How the Tea Party, Gang of Six, and Senate Liberals Saved Obama and the Nation

By William K. Black

In July 2011 President Obama and Speaker of the House John Boehner were on the verge of agreeing to the “Grand Bargain.”  The Grand Bargain was not finalized, but its key terms were agreed to.  It involved massive cuts in social programs and the safety net, modest increases in tax revenues, and an increase in the debt limit.  It was a massive austerity program of the kind that was hurling the Eurozone back into a gratuitous recession.  U.S. unemployment was 9.1% in July 2011 and the austerity package and resultant recession would have caused unemployment (and the deficit) to grow.  Unemployment would have been over 10% and rising in the run up to the 2012 election.  Obama would have further enraged Americans by cutting many popular programs and betraying the Democratic Party’s crown jewels – the safety net – in return for far smaller in revenues from the wealthy.  Instead of solving the supposed deficit and debt crises the austerity-induced recession would have likely caused the deficit and the national debt to grow. 

The political results of the entering into what could more accurately be termed the Great Betrayal through such a self-destructive budget austerity deal were predictable.  Obama would have been crushed, the Democratic Party would have lost its majority in the Senate, the Republican majority in the House would have been greatly increased, and Democrats would have faced severe losses in state and local elections.

Obama and the nation were saved from these catastrophic results by good luck, not good sense.  The Senate “Gang of Six” (moderate conservative Republicans and conservative “blue dog” Democrats) was negotiating in parallel their own budget austerity deal.  I drew primarily on the Washington Post’s description of the parallel negotiations because its coverage is so sympathetic to Obama and Boehner and their joint effort to impose austerity and begin to unravel the safety net.  The Post explains that the Gang of Six’s negotiations posed a severe problem for Obama because the Republican members of the Gang had agreed to a budget deal that was far better than the deal Obama had negotiated with Boehner.  When the Gang briefed the Senate on their deal most Senators praised the deal, including some prominent Republicans.

“At the White House, Obama showed equal enthusiasm. He made a rare appearance in the White House pressroom, surprising reporters who had been awaiting the regular briefing from press secretary Jay Carney. As Carney stood to the side, the president hailed the plan as ‘broadly consistent with what we’ve been working on here in the White House and with the presentations that I have made to the leadership when they have come over here.’

In private, however, he and his aides were alarmed. The emerging deal with Boehner looked timid by comparison.

‘The Democratic leaders already thought we were idiot negotiators,’ Daley [Obama’s Chief of Staff] said. ‘So I called Barry [Jackson] and said, ‘What are we going to do here? How are we going to sell Democrats to take $800 billion [in increased tax revenue] when Republican senators have signed on to’ nearly $2 trillion?

Daley added, ‘I don’t think it was a mischaracterization on our part to say we’d be beat up miserably by Democrats who thought we got out-negotiated.’”

This was the key role that Senate Democratic Party liberals played in killing the austerity program that would have crushed Obama and the nation.  The liberals “already thought we were idiot negotiators.”  The Gang’s deal proved that the Senate liberals’ concerns were correct.  The administration’s negotiators were being taken to the cleaners by Boehner.  The $800 billion of increased tax revenues Boehner agreed to were partially fictional.

Obama tried to push Boehner to agree to increase the amount of austerity produced by increased tax revenues in order to respond to the concerns of liberal Democrats.  Obama, via an aide, proposed changes to the basic deal with Boehner.

“[Obama’s] plan backed away from earlier positions on taxes in a number of ways, including pushing the top rate below 35 percent. But there was a deal-breaker for the Republicans — a demand for additional tax increases to match proposed cuts to Medicare and Medicaid. To keep the health-care cuts, a critical component of the deal for the GOP, Republicans would have to swallow about $400 billion more in tax hikes — a 50 percent jump from the figure that had been under discussion.

Inside the White House, the offer reflected the new political reality shaped by the Gang of Six. In light of that farther-reaching proposal, White House officials worried that the deal under discussion with Boehner would meet resistance, particularly among Obama’s Democratic supporters. Higher taxes explicitly targeted toward the wealthy offered an element of fairness, in the White House view, and a way to sweeten any deal for the Democratic base.

Obama aides said the new offer also reflected their frustration at what they described as an unrelenting effort by the GOP to cut safety-net programs.

Obama then further proved the accuracy of critics of his negotiating skills, abandoning his new plan and going back to the original deal with Boehner – the one that demonstrated the administration’s negotiating idiocy when compared to the Gang of Six’s deal.  Obama now put pressure on the Congressional Democratic Party leaders to support his original deal with Boehner.

