference report, the vote in the House was 246 to 183 (all Republicans
+ seven Democrats voted against); the Senate vote was 60 to 38 (three
Republicans + two Independents + all Democrats voted in favor).
report is available at http://cboblog.cbo.gov/?p=1326
(accessed December 14, 2011); Blinder and Zandi 2010; Council of
Economic Advisers 2010. Later evaluations (Wilson 2011, and the works
cited there) show similar or larger impacts.
(16.) As the stimulus funding ran out, the White House sought to
keep the recovery going by proposing jobs programs built around tax
incentives rather than direct spending, but congressional Republicans
set up roadblocks to virtually all these initiatives. For instance, the
HIRE Act, which proposed $150 billion in business tax credits and
exemption from payroll taxes to encourage hiring new workers, was scaled
back to $17.5 billion in order to gain congressional assent (CBS News
(17.) Jacobson 2009. Several researchers have argued that
Obama’s distinctiveness from conventional presidential
candidates–in background and personal style as well as race–was seen
as peculiarly threatening by conservatives, and the evidence is that the
effect of race turned what would have been a landslide election into a
narrower Democratic victory (Highton 2011; Hutchings 2009; Lewis-Beck,
Ties, and Nadeau 2010; Parker, Sawyer, and Towler 2009; Pasek et al.
2009; Tesler and Sears 2010).
(18.) McConnell made the statement in response to a question about
Republican strategy in the 2010 campaign; it gained significance as a
talisman of GOP legislative strategy when it was repeatedly invoked by
and other party leaders (Schneider 2011).
(19.) Pew Research Center (2010b). The literature on the
media’s impact on public opinion shows that coverage focusing on
human interest stories versus indicator-focused coverage are not
different but equivalent paths to the same destination: they have
different political implications. Human interest coverage tends to be
, undermining citizens’ ability to organize information or
attributions thematically (Gomez and Wilson 2001; Iyengar 1991).
Moreover, compared with indicator-focused coverage, human
interest-dominated coverage tends to be much more negative, and this is
reflected in more negative views among voters who rely on such sources
(Baum 2002; Rucinski 1992).
This evidence, of course, considers the media’s performance
from the perspective of the informational requisites of a citizenry
equipped to monitor the government and hold it accountable (Delli
Carpini and Keeter 1996; Prior 2005). The industry is doubtless more
sensitive to the incentive to the goal of maximizing viewers or readers.
(20.) Alan Greenspan’s mea culpa came to symbolize the
excessive faith in financial markets. Responding to the question of
, the chair of the House Oversight Committee, “My
question for you is simple. Were you wrong?, Greenspan said,
“Partially … I made a mistake in presuming that the
self-interests of organizations, specifically banks and others, were
such that they were best capable of protecting their own shareholders
and their equity in the firms…. [S]omething which looked to be a very
solid edifice, and indeed a critical pillar to market competition and
free markets, did break down. And … that shocked me. I still do not
fully understand why it happened and, obviously, to the extent that I
figure out what happened and why, I will change my views.” (U.S.
Congress 2008a, 2008b; cf. Americans for Financial Reform 2009).
(21.) Compared with previous stock market crashes (the 1987
decline, the collapse of the hedge fund Long Term Capital Management in
1998, and even the bursting of the tech bubble in 2000) this financial
crisis impacted the consumer financial market much more heavily. The
roots of this phenomenon lie in deeper social and economic trends over
the past couple of decades, most prominently the combination of
stagnated median income with rising costs of housing, health care,
education, and consumer products, posing a dilemma to which many
households adjusted by borrowing and thus increasing their vulnerability
when housing values suddenly cratered (Immergluck 2009; Johnston 2005;
Krugman 2000; Warren and Tyagi 2003).
(22.) Unlike health care reform, where the White House invited
Congress to take the lead, the executive branch worked out the details
of the financial reform proposal. Obama described it as “the most
ambitious overhaul of the financial system since the Great
Depression,” and most commentators predicted that, if implemented
as proposed, it would measure up to this billing (Obama 2009c, 2009d;
U.S. Treasury 2009).
(23.) Compare the case of U.S. banks to that of Iceland’s four
international banks, whose debts exceeded the state’s capacity as
the ultimate backer of financial institutions and that ultimately
defaulted on their debts (Buiter 2009; Buiter and Sibert 2008).
