Krugman’s Bashes Progressives for Criticizing Obama on Grounds that He Criticizes Obama

By William K. Black

Paul Krugman’s admirers would never list modesty as one of his characteristics. He has written a column “In Defense of Obama” that begins by explaining that his criticisms of President Obama were correct, but that unidentified others’ criticisms of Obama constitute “trash talk.”

Specifically, Obama “came perilously close to doing terrible things to the U.S. safety net in pursuit of a budget Grand Bargain.” Obama sought to produce a self-inflicted disaster by desperately trying to reach a “Grand Bargain” with Republicans that would have inflicted austerity on our Nation in 2012, “slash[ed] Social Security and [raised] the Medicare [eligibility] age.” As even Krugman admits, we were saved from this catastrophe “only by Republican greed, the GOP’s unwillingness to make even token concessions” to achieve the Grand Bargain. What Krugman omits in the tale is that it was also a revolt by Democratic progressives against the Grand Bargain that saved Obama and the Nation.

Krugman does not, in this column, explain the consequences and implications of the disaster that Obama tried so hard to inflict on us. First, it would help the reader to inform them that achieving the Grand Bargain became Obama’s top domestic priority.

It would have aided the reader for Krugman to explain that as part of the Grand Bargain Obama was also trying to inflict austerity on the U.S. in response to the Great Recession. Had Obama succeeded he would have thrown the Nation back into a second Great Recession – for the reasons that Krugman has often explained. This would have doomed his reelection chances and caused catastrophic losses to the Democratic Party in other 2012 elections.

Readers doubtless would have found it useful to know that that Obama ran for office on the promise of protecting Social Security and Medicare from the cuts he sought to inflict. They also would find it useful to know that once Obama legitimized attacking the safety net programs it would make them fair game for unilateral Republican attacks on the safety net when they took control of the White House.

Krugman blames Obama’s effort to enter into the Grand Betrayal as occurring because Obama was “naïve.” He presents no support for that claim. Contemporaneous press accounts – based on leaks from the White House – revealed that Obama was motivated by a desire for fame. The Grand Bargain was to be his legacy and the fact that the Grand Bargain betrayed his supporters was the factor that demonstrated that he was a statesman. Democratic Presidents establish that they are “serious” by publicly betraying and deriding their progressive base.

Krugman defines Obama’s critics as illegitimate. Krugman labels Obama’s critics as engaging in “Obama-bashing.” Krugman goes on to label progressive critics of Obama as “Obama-bash[ers]” by mischaracterizing the criticisms and then dismissing straw man arguments that he crafts as not requiring refutation because the criticisms are obviously not “serious.”

“There’s a different story on the left, where you now find a significant number of critics decrying Obama as, to quote Cornel West, someone who ‘’posed as a progressive and turned out to be counterfeit.’’ They’re outraged that Wall Street hasn’t been punished, that income inequality remains so high, that ‘’neoliberal’’ economic policies are still in place. All of this seems to rest on the belief that if only Obama had put his eloquence behind a radical economic agenda, he could somehow have gotten that agenda past all the political barriers that have constrained even his much more modest efforts. It’s hard to take such claims seriously.”

Krugman’s argumentation consists entirely of pejoratively labeling any progressive criticism of Obama, crafting weak straw man claims that progressive critics do not make, crafting an alternative straw man policy not advanced by progressives, labeling that alternative straw man policy pejoratively, and dismissing the straw man criticisms and policy alternatives that Krugman falsely ascribes to progressives as so un-“serious” that they require no refutation. The only progressive critique that Krugman quotes, by Cornell West, is one that Krugman states in the first paragraph – a critique that he pronounces accurate in the second paragraph. Three paragraphs later he seems to have forgotten his two introductory paragraphs and implies – but never even attempts to prove – that West is committing “Obama-bashing” in that quotation. If so, then it logically follows that Krugman engaged in “Obama-bashing” when he made the same criticism of Obama that West did. Given that Krugman pronounces his critique of Obama accurate, that necessarily means that when progressives make accurate criticisms of Obama they are engaged in “Obama-bashing.”