Dan Pfeiffer, the White House communications director, recalled that the president and his team felt the weight of the global economy “on our shoulders.”

‘Is there political benefit to coming to a big budget deal with John Boehner? Sure,’ Pfeiffer said. ‘But every other political and message imperative was thrown out the door to prevent a disaster and do the right thing for the country. That’s why we were willing to do things we wouldn’t normally do.’

Reluctantly, [Senate Majority Leader Harry] Reid and [House Minority Leader Nancy] Pelosi agreed to do their best to support the plan.”

The self-serving nature of a communications director’s comments is obvious.  It is revealing that the Washington Post reporters did not provide any critical analysis about the concept that agreeing to austerity and the Great Betrayal of the safety net was “the right thing for the country” and the “global economy” because it was “imperative” to “prevent a disaster.”  The reality is that the cynical deal that Obama was trying to do with Boehner would have thrown the nation back into a recession, gravely harming the global economy and that the cuts to government services, particularly the safety net, would have greatly increased the misery that such recessions cause and greatly delayed the recovery from the new recession.  Any “political benefit” Obama would have received from his Great Betrayal would have been ephemeral because the new recession would have begun within months.  Obama’s principal economic advisor is Treasury Secretary Geithner.  Geithner is a failed regulator and a pro-austerity Republican (he officially became an Independent as a fig leaf).   Geithner is to economics as Karl Rove is to predicting 2012 election results in Ohio.

Fortunately, the House Tea Party members (unintentionally) chose in July 2011 to save the nation, Obama, Reid, and Pelosi from disaster.  They did so, of course, for mostly bad reasons.  Obama’s demand for meaningful tax increases caused the House Tea Party members to revolt against any Boehner concessions on taxes.  Boehner refused to accept Obama’s final capitulation in which he agreed to Boehner’s earlier offer and withdrew his proposed increase in tax revenue.  Boehner wouldn’t take Obama’s “yes” for an answer because he feared his Tea Party members’ reaction to agreeing to any increase in tax revenues.

It is important to remember what Obama’s flack was claiming was the necessity for making the deal with Boehner.  Obama was claiming that doing the deal was “imperative … to prevent a disaster.”  What disaster?  There never was a credible basis for claiming that not adopting austerity and not beginning to unravel the safety net would cause a “disaster.”  Everything we know from economics told us the opposite – austerity would cause a disaster and damaging the safety net would increase the human suffering.  We have run the experiment.  The U.S. lucked out and did not follow austerity.  The Eurozone inflicted austerity.  Despite the grossly inadequate stimulus program, the U.S. recovery since July 2011 has been steady (albeit far weaker than it would have been with adequate stimulus or a federal jobs guarantee program).  Unemployment has fallen.  The major exception – the loss of jobs by state and local government workers – is due to austerity imposed on state and local governments.  Austerity has forced the Eurozone back into recession.  Unemployment is 50% higher in the Eurozone than in the U.S.  Austerity has thrown Greece and Spain into Great Depression-levels of unemployment (over 25% of all workers and over 50% of younger workers).  The austerity deal that Obama and Boehner tried to inflict on America was the disaster, not the means to “prevent a disaster.”

Sometimes a nation gets lucky.  In July 2011, the leaders of both of our dominant parties tried to follow the insane austerity policies that were throwing the Eurozone back into recession.  The result would have been catastrophic for the nation, Obama, and the Democratic Party.  We were saved for all the wrong reasons.  Republican members of the Gang of Six’s effort were so eager to unravel the safety net (and its Democratic members so willing to betray the safety net) that they agreed to modest increases in tax revenues in return for severe cuts in the safety net.  The House Tea Party coalition was death on taxes and removed much of Boehner’s negotiating leverage.  Two groups that exasperate Obama – liberals and the Tea Party – saved him from himself and saved our nation from suffering a second recession.  The amazing thing is that the first thing Obama wanted to do upon being re-elected was to re-up on the Great Betrayal – and that the media still loves the idea and views anyone who opposes it as unserious and un-American.  We obviously fail to understand the obvious:  austerity is “imperative … to prevent a disaster.”

Bipartisan austerity sounds so good to the Beltway class.  They yearn to see Obama and Boehner working together again to commit economic suicide and unravel the safety net.  The Beltway’s baby boomers will show that they understand joint sacrifice.  They will sacrifice the poor, sick, and the unemployed in a gratuitous recession.  They will begin the process of giving Wall Street its greatest dream – the privatization of Social Security.  That will produce hundreds of billions of dollars in additional fees to Wall Street.  When you read odes to the Grand Bargain you are reading Wall Street propaganda (directly or via regurgitation).

17 Responses to How the Tea Party, Gang of Six, and Senate Liberals Saved Obama and the Nation

  1. “God always looks after the fools and — and the United States.” — Otto von Bismarck

    Obama had better learned his lesson since then. He’s made the rhetoric that he understands that the priority should be jobs and the safety net, not the deficit. So if we get a Grand Bargain in the vein of the 2011 crisis I can say without any doubt that he’s the biggest shyster since, oh, Franklin Pierce.

  2. Legacy. President Obama will live to rue the day he signed legislation to gut the safety net. He will not be forgiven. He will one day come to realize it was all for naught and that the current hysteria was just that – hysteria- with no basis in reality, other than that created by the oligarchs. He will make himself into a tragic figure. He could even come to see his error before his time in office is up, if he makes near term cuts that result in another recession.

    I wonder if there is no public figure out there who will stand up and resoundingly say “NO”! He/she may lose the battle but will long be remembered.

  3. Sounds like another conceding that Pete Peterson won. Very disheartening.

    • I personally very much hope I am wrong and that Bill Black is wrong. But Obama has already had plenty of opportuntiy to say NO to cuts to the safety net. He has not done so. We are left to believe he will do something and anything, well, is unnecessay.

      • I’m going to wait and see. Obama has a rather Romneyish history of tailoring his message to an audience who currently holds the most power and attention (i.e. shyster) and I’m willing to accept that he had a rather poor hand in 2011 — ideas like the $60T coin, while economically and legally sound, is not in any way going to pass muster any time soon if the VSP will it no matter how much MMT says otherwise. Whether Obama intended it or not (and I don’t think he did) this was the best he could have hoped for. Sort of like how liberals claim that Obama can just ‘close’ Gitmo or ‘stop’ drone strikes altogether.

        Obama will lose all of my sympathy and respect, however, if he goes through with this Grand Betrayal. I would seriously rather him just accept the austerity shock by doing nothing. Even if it’s a greater GDP-shock than any concessions he ends up getting; at least the safety net will be intact, both sides get blamed equally, and in 6-10 years we can claw our way out of it. But if Obama attaches his name to raising the Social Security age? In ADDITION to creating an austerity shock, it will be the death knell for the Democratic party — and no matter how much it hurts short term (and by short term I mean 16-20 years) any Democrat or liberal or whatever with an ounce of self-preservation will run far away from the failure of an insecure, sheltered man wanting his ‘bwayparteetansheep’. As exiled as Bush is, at least conservatives don’t spit in his face. People will speak of Obama like they speak of Harding or Pierce. Junior high schools, those that still exist, will invite him to speak just so that that they can laugh at him. And he will have deserved it.

        If Obama is just posturing for the butthurt VSP media and uses his leverage to simultaneously restore the MIC cuts, restore the Bush Tax cuts for the poor and middle class, AND gets a jobs/infrastructure bill on top of that, though? He’ll go down in history as FDR 2.0. Though things are looking more like ‘utter goddamn failure’ right now.

        We’ll see in a few months, won’t we?

        • Obama is not posing. He explicitly campaigned for the “Grand Bargain”. He’s doing a media blitz to promote it. He put together himself Simpson-Bowles. Unless their is a miraculous counter narrative that actually reaches the eyes and ears of the masses, it’s simply a fait accompli that the safety net is going to be eroded–by a Democrat!

          • The reason why I think that he might be posing is that there is literally no advantage to him destroying the party by putting forth Bowles-Simpson — unless he’s a Republican in disguise. But that still makes no sense because Obama could just pass the Ryan budget. Then again, Obama might sincerely believe in the social safety net and the dignity of health care and all that and thinks that a tiny reduction is better than losing the whole shebang; rather than being a cackling stealth-1%er supervillain, Obama simply just might be too moronic to see that he’s going to not only wreck his party, not only wreck his legacy, but is going to wreck the entire friggin’ country when the Republicans make the entirely credible claim that Democrats can’t be trusted to protect Social Security and want cut benefits. And when in 2014 when the Republicans take the Senate and the House Obama will be forced to eat shit sandwiches and in 2017 we’ll get the Ryan Budget crammed down our throats. It may not even take that long — the Republicans probably will flat out impeach him AND I WILL SUPPORT THEM.

