Tuesday, March 16, 2010

president romney's first year

In early 2008, the presidential front runner for the Republican presidential nomination, John McCain, suffered a heart attack. Although he recovered fully, he had to drop his presidential bid, leaving the field to former Massachusetts governor Mitt Romney. As it turns out, that was a lucky break for the GOP. When the financial crisis exploded less than two months before the fall election, Romney's business background was just what the country was looking for. While the charismatic young Barack Obama offered change, what the country really sought at that time of great uncertainty was stability and a return to some kind of normalcy. Romney was someone they were confident could handle the economy. They certainly were in no mood for inexperience (let alone some unhinged ideologue like that crazy Alaska governor -- what's-her-name -- who didn't even last one term in a state known for tolerating eccentrics).

Even the most bizarre storyline of the long campaign ended up as something of a blessing in disguise for Romney. His first choice for VP, South Carolina governor Mark Sanford, was an attempt to reassure the Christian right, which never had much love for the Mormon Romney. But when Sanford's scandalous affair with an Argentine woman broke only days before the Republican convention, Romney quickly pivoted to Indiana governor Mitch Daniels, who had been budget director during the first couple of years of the Bush/Cheney administration. The result was the Republican economic "A team" cued up just in time for the worst economic crisis since the Great Depression.

Republicans were fighting a strong headwind after the disastrous Bush/Cheney years, and Democrats increased their Congressional majorities. But the Romney/Daniels team managed to eek out a narrow win based on their perceived economic strengths.

And, as things turned out, it's hard to argue with the judgment of the American people. (Although the inauguration wasn't the most thrilling ever -- with the highlight being The Osmonds fresh off their
50th anniversary tour.)

A confident President Romney demonstrated his executive decisiveness by
swinging into action even before he had been sworn into office, proposing a large economic stimulus package. The centerpiece of that package was the biggest two-year tax cut in US history, with the rest roughly equally divided between support for state and local governments and more traditional public works spending. Some Democrats complained that the $787 billion measure was too small and too tilted toward tax cuts, and some Republicans complained that it was too big and didn't include enough tax cuts. President Romney's economic advisors defended the size of the stimulus by noting that it largely just countered the "anti-stimulus" resulting from state and local tax hikes and spending cuts required to offset the effects of the Great Recession on their budgets (with the net combined fiscal effect of government actions at all levels close to zero). But the need for urgent action during a national crisis muted criticism, as it had after 9-11, and the parties came together quickly in the spirit of national unity. President Romney had been in office for less than a month when the stimulus passed both houses of Congress with overwhelming bipartisan majorities.

President Romney's strong leadership reassured the financial markets and the crisis, which had threatened to bring down the global financial system, quickly receded. The nations' Gross Domestic Product, which had
declined at the staggering rate of 6.4% in the fourth quarter of 2008 turned around and only a year later was increasing at a 5.9% rate.

Unemployment continued to rise during President Romney's first year in office, peaking at 10% in December of 2009. Some Democrats tried to make an issue of it, but without much success -- and for good reason. The economy lost 779,000 jobs the month President Romney took office and at similar rates for his first couple of months, before his policies kicked in. But the rate of job loss soon began a steady decline. By February of 2009, it had fallen to 36,000 and headed into positive territory thereafter. Everyone agreed that President Romney's economic policies had been a huge success.

Certainly the financial markets cast their votes for the president. Rather than risk the disruption that might result from bringing in new, inexperienced players in the midst of a global financial crisis, President Romney reassured the markets by reappointing Bush's Federal Reserve Chairman, Ben Bernanke. And, in a bipartisan gesture, he named as Treasury Secretary former New York Fed Chief Timothy Geithner, who along with Bernanke had acted swiftly and decisively to help rescue the global financial system during the 2008 crisis. President Romney's choice of Geithner was not as odd as it first seemed to many. Geithner got his start working for Kissinger Associates, founded by establishment Republicans like Brent Scowcroft and Lawrence Eagleburger -- and, of course, the Big K himself. (And, truth be told, is these kinds of establishment Republicans, not the radical religious right, with whom President Romney is really most comfortable.) Geithner's formative government experience was at Treasury in the '90's working to contain financial crises in places like Mexico, Thailand, Indonesia and Russia -- valuable experience at a time when a global financial crisis was threatening another Great Depression in this country. (Excellent profiles of Geithner in
The New Yorker and The Atlantic.)