Krugman sometimes constructs straw man criticisms that he attributes to unidentified progressives, but sometimes the criticisms he ascribes to progressives are ones that he agrees with. The first purported progressive critique that he attacks is an example of a straw man critique. Krugman claims that progressives are “outraged that Wall Street hasn’t been punished.” As the scholar who has led the critique of the Obama administration’s failure to prosecute the elite (and not-so-elite) senior officers who led the three most destructive epidemics of accounting control fraud (appraisal fraud, liar’s loans, and fraudulent “reps and warranties” in secondary market sales) in history I can attest that Krugman could have quoted literally thousands of specific criticisms I have made about the failures to hold these senior bankers accountable. In this column I’ll address only the portion of Krugman’s arguments for which I have some expertise.

Krugman could have explained why he believed my critiques were incorrect. We could have debated our differences and moved towards agreement. I would have had considerable advantages in such a debate because I know the relevant literature and I have real world experience in holding senior bank officers accountable for their crimes and “clawing back” their fraud proceeds. I also have real world experience with the advantages that arise from holding elite white-collar criminals accountable and the disadvantages that arise when they can commit their crimes with impunity. I think that Krugman understands that this is a debate he could not win, mostly because he agrees with me. Krugman has criticized the administration’s failure to hold the elite banksters accountable. Indeed, in his column attacking “Obama-bashing” he bashes Obama by adopting my critique.

“Let’s be clear: The financial crisis should have been followed by a drastic crackdown on Wall Street abuses, and it wasn’t. No important figures have gone to jail; bad banks and other financial institutions, from Citigroup to Goldman, were bailed out with few strings attached; and there has been nothing like the wholesale restructuring and reining in of finance that took place in the 1930s. Obama bears a considerable part of the blame for this disappointing response. It was his Treasury secretary and his attorney general who chose to treat finance with kid gloves.”

I have never wanted to “punish” “Wall Street.” That would be a nonsensical goal. Corporations are not people and we do not punish geographical areas. We hold individuals accountable for their actions, particularly elite. If we fail to do so we destroy the rule of law and create crony capitalism.

The progressive critique is not that income inequality has “remained high.” The progressive critique is that both income and wealth inequality have surged under Obama with no commitment to reversing that disastrous trend. Krugman does not want to quote progressive critics on this point for the same reason I just explained – he agrees with us and he knows that any other position is indefensible under his own published views.

The third critique that Krugman crafts and ascribes to progressives is that “’neoliberal’’ economic policies are still in place.” This is so vague that it is impossible to respond to other than to say that Krugman has (correctly) made leveled that criticism of certain specific Obama policies. Indeed, while he does not use the label “neo-liberal,” Krugman makes precisely that criticism of Obama in his article condemning “Obama-bashing” when Krugman denounces Obama’s efforts to commit the Grand Betrayal. The odd takeaway is that Krugman has made – and pronounces correct in his “Obama-bashing” article each of the progressive critiques that he now labels “Obama-bashing.”

Krugman’s complaints against progressives become even more clearly straw man creations when he describes progressives’ purported alternatives to Obama’s policies. You know things are going hopelessly off the rails when he asserts that Obama’s unidentified progressive critics advance a single solution to all of Obama’s policy failures. Krugman then describes that silver bullet solution using rhetoric designed to make it sound childish and pronounces his straw man creation so unserious that no one could take it seriously and therefore progressive criticisms of Obama are not worth discussing.

“All of this seems to rest on the belief that if only Obama had put his eloquence behind a radical economic agenda, he could somehow have gotten that agenda past all the political barriers that have constrained even his much more modest efforts. It’s hard to take such claims seriously.”

Prosecuting the Banksters Required No Eloquence or Political Miracles

Krugman’s crude effort to ascribe this silver bullet solution to progressives collapses as soon as we apply the claim to the three criticisms he earlier ascribed to progressives. First, we want to prosecute the elite (and not so elite) senior bank officers that grew wealthy by leading the frauds that drove the financial crisis and the Great Recession. As Krugman agrees, this has cost our Nation over $21 trillion in lost GDP and over 10 million jobs. Why does prosecuting banksters require a “radical economic agenda?” The first President Bush’s administration prosecuted successfully the majority of the over 1,000 defendants convicted in savings and loan cases designated “major” by the Department of Justice (DOJ).   Bush wasn’t eloquent.