            Faced with that scenario, when Obama is making noise about being open to cut spending, he is either posing to get the media off of his back (understandable; see the 2012 birth control hysteria) or he’s literally the stupidest man ever to inhabit the office. Yes, even stupider than Smirk W. Guess we’ll find out in a couple of weeks.

            • I agree we need to wait and see. Sometime between today and mid January we will know how bad is bad. In the meantime we need to make him believe he can lose everything if he caves on this issue. There will be no way back for him, if he proceeds with a Great Betrayal.

  4. Slime Pickens'

    Obama can easily close Gitmo.

    Its been 11 years. Even Stalin had trials.

    • Sure. And the Garrisonians put up a spirited defense against slavery, appealing to brotherhood and justice and Christian love. Doesn’t matter that it was in an ideal world the right thing to do; all it did was set back abolitionism a decade or so.

      I don’t blame Obama for not closing Gitmo, even if it’s a national disgrace and even if it’s plausible that he can put up a spirited enough fight to close it without any blowback. It’s still an expenditure of political capital that won’t be appreciated by a vain, butthurt, hysterical moderate-to-conservative public mired in American exceptionalism.

      I can forgive Obama for deciding that he’d rather use what little left he has in the tank to save hundreds of thousands of people instead of dozens. However, if he fails to do the former I’m putting him on the hook for both.

  5. First four years were spent in cleaning the house and not it is the time to reconstruct the walls and roofs. No drastic cuts in spending with simultaneous no drastic increases in taxes — moderation will give the results acceptable to all the sectors of American society.

    • Javed, Consider. The stimulus bill provided less than $400 B per year in deficit spending stimulus. Now, Obama wants to do a deal cutting deficit spending by $400 B every year for 10 years. It’s going to be an unmitigated disaster for everyone except the 1%. We know this because everyone can see what’s happening in Europe.

  6. Joe: Thank you for your comment. In Euro-17 the situation is quite different. They have local currency and also controlled by Euro. They can print local currency but not the Euro. In case of America, the federal government has the sovereign right to print fiat currency to meet any unexpected situation. When I say this is now the time to reconstruct the house I mean that all the residents should share the rebuilding cost and the 1% should also listen to the government That is why Obama is going to ‘the roads’ to convince the rich. I am very confident that Obama government will not go to the extremes and will also not ignore those who have voted for him. Am I correct in my assessment? Kind regards.

    • Javed, thanks! We two aren’t defeatists!

      • You really need to take Obama at his word. He put together the Simpson-Bowles commission himself. He is now working hard to convince Republicans that he can deliver Democratic votes for his Grand Bargain:

        …”He “will travel beyond the Beltway at times to rally public support for a deficit-cutting accord that mixes tax increases on the wealthy with spending cuts. On Wednesday, Mr. Obama will meet with corporate executives at the White House as he uses the nation’s fiscal problems to start rebuilding relations with business leaders… He hopes to enlist them to persuade Republicans in Congress to accept higher taxes on the assurance that he can deliver Democrats’ votes for future reductions in fast-growing entitlement programs like Medicare and Medicaid….”

        http://firstread.nbcnews.com/_news/2012/11/12/15110873-first-thoughts-lessons-learned?lite

        If anything, Obama has been completely up front regarding his intentions. It isn’t remotely defeatist to acknowledge this fact. He’s going to cut entitlements and shrink the deficit. The only question remaining is what will the effect be to the broad economy down the road, subsequent to enactment.?

  7. Obama, has consistently been the great betrayer. That is his character. Look at his first term. His second will be a ‘grand’ encore of the first. It will play along to the theme of the movie 2016 (no I did not see it, I know the script) with Obama destroying the economy. Socialism and his hatred of American values will be blamed (falsely but who cares) and the republicans will roar back into power in the next mid term and a strong right wing team will take the presidency in 2016 with popular mandate. Only Obama could do this, just as only Romney could get Obama reelected. Clinton knows this, thats why she is jumping ship early. She’s getting back in line for later.

    The ruling class needed this man to pull the public betrayal off. As Bill pointed out in a previous post it was Obama himself that suggested the structure of the betrayal – or should I say, submitted the structure on behave of his real ‘constituents’.

    If you look at it that way, that is from his ‘constituents’ viewpoint, he would not be betraying, but supporting the people that really got him elected in 2008 and last week – the ‘power elite’.

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