"Don't change horses in the middle of a stream," President Romney said, and the markets agreed. They bottomed out less than two months after he took office, just as his policies began to kick in.

By March of 2010, the S&P 500 had risen almost 70 percent from its low and more than 40 percent since President Romney took office.
As Republicans kept reminding us, markets represent the ultimate "spin-free zone" -- where politics and ideology get shoved aside and money talks (check out this video clip).

Rather than nationalizing the most problematic of the "too-big-to-fail" banks like Citigroup and Bank of America, as a growing consensus of economists seemed to favor at the time, President Romney chose instead to minimize the role of the federal government. His bank "stress tests" succeeded in reassuring private investors and allowed the banking system to attract $140 billion of private capital. As a result, the federal government was able to largely exit from its rescue effort much sooner and at less cost than most experts thought would be possible at the time President Romney took office. A year later, most of the TARP money put into the banks as part of the Bush Bailout had been repaid with interest and it appeared that
the ultimate cost of the financial rescue would be less than $150 billion -- about the same as the much smaller savings-and-loan crisis of the 1980's (our last experiment in financial deregulation gone awry). Some optimists (e.g., here, here and here) even believe the effort could eventually turn a profit. And, as Republicans are quick to emphasize, President Romney was able to spare the federal government any continuing role in the management of the banks as nationalization would have entailed.

Bloomberg story from March 10, 2010, provided a typical summary of the president's economic success:

The judgment of money in all its forms has been overwhelmingly positive [in its appraisal of the president's economic performance].

One year after U.S stocks hit their post-financial-crisis low on March 9, 2009, the benchmark Standard & Poor’s 500 Index has risen more than 68 percent, and it’s up more than 41 percent since [the president] took office. Credit spreads have narrowed. Commodity prices have surged. Housing prices have stabilized.

“We’ve had a phenomenal run in asset classes across the board,” said Dan Greenhaus, chief economic strategist for Miller Tabak & Co. in New York. “It's not surprising that we've had a never-ending drumbeat of news stories about markets voting in favor of the president.”

The economy has also strengthened beyond expectations at the time [the president] took office. The gross domestic product grew at a 5.9 percent annual pace in the fourth quarter, compared with a median forecast of 2.0 percent in a Bloomberg survey of economists a week before [the president]’s Jan. 20, 2009, inauguration. The median forecast for GDP growth this year is 3.0 percent, according to Bloomberg’s February survey of economists, versus 2.1 percent for 2010 in the
survey taken 13 months earlier.

“You have to give them -- along with the Federal Reserve - - a lot of credit,” said Joseph Carson, director of economic research at AllianceBernstein LP in New York. “A year ago, there was panic, as well as concern. And a lot of the expectations were not only that we were going to have declines in activity but they would stretch all the way to 2010, if not 2011.”

Since then, monthly job losses have abated, from 779,000 during the month [the president] took office to 36,000 last month. Corporate profits have grown; among 491 companies in the S&P 500 that reported fourth-quarter earnings,profits rose 180 percent from a year ago, according to Bloomberg data. Durable goods orders in January were up 9.3 percent from a year earlier. Inflation is tame, and long-term interest rates remain low. ...

Mark Zandi, chief economist at Moody's Economy.com, said the public’s opinion of the economy is likely to improve as the gains companies have made begin to translate into more jobs and higher wages.

Zandi said the economic rebound is largely a result of the policies of the White House and Federal Reserve. He cited the bank bailout, the Fed’s low-interest-rate policy and support for credit markets, and the ... administration’s stimulus plan, bank stress tests and backing of Fannie Mae and Freddie Mac.

“When you take it all together, the response was massive and unprecedented and ultimately successful,” Zandi said.

The federal budget deficit exploded as a result of the Great Recession, but no one blamed President Romney for that. In January of 2009, even before President Romney took office, the non-partisan Congressional Budget Office
forecast a $1.2 trillion deficit for fiscal 2009 (which began almost four months before Romney took office). As it turns out, the 2009 deficit came in at $1.4 trillion, but that was primarily the result of a plunge in tax revenue (which, at 14.8% of GDP was the lowest it had been since 1950 -- before Medicare, Medicaid and much of the federal government as we know it today). Federal spending actually came in slightly lower than the January 2009 CBO estimate. Indeed, President Romney's biggest battles to control the deficit were with his fellow Republicans who pushed hard for further massive tax cuts. For example, 36 Senate Republicans voted for Jim DeMint's plan to permanently cut taxes by more than $3 trillion over the next decade. As President Romney pointed out, those tax cuts would have exacerbated the shortfall in revenue that had already been decimated by the recession. They would have done little to stimulate the economy in the short term while massively increasing the long-term structural budget deficit.