Obama had the power, in a field in which the Republicans had no ability to create “political barriers,” to hold the banksters accountable. He did not have to reinvent the wheel because we had proven what worked (not of it dependent on Obama’s “eloquence.” He chose not to take the proven steps, with the proven people, who would have held thousands of financial executives accountable for their crimes. Many of us explained publicly what needed to be done, raised the warning that the administration was not taking the necessary steps, and offered to help fix the problems. The Obama administration reacted with a combination of indifference and even scorn.

Krugman has no idea how several thousand prosecutions plus civil actions and enforcement actions against the elite banksters would have transformed the administration. Every prosecution produces multiple local and national stories when the bank officer is indicted, the trial begins, there is key testimony in the trial, the jury reaches a guilty verdict, and the bank officer is sentenced. Now multiply those stories by at least 5,000. There is another positive effect – each of these cases places facts in the public record that the media can quote without fear of being sued for libel or slander. This, plus the wave of convictions, leads to much harder hitting articles explaining the corrupt culture of banking.

The first thing that Obama should have done to hold the banksters accountable for their crimes was to reestablish the criminal referral process at the banking regulatory agencies. Again, we know how to do this and why it is essential to strategic success. As the number of criminal referrals grows at a ferocious rate (we, the S&L regulators, made over 30,000 criminal referrals in a vastly smaller crisis) it creates immense pressure on DOJ to prosecute. This translates to pressure on Congress to approve new hires of FBI and IRS agents and prosecutors. It becomes politically dangerous to block these vital hires.

AS DOJ achieves hundreds of elite convictions, the banking regulators bring thousands of meaningful enforcement actions against senior bank officers, and DOJ and the regulators bring thousands of civil actions against the senior officers to recover the wealth they gained through fraud the world would have transformed in a way that would have created much greater political space for meaningful reform. The hundreds of fraud actions discredit banking and bankers. Their trade associations’ efforts to block meaningful regulatory reform become toxic as members of Congress rush to disassociate themselves from the banksters.

As the regulators aggressively use their administrative enforcement powers to “remove and prohibit” thousands of officers who led or assisted the frauds the integrity of the industry improves rapidly. Prima donna bank CEOs who would otherwise lead the political attack on vital banking reforms are discredited as the evidence demonstrates to the public why it is appropriate to remove them from their positions and prohibit them from reentering the portions of the financial industry that are federally insured.

Each of these dynamics was proven during the S&L debacle. Again, the key is that we know how to succeed and Obama could have done so because the Republicans had no ability to create effective “political barriers” to prevent these prosecutorial and regulatory actions. Indeed, had the Republicans tried to do they would have committed political suicide. No magical “eloquence” required.

Income Inequality

It would have been more difficult for Obama to have pushed effectively to reduce income inequality, but there are concrete things he could have done that we urged. Note that by discrediting the banks and bankers through the actions I’ve just described above, the administration would have enormously increased the political space for real reforms on executive compensation. The single greatest source of the growth of inequality at the top is finance. Financial services compensation is grossly excessive, but it is also a leading source of the perverse incentives that drive our epidemics of accounting control fraud and are used to create “Gresham’s” dynamics in the professions and more junior officers and employees that aid and abet the financial frauds. Perverse executive compensation also provides the primary means by which controlling officers loot “their” firms in a manner that makes effective prosecution more difficult.

Obama’s financial regulators could have dramatically reduced the perverse incentives of executive compensation and materially reduced income inequality. The grounds for their action would not have been reducing income inequality, but that would have been one of the important collateral effects of the executive and professional compensation rules. The rules would have been adopted on the grounds that by reducing the perverse incentives of executive compensation the Obama administration would have enormously improved the safety and soundness of the financial industry.

These rules would not have required magic “eloquence” by Obama. They would be more subject than the accountability program I outlined above to political and judicial obstruction, but success was likely if the compensation rules’ rationales were done properly (a task I have taken the lead on in key rules we knew would be challenged in court). The huge advantage the regulators would have had in defending the rules against “arbitrary and capricious” challenges include legal precedents that emphasize the broad scope of the phrase “safety and soundness” and the agencies’ expertise in interpreting the phrase. Most importantly, a rule requiring that high levels of compensation not be paid unless they were based on extremely long-term (a decade) proven results is the kind of rule essential to produce the reality of “aligning the interests” of the CEO and the shareholders. The current compensation practices in finance almost invariably further misalign the CEO’s interests. The current compensation system is “radical” in that it violates all theories of how compensation should be structured to prevent perverse incentives.