(24.) Reviewing the history of increasing concentration, Hoenig
(2011, 4) concludes: “We did not get to such a circumstance by
accident or a Darwinian ‘survival of the fittest’
process.” The Federal Reserve and FDIC “provided a safety net
of central bank liquidity for solvent banks and limited deposit
insurance [but] during the crisis of the 1980s and early 1990s, the
government confirmed that some institutions were too systematically
important to fail…. [With the repeal of Glass-Steagall in 1999] the
largest institutions could put money anywhere, and their creditors would
not be held accountable for the risk taken.” Progressive
economists, who have little in common with Hoenig’s conservative
monetary policy preferences, have drawn similar lessons for policy
(Johnson 2009; Krugman 2010; Morgenson 2010).
(25.) The IMF (2010) report responds to the 2009 request of the
G-20 leaders, expanded at the April 2010 Toronto meeting to “work
on options to ensure domestic financial institutions bear the burden of
any extraordinary government interventions where they occur, address
their excessive risk taking and help promote a
level playing field
taking into consideration individual country’s circumstances.”
(26.) Banking groups have claimed that the tax would be
, since there is no universal accounting standard for
valuing bank liabilities; progressives have argued that the funding is
not sufficient to cover the real cost of a financial crisis, so the
is inadequate. See Bretton Woods Project
2010; Economist 2010; Goff and Masters 2010; Leonhardt 2010; MarketWatch
2010; Murphy 2010.
(27.) Large banks often hold more than half their assets abroad
(some 70% of Citicorp’s business was overseas in 2009). These could
not be seized by an FDIC-like agency seeking to liquidate the bank in
the same way it would a local commercial bank.
(28.) This is essential to tracking client assets among the several
entities that make up a large financial institution, so that assets can
be sold off in a regular and predictable way. Much of the systemic
impact of the Lehman Brothers failure can be traced to the
“chaotic” state of the accounting for assets, liabilities, and
commitments to counterparties
(http://economicsofcontempt.blogspot.com/2010/12/; Johnson and Kwak
(29.) The FDIC has a long history of liquidating the assets of
insolvent banks and protecting the savings of insured depositors,
including several large banks IndyMac, Wachovia, and Washington
Mutual–that failed in the 2007-08 financial crisis
(30.) For the views of financial industry insiders who are
optimistic about the prospects for this procedure, see
http://xpostfactoid.blogspot.com/2010/04/gretchen-morgenson-echoes-mitch.html (accessed December 14, 2011);
resolution_30.html (accessed December 14, 2011).
, Chairman of J.P. Morgan Chase, quoted in Sorkin
(2010); cf. Cassidy 2009; Johnson and Kwak 2010 for other examples of
(32.) Quoted in Leonhardt (2010). The CBO’s forecast of the
economic impact of the bank tax shows that it would reduce the federal
deficit by $21 billion over the next 10 years (OpenCongress Blog 2010).
(33.) It is worth noting that this proposal commanded majority
support; McConnell’s opposition reversed the prospects that the
White House could gain the additional votes needed to defeat a
filibuster (CNN Politics 2010a, 2010b).
(34.) Morgenson 2010; Nocera 2011.
(35.) FDIC 2011a, 2011b. The Bair interview is at
http://www.bloomberg.com/video/71997496/ (accessed December 14, 2011).
(36.) Mainstream conservative commentators have expressed dismay at
Republican intransigence, in the face of White House offers that are
regularly to the right of the median congressional Democrat (Brooks
2011; Douthat 2011).
(37.) For example,
(R-IN), chair of the House Republican
Conference, fostered this misconception by coining the
Suitable for or worthy of quoting:
“bailout stimulus” to refer to a public policy that never
existed (http://mikepence.house.gov/index.php?option =
com_content&view = section&id = l&Itemid = 55 [accessed
November 15, 2010]). The GOP also made effective use of talk radio and
conservative media outlets, as exaggerated claims were voiced first by
commentators in partisan but more marginal media outlets and then picked
up by mainstream media (Bennett, Lawrence, and Livingston 2007).
(38.) On media coverage, see Jamieson and Cappella (2008); on the
evolution of Republican conservatism, see Williamson, Skocpol, and
(39.) Baumgartner et al. (2009) show that interest group lobbying
is influential in thwarting change but is not a key determinant in
enacting policy change. That nonincremental change typically hinges on
presidential advocacy and a progressive legislative majority makes the
success of the Republican opposition, against an historically large
Democratic majority, all the more significant.
(40.) Sinclair (2012, 195) notes that the vehemence of right-wing
attacks “spooked” marginal Democrats and led them to introduce
or back amendments that were sometimes more conservative than the
Republicans could have gained on their own.
By the summer of 2010, most Americans viewed the government’s
economic policies as slanted toward the banks and big business, and away
from the middle class. A Pew Research Center/National Journal poll
(2010) showed the following results.
Government Economic Great Deal Fair Amount Not Much Policies Have Helped ... % % % Large banks and financial 53 21 18 institutions Large corporations 44 26 20 Wealthy people 31 26 30 Poor people 7 24 64 Middle class people 2 25 68 Small businesses 2 21 68
(41.) The decision in Citizens United v. Federal Election
Commission (2010) and a related lower-court ruling in SpeechNow.org v.
Federal Election Commission (2010) introduced two important changes to
the way interest groups can raise and spend money in federal elections:
they remove the ban on corporations and unions using their treasury
funds to make unlimited independent expenditures that expressly advocate
for/against a named candidate; and they relax the disclosure
requirements for contributions and expenditures. The Center for
Responsive Politics estimates that there was no donor disclosure for 47%
of nonparty outside spending in 2010. For overviews of the impact of the
Citizens United decision, see Center for Responsive Politics (2011) and
(42.) Overall spending in 2010 was about 40% higher than in the
2006 midterm election, and spending by nonparty outside groups was four
times its 2006 level and nearly equal to the level in the 2008
presidential contest. Most campaign spending, by the parties as well as
interest groups, is in the form of “independent expenditures,”
1. Lacking physical or mental coordination.
2. Lacking planning, method, or organization.
with the candidate; in 2010, party independent
expenditures declined by 20% from 2008, while independent spending by
nonparry groups increased by 130% (Campaign Finance Institute 2010;
Center for Responsive Politics 2011).
(43.) Although Citizens United (2010) relaxed the rules for
corporations and unions alike, the proportion of all campaign spending
attributable to unions fell from just over 30% in 2006 to 16% in 2010.
Dwyer (2011, 22) points out that “the four top conservative
groups–the Chamber of Commerce, American Action Network, American
Crossroads, and Crossroads Grassroots Policy Strategies–spent …
almost twice as much as labor unions” in 2010. Nonparty independent
spending accounted for more than twice as much of the Republican
campaign effort (28%) as the Democratic (13%) (acobson 2011).
(44.) Linking the Democrats in Congress with the president was a
crucial step in the strategy to nationalize the election, and the tactic
of running against Pelosi had the effect of ”
tr.v. per·son·i·fied, per·son·i·fy·ing, per·son·i·fies
1. To think of or represent (an inanimate object or abstraction) as having personality or the qualities, thoughts, or movements of a living being:
Pelosi all of the public frustration with the state of the economy, the
state of Washington politics, and the policies of the Democratic
Party.” Republicans and conservative groups spent over $78 million
“in direct attack ads focusing on Pelosi” (Peters 2011, 3; cf.
(45.) Jacobson (2011, 34) employs the psychological concept of
“motivated reasoning,” the drive to rationalize a preferred
outcome, regardless of correctness. “The consequence is biased
see data processing.
Acquisition, recording, organization, retrieval, display, and dissemination of information. Today the term usually refers to computer-based operations.
: people holding strongly negative opinions of
Obama were open to uncritical acceptance of notions, however, dubious,
consistent with those views, and they tended to ignore or reject
information setting the record straight.”
(46.) Ralph Huitt (1969, 144-45), arguably the leading expert on
leadership in Congress, emphasizes Johnson’s drive to “get
things done.., he wanted the bills to become laws. Johnson consistently
declined to pass strings of bills he knew Eisenhower would veto.
‘What do you want,” he demanded, houses [or farm legislation,
etc.] or a housing issue?'” In his relation with the
President, Johnson “scoffed at the notion that his own initiative,
in the absence of presidential leadership of Congress, made him a kind
of ‘prime minister.’ … He consistently refused to turn the
Democrats in the Senate loose to attack Eisenhower … believing that no
President can be cut down without hurting the presidency itself with the
American people the losers.”
(47.) “Blame game politics” is not new (Groseclose and
McCarty 2001); but the heightened consistency, across many policy issues
and in coordination with influential interest groups such as the Chamber
of Commerce and grassroots activists such as the Tea Party, amounts to a
qualitative change in the norms governing interbranch relations.
(48.) The Bloomberg poll (Davis and Dodge, 2011) finds that 39% of
respondents blame either congressional Democrats or the president, while
45% blame congressional Republicans.
M. Stephen Weatherford is professor of political science at the
. He has written on presidential
leadership in economic policy making and on economic policy coordination
between the United States and Japan.