President Romney showed his resolve to reduce the deficit by imposing a
three-year freeze on non-military discretionary spending. And he even had the courage to begin tackling some of the wasteful military spending that Congress had been insisting on against the wishes of the Pentagon. For example, he supported the recommendation of his Secretary of Defense and Joint Chiefs of Staff to cut off all further funding for the $65 billion F-22 fighter program after producing 187 aircraft (none of which had ever been used in either Iraq or Afghanistan). Despite the fact that a majority of Senate Republicans voted to continue that funding, President Romney prevailed with the support of a majority of Democrats. He was also tough on NASA, canceling Bush's feckless Moon project and proposing to privatize launch services, relying instead on commercial launch providers for future missions. And he established a deficit reduction commission headed by Vice President Daniels to address the long-term deficit. (Pundits joked that it was a form of penance for Daniels, who as Bush's budget director had been one of the principle salesmen for Bush's budget-busting tax cuts and had famously predicted that the Iraq war would cost between $50 billion and $60 billion. "Putting Mitch Daniels in charge of deficit reduction is like making Rush Limbaugh drug czar," quipped Senator Al Franken.)

Although the Great Recession had driven up spending on the "automatic stabilizers" like unemployment compensation and Medicaid, President Romney's
budget had spending coming back down to 23.2% of GDP by fiscal 2012 (despite unemployment forecast to persist over 8%) and 22.8% by 2013 (with unemployment still over 7%). As the Wall Street Journal noted in an editorial defending the Romney budget, "By 2012, spending as a percentage of the economy will be back down to the levels we enjoyed under President Reagan thirty years ago. Six of the eight Reagan years saw spending over 22% of GDP and for two years it exceeded 23%. President Romney is to be commended for his spending restraint despite inheriting the worst economy in 70 years. If he can deliver on those budgets, it will constitute a remarkable achievement. If it was good enough for Reagan, it's good enough for Romney."

It's hard to say which was better, President Romney's economic leadership or his performance as commander-in-chief. Just as he did with his economic team, President Romney sought continuity in his national security team. At his urging, Defense Secretary Robert Gates stayed on. And reflecting the fact that the country was fighting two wars, he named as his national security advisor a four-star Marine general,
James Jones. (Bill O'Reilly followed his praise for that appointment by observing, "Can you imagine who a President Obama might have named? Michael Moore, probably. And maybe Jane Fonda as Secretary of Defense. But only because Barbra Streisand had already taken the CIA post.") President Romney also kept on General David Petraeus as the head of the US Central Command, overseeing the wars in Iraq and Afghanistan, and General Ray Odierno as the top commander of US forces in Iraq.

Bush like to call himself a "war president" but he was better at starting wars than successfully concluding them. President Romney was left with the task of finishing what Bush started. So far, he has kept to Bush's withdrawal timetable in Iraq,
withdrawing all US troops from Iraqi cities as scheduled by the end of June 2009. After the Iraqi elections of March 2010 went off with minimal violence, he appears to be on track to keep his goal of having all US combat troops out of Iraq by the end of August 2010 and all remaining troops out of Iraq by the end of 2011.

But President Romney's bigger challenge was in Afghanistan, which had been all but ignored by the Bush/Cheney team.

By the time President Romney took office, the US war effort in that country was going badly and getting worse. The Taliban had been allowed to reconstitute themselves. They controlled large parts of Afghanistan and increasingly threatened neighboring Pakistan, even controlling the Swat Valley only 100 miles from the capital of Islamabad. President Romney doubled US troops in Afghanistan during his first year in office, from less than 35,000 to over 70,000, and
announced that he would increase those forces by another 30,000 in 2010 -- tripling the force Bush/Cheney left behind. He was also able finally to enlist the aid of Pakistan in that effort, which paid off in February 2010 with the capture of the Taliban's top military commander (second only to Mullah Omar in the Taliban hierarchy). By 2010, it was estimated that there were fewer than 100 al Qaeda members in Afghanistan and there were increasing signs of a rift between them and their former hosts, the Taliban. Certainly it was too early to declare that President Romney had turned around the Bush/Cheney administration's failing effort in Afghanistan. But at least he was making a go of it.