The normal problem with cracking down on grossly excessive and perverse compensation in the financial industry is that the bank CEOs will threaten to move the bank’s operations abroad to a country with weaker rules that do not interfere with the CEO’s desire to craft perverse compensation practices. Neoclassical economists react blithely to U.S. firms moving abroad and costing blue collar workers their jobs, but they start screaming when banks do the same thing. In the circumstances of the Obama administration, however, this neo-classical hypocrisy (that is oh-so-unintentionally-revealing of their biases) would have posed minimal threat. The regulators and prosecutors simply had to treat any effort to flee U.S. jurisdiction as a basis for (1) denying the bank all U.S. privileges and (2) making any planned enforcement or civil action and any intended prosecution an urgent priority before the bank and bankers are able to escape U.S. jurisdiction. The combination of these two responses would prevent any exodus of financial firms from the U.S.

While this regulatory approach to reducing inequality through reforming executive and professional compensation would work only in financial industries regulated by the U.S. and firms such as GM bailed-out by the U.S., it would still have a material direct effect in reducing inequality because financial sector compensation represents a grotesquely disproportionate share of total executive compensation. But fixing executive and professional compensation in finance – and explaining very publicly and comprehensively (perhaps even “eloquently”) why it was essential to do so because existing executive and professional compensation systems were deeply criminogenic and further misaligned the interests of the officers and the shareholders could have powerful indirect effects in producing reforms in other industries. Executive compensation in finance also drives the horrible “ratchet effect” that provides the excuse for higher compensation in other industries.

There are other things that Obama could have done to reduce inequality. The single most effective form of fiscal stimulus is reducing or eliminating workers’ social security contributions. The Social Security tax is the most regressive major tax that the federal government collects. We can end Social Security collections within days at a trivial administrative cost. This means that the stimulus is almost immediate and goes disproportionately to less wealthy Americans with a high propensity to consume. By suspending collection of the Social Security tax paid by the workers we produce exceptionally rapid stimulus with the biggest bang for buck.

Obama initially reduced the workers’ Social Security contribution, but he decided to resume collection at a time when the suspension of the contribution was proving exceptionally effective. This was pure madness. The suspension was politically powerful, economically literate, and working brilliantly when Obama decided that he wanted to end the suspension. Suspending the full workers’ contribution would have materially reduced inequality by increasing take home pay for Americans, particularly working class Americans. No eloquence from Obama was required.

Obama could also have begun a major campaign to increase the minimum wage in his first year in office and continued the effort every year. Eloquence would be a small part of this effort. The political benefit of pushing for a very large increase in the minimum wage is that opinion polls show tremendous support for the proposal. The Republicans might block any increase in the minimum wage, but each time they did so Obama could have forced them to pay a political price.

Continued ‘Neo-Liberal’ Policies

I do not know what Krugman means by the phrase and there is no sense guessing.

Dodd-Frank: “A lot better than nothing”

Krugman’s phrasing makes it clear that he knows that Dodd-Frank is a deeply inadequate response to the financial crisis. He argues that despite its many weaknesses it has made three contributions that may reduce the harm of future crises.

“Dodd-Frank is a complicated piece of legislation, but let me single out three really important sections.

First, the law gives a special council the ability to designate ‘systemically important financial institutions’ (SIFIs) – that is, institutions that could create a crisis if they were to fail – and place such institutions under extra scrutiny and regulation of things like the amount of capital they are required to maintain to cover possible losses. This provision has been derided as ineffectual or worse….

MetLife is making an all-out effort to be kept off the SIFI list; this effort demonstrates that we’re talking about real regulation here, and that financial interests don’t like it.

Another key provision in Dodd-Frank is ‘’orderly liquidation authority,’’ which gives the government the legal right to seize complex financial institutions in a crisis. This is a bigger deal than you might think. A third piece of Dodd-Frank is the Consumer Financial Protection Bureau.”

Systemically Dangerous Institutions (SDIs)

As Camus warned, the first step in dealing with a plague is to call it by the right name. The “too big to fail” (TBTF) banks are not treated that way because they are “important” or “virtuous.” They are TBTF because they are dangerous – the regulators fear that the bank’s failure could cause cascade failures at other banks. Krugman admits this fact: the basis for classification is that they are “institutions that could create a crisis if they were to fail.” They are systemically dangerous institutions (SDIs) and they should have been broken up and shrunk to a size where they no longer endangered the global financial system. Most economists believe that the SDIs are so large that they are deeply inefficient. Because SDIs receive an implicit federal subsidy even conservative economists have stated that they make meaningful competition impossible.

Dodd-Frank does not even attempt to end SDIs or remove their implicit subsidy that makes effective compensation impossible. Obama would have found it extremely difficult to end SDIs, but he was the only President who had the chance to do so and he never he considered trying to do the right and vital thing.

Dodd-Frank is useless against SDIs and potentially dangerous because it is being sold as a real protection. Creating complacency without effective reform increases the risk of future crises. We did not need the Dodd-Frank bill to provide “extra scrutiny and regulation of things like the amount of capital they are required to maintain….” We could have done that under existing regulatory and supervisory powers over banks. Krugman continues: “This provision has been derided as ineffectual or worse….” As I have just explained, at least with regard to banks, “the provision” is simply redundant. We have had the statutory authority to impose higher capital requirements for decades and “extra [supervisory] scrutiny” since the creation of federal banking regulation in 1863.

The provision is “ineffectual” against the implicit federal subsidy of SDIs. That means it is ineffective in restoring real markets for banking services. It is dangerous because it is being pitched (falsely) as a meaningful protection, which creates regulatory complacency. A fatal problem with the “provision,” which the Financial Crisis Inquiry Commission (FCIC) emphasized, is that banking supervisors failed to supervise effectively when banks reported high profits. Accounting control fraud produces the “sure thing” for a bank of reporting exceptional (albeit fictional) income. Accounting control fraud epidemics drove our three modern financial crises. Relying on higher “capital requirements” for the SDIs when (faux) capital can be created through accounting control fraud represent an Achilles’ heel of Dodd-Frank.

The lack of an “orderly liquidation” provision for a bank holding company is, as Krugman’s column admits, simply an excuse that the Bush and Obama administrations used because they had absolutely no intention of acting against the SDIs by receiving their clear receivership powers. It is revealing that the Obama administration came up with the pejorative term “nationalization” to argue that it was un-American to use receivership powers that we used hundreds of times during the Reagan administration to deal with troubled banks and S&Ls. Again, the fact that Bush and Obama refused to use receivership powers against the SDIs – powers that the OCC has had as regulators for over a century – demonstrates that the problem was will rather than statutory authority.

Krugman notes that Obama met with him and Joe Stiglitz about “temporary nationalization.” Why was Obama meeting with Krugman and Stiglitz about receivership questions? That is a subject that is far outside their expertise, but well within the expertise of scores of us with experience. Why weren’t people like my colleagues and me with a track record of success and the relevant expertise asked by Bush and Obama how to respond to a financial crisis? A Nobel Prize in economics is a personal triumph, but no one thinks it makes the recipient competent outside his or her area of competence and it obviously cannot supply experience. Some very smart people that Obama (and Krugman) would do well to listen to figured out far better answers to the problems Obama faced and proved decades ago that their answers worked.

I agree that it was a good thing that the Consumer Financial Protection Bureau (CFPB) was created by Dodd-Frank. That was Elizabeth Warren’s idea – a progressive. Timothy Geithner, who Obama chose as his Treasury Secretary after he had been the world’s worst senior banking supervisor, sought to kill the CFPB but was thwarted by progressives. Geithner succeeded in convincing Obama not to nominate Warren to run it. Again, the Federal Reserve had the clear statutory authority since the enactment in 1994 of the Home Ownership and Equity Protection Act (HOEPA) to ban one of the three epidemics of accounting control fraud – liar’s loans. Progressives repeatedly urged the Fed to use its HOEPA authority to stop that fraud epidemic. Alan Greenspan and then Ben Bernanke refused – even after Bernanke was informed that the fraud incidence in liar’s loans was 90 percent. Indeed, Bernanke finally used that HOEPA authority in the summer of 2008 (citing the 90% fraud incidence) – and even then delayed the effective date of the rule to November 2009 – because one wouldn’t want to inconvenience a fraudulent lender. It was after this disgraceful behavior that Obama chose to reappoint Bernanke – a Republican – to run the Fed. Senate progressives led the unsuccessful fight against that scandal. The Fed had all the statutory authority it needed to prevent the financial crisis. The Fed leadership lacked the will to act. The CFPB may prove helpful. The idea of having an institution dedicated to protecting financial consumers is a sound concept developed by progressives over the opposition of senior Obama administration officials.


One group of Americans is being bashed with no honest basis. The group constitutes among Obama’s most loyal supporters at the polls with very high turnout. The group has been bashed for decades by “new Democrats.” It has been recurrently bashed by Obama. It is now being bashed by Krugman. That group is progressives. The sad part of Krugman’s column is that the progressives were correct on each of the issues I’ve written about (which include all of Krugman’s points about banksters and the economy). Instead of praising them, Krugman joins Obama in bashing progressives for taking positions that Krugman admits are correct, indeed positions that he has supported in his writings.


17 responses to “Krugman’s Bashes Progressives for Criticizing Obama on Grounds that He Criticizes Obama

  1. Perhaps Paul Krugman heard Larry Summers’ advice to Elizabeth Warren and took it to heart.

  2. Steven Greenberg

    Krugman is quoted as saying “All of this seems to rest on the belief that if only Obama had put his eloquence behind a radical economic agenda, he could somehow have gotten that agenda past all the political barriers that have constrained even his much more modest efforts.”

    This attitude is what incenses progressives like me. It is not so much that if he had tried, he would not have succeeded. It is that he did not try to make the justification for these policies.

    The Kochs and their ilk have been promulgating their ideas for over 5o years. They did not get accepted immediately. However, their persistence (and money) has gotten these ideas into the brains of the voters. If leading progressives don’t fight for the alternative now, when are they going to start?

    It is not Obama negotiating with Congress that will get this agenda into law. It is a riled up public putting electoral pressure that will get the job done. It is up to every progressive political leader to fight for these ideas until they can build a large enough coalition of voters to overwhelm the money that has bought Congress.

    Obama lack of effort to build the following that has set us back another 8 years. Electing Krugman’s choice, Hillary Clinton, will set us back an even further 8 years. At my age, I don’t have that long to wait anymore.

    • Steven Greenberg

      Corrections to the above

      ” It is not so much that if he had tried, he would have succeeded. ”

      “Obama’s lack of effort to build the following that has set us back another 8 years.”

    • The news now is that the Republicans are seriously considering putting Romney forward as their candidate again. It’s like they’ve decided it is in their best interests to lose.

  3. Great column.
    Yes, Krugman is extremely evasive and dishonest in his writing. The straw man and straw idea tactic is characteristic. If you go back to his once over lightly on TPP you will find the same thing.

    Even the beginning of the Rolling Stone piece, where he brags that he was not deceived like everyone else. Of course, the many skeptics are never mentioned.

    In his TImes column and blog he routinely goes after right wing and austerity people very specifically, with quotes, details etc. But he prefers to offer up crude caricatures of left opinion and then mock them.

    I think you are somewhat in error though, to think that he holds the positions you attribute to him.
    He doesn’t care about the crimes of the banks….even if he pays lip service here. The evidence—in hundreds and hundreds of blogs and columns, he never made an issue of it. He ignored Elizabeth Warren’s brilliant cross-examination of the the government “watchdogs.” He never writes about the crimes of the banks. He is however tireless in his promoting ACA.

    Much more could and should be said. The man is an opportunist and dishonest to the core.

  4. Pingback: Bill Black: Krugman Bashes Progressives for Criticizing Obama on Grounds that He Criticizes Obama | naked capitalism

  5. ‘Perverse compensation practices’ – Can we get those at Wal Mart?

  6. Jerry Hamrick

    Your light never dims–another excellent post.

    I think you and others have forced Krugman into a corner. He sometimes comes your way, but never all the way. He has too much invested in his career and he just can’t admit that he was wrong about MMT. But when he moves off to his next academic post he may get enough room to announce a new discovery: MMT.

    • Krugman doesn’t admit he was wrong about MMT because he has yet to even understand MMT. Krugman is only liberal when it comes to politics. When it comes to macro, he’s still trying to grapple with Milton Friedman.

  7. «Krugman blames Obama’s effort to enter into the Grand Betrayal as occurring because Obama was “naïve.” He presents no support for that claim. Contemporaneous press accounts – based on leaks from the White House – revealed that Obama was motivated by a desire for fame. The Grand Bargain was to be his legacy and the fact that the Grand Bargain betrayed his supporters was the factor that demonstrated that he was a statesman. Democratic Presidents establish that they are “serious” by publicly betraying and deriding their progressive base.»

    As usual, I think it a bit unfair to blame politicians like Obama for being either «naïve» or «motivated by a desire for fame» (somewhat corrupt in other words).

    My usual impression is that Obama like many other formerly “progressive” politicians is motivated by *electability*, that is the problem is voters.

    This quote seems particularly apposite:

    «The question arises, aside from Obama’s chronically allowing the Republicans to define the agenda and even the terminology (the pejorative word “Obamacare” is now even used by news broadcasters), why did he so definitively place himself on the side of the deficit reducers at a time when growth and job creation were by far the country’s most urgent needs?
    It all goes back to the “shellacking” Obama took in the 2010 elections. The President’s political advisers studied the numbers and concluded that the voters wanted the government to spend less. This was an arguable interpretation. Nevertheless, the political advisers believed that elections are decided by middle-of-the-road independent voters, and this group became the target for determining the policies of the next two years.

    That explains a lot about the course the President has been taking this year. The political team’s reading of these voters was that to them, a dollar spent by government to create a job is a dollar wasted. The only thing that carries weight with such swing voters, they decided — in another arguable proposition — is cutting spending. Moreover, like Democrats — and very unlike Republicans — these voters do not consider “compromise” a dirty word.»
    «The speech Obama gave on April 13 marked his conversion to fiscal centrism; to being the fiscally responsible Democrat. In that speech he stated that he wanted to reduce the debt by $4 trillion—thus aligning himself with the Republicans—but also asked for revenues to partly offset that reduction. It was all about reelection politics, designed to appeal to this same group of independents. “And that’s why,” I was told by the person familiar with the White House deliberations, “he went bigger in the deficit reduction talks; bringing in Social Security is consistent with that slice of the electorate they’re trying to reach.” This person said, “There’s a bit of bass-ackwardness to this; the deficit spending you’d want to focus on right now is the jobs issue.”
    This all fits with another development in the Obama White House. According to another close observer, David Plouffe, the manager of Obama’s 2008 presidential campaign, who officially joined the White House staff in January 2011, has taken over. “Everything is about the reelect,” this observer says — ”where the President goes, what he does.”
    Plouffe’s advice to the President defines not just Obama’s policies but also his behavior. Plouffe tells the President, according to this observer, that the target group wants him to seem the most reasonable man in the room.»

    The problem is *voters* and *donors*. Perhaps most USA citizens entitles to vote are “progressive”, but progressives don’t vote that much.

    Voters tend to be the richer, more rentier and prosperous 50% of citizens, and the vital 5% who are donors are usually the top 5% by income and wealth and are largely rentiers.

    The 5% who donate are those who nominate candidates, and the 50% who actually vote elect the President.

    The President therefore represents *them*, not the progressives that don’t vote and don’t donate.

    You can’t blame Obama for that, at least tactically.

  8. As to the core issue:

    «The President’s political advisers studied the numbers and concluded that the voters wanted the government to spend less. This was an arguable interpretation. Nevertheless, the political advisers believed that elections are decided by middle-of-the-road independent voters, and this group became the target for determining the policies of the next two years.»

    Yes it is an «arguable interpretation» but it is the same situation that has been described for quite a while in England as “Southern Discomfort” about progressive policies:

    And for the USA from the always interesting and clear Grover Norquist:

    and in particular about how progressive are many “independent”, “centrist” voters:

    «And then, our job as conservatives is to wake up every day and say how do we make more of us and fewer of them. And the left’s position is the same. I passed out a series of trends here; I’d be very interested in whether people think I’m missing stuff. I would suggest the biggest trend is the number of people who own shares of stock directly. We’ve gone from 17 percent of Americans owning stock to up over 50 percent of households. According to Mark Penn, two-thirds of voters in 2002, 2004, somebody who owns at least $5,000 worth of stock is 18 percent more Republican and less Democratic. African-American, no stock, 6 percent Republican; $5,000 worth of stock, 20 percent Republican. Every demographic group gets better with share ownership. Rich, poor, all colors, all genders, with the exception of women who earn more than $75,000 a year, who are already thoroughly Republican and don’t get any better.»

    and the usual:

    «And that is, in 2002, on the investor class stuff … you could have said, just drop $7 trillion in stock market value with the collapse of the bubble … $7 trillion, trillions with a T … Americans had $7 trillion less than they used to have, you can expect them to be very irritated and in trouble. You did see the Republicans run out and agree to Sarbanes-Oxley in reaction to the Enron scandal. But going into November, what actually saved it for the Republicans was the investor vote, which went heavily R. Why? One, they didn’t blame Bush for the collapse of the bubble. They were mad at having lower stock prices and 401(k)s, but they didn’t say Bush did this and that caused this. Secondly, the Democratic solution was to sic the trial lawyers on Enron and finish it off. No no no no no. We want our market caps to go back up, not low.

    The 1930s rhetoric was bash business — only a handful of bankers thought that meant them. Now if you say we’re going to smash the big corporations, 60-plus percent of voters say “That’s my retirement you’re messing with. I don’t appreciate that”. And the Democrats have spent 50 years explaining that Republicans will pollute the earth and kill baby seals to get market caps higher. And in 2002, voters said, “We’re sorry about the seals and everything but we really got to get the stock market up.”»

    That’s what being a “New Democrat” (or “New Labour” in England) is about: winning elections when there is no “progressive” majority of *voters* (never mind *donors*) because decades of social engineering by reactionary interests have turned many “progresssive” voters into petty rentiers.

    Then there are the “New Democrats” who still care about the poor underclass or working classes, and those who no longer give a damn.

    I suspect that Obama to a small extent still cares, and Krugman cares a lot more, but both are terrified of scaring off the petty rentier middle income voters with “progressive” talk.

  9. Two more points, one about language and one about the general issue that Bill Black has.

    «Obama’s chronically allowing the Republicans to define the agenda and even the terminology»
    «both are terrified of scaring off the petty rentier middle income voters with “progressive” talk.»

    As to “terminology” and “talk” the reactionaries, the rentiers and their political consultants are much better at it. They use focus groups, message testing, carefully constructed talking points, taking inspiration from the pioneering work of Bernays for corporate interests, in order to seduce potentially undecided voters. Some names: Rove, Norquist and in particular Luntz.

    As to the general issue that Bill Black has.

    I admire his for he seems to value honesty and decency, and worked hard for both in his jobs as regulator and thereafter, fighting courageously for both despite vicious pushback from nasty and powerful people.

    But he does not appear to realize that those are decidedly minority values among USA voters, or perhaps he does not *want* to realize that or admit it to himself.

    If his values are honesty and decency, and therefore those of a minority in the USA, he may need to give thought to building a progressive coalition with people who don’t particularly care about decency and honesty, but have primary interests not incompatible with them.

    In its glory days the Democrats passed a lot of really important “progressive” legislation (usually for whites only) thanks to the support of the worst kind of racist voters, because the Irish/Jewish/Italian working class voters and the Dixie voters who supported it both felt oppressed by the WASP Yankee rentiers and businessmen who owned the Republican party.

    I am not suggesting going back to those times specifically. But “progressives” need to be realistic (without becoming blithely opportunistic) as who *voters* and *donors* really are in their majority.

    • Steven Greenberg

      “But he does not appear to realize that those are decidedly minority values among USA voters, or perhaps he does not *want* to realize that or admit it to himself.”

      50 years ago (or maybe 100 years ago), what is now accepted dogma