Needless to say, Republicans were effusive in their praise of President Romney's performance. They were exultant that he had largely erased memories of the Bush/Cheney years and had given new luster to the Republican brand. His pragmatic, centrist policies made it difficult for Democratic opposition to gain traction. The result was an increase in bipartisan cooperation in Washington. Nowhere was that more true than with perhaps the greatest triumph of President Romney's first year -- the popular health care reform bill
modeled on his successful effort in Massachusetts. No only did it pass Congress with large bipartisan majorities but it gave Republicans ownership of a key issue that had long been a Democratic strength.

As President Romney
said, "What we did, I think, is the ultimate conservative plan. We said people have to take responsibility for getting insurance, if they can afford it, or paying their own way. No more free riders" RomneyCare, as some people called it, was based on three key elements: 1/ Insurance reforms that required insurance companies to cover everyone with certain minimum standards for coverage and without being able to reject people with pre-existing conditions, 2/ to prevent people from "gaming the system" and waiting until they get sick to buy insurance, the plan included an individual mandate to purchase insurance (the core of Romney's "Personal Responsibility Plan"), and 3/ refundable tax credits, based on ability to pay, to help those who couldn't otherwise afford insurance. To increase competition, the plan created government-run insurance exchanges where consumers can choose among private insurance plans.

Unlike Democratic single-payer plans (or "Medicare for all") that Republicans said would have entailed a "government takeover of health care," President Romney's plan worked entirely through private insurance providers, for care delivered through private doctors, private hospitals and other private providers. For the 80% or so of American who get their health insurance through their employers there would be essentially no change in how they receive their health care. But his plan extended coverage to 30 million or so Americans who previous lacked it and instituted reforms to market for individual coverage that ensured Americans wouldn't lose their health care if they lost or changed their jobs. And all that was based on conservative principles of personal responsibility and free markets that had previously been proven effective and popular in Massachusetts. The plan was virtually identical in its
key elements to the Republican alternative to Clinton's health care reform proposed in 1993.

The one major partisan battle in the health care overhaul effort was the push by Congressional Democrats for a "public option" -- a government-run insurance plan that would compete with private plans. Democrats argued that it would provide additional competition, with consumers having a free choice among public and private plans (the way public and private colleges compete today), and with all health care still delivered though private providers (as with Medicare and Medicaid today). But President Romney threatened to veto any bill with a public option and Democrats eventually backed down. That standoff ultimately cost President Romney some Democratic votes, but with virtually all Republicans supporting the bill it had no trouble passing both houses of Congress with large bipartisan majorities.

Among the benefits of President Romney's health care plan was the elimination of "
job lock" where employees of large companies with health care insurance are unwilling or unable to leave their current jobs because they would lose their health insurance and wouldn't be able to obtain it on their own because of pre-existing conditions or for other reasons. Elimination of job lock is expected to benefit entrepreneurs and small businesses (most of which don't provide health care coverage) and make the economy more efficient and dynamic.

Not surprisingly, President Romney's health care plan was enormously popular and provided a big boost to his presidency. Republicans crowed about finally delivering on near-universal health care coverage without reliance on big government solutions.

Rush Limbaugh was among the conservatives who expressed their relief at finally having a Republican president whose performance they could defend. Speaking of his past support for Republicans,
Limbaugh said, "I feel liberated... I no longer have to carry water for people who don't deserve it."

It makes you wonder how a liberal Democrat like Barack Obama would have responded to the combination of the worst economic crisis since the Great Depression, trillion dollar deficits and two wars going badly. It's a question most Americans are glad they don't have to answer in light of the stellar executive performance of President Romney during his first year. Americans seem to be united in the conclusion that the experienced conservative was the right choice for America at a time of crisis.

Note: Tom Tomorrow has noted how difficult political satire is in our current political climate. Even the most ridiculous fictions often fail to match the absurdities of the daily headlines. I have found in my own experience that political satire tends to fall flat. So at the risk of stating the obvious, let me explain that the foregoing was an attempt to imagine how Republicans would react to the policies and performance of President Obama had they been those of one of their own. It is not necessarily my own reaction to those policies or even the elements of President Obama's performance that I might emphasize. All the facts and figures are real (with links, for the most part). Although there is obviously a satirical element to this summary, I think the partisan perspective it portrays is reasonable accurate.

No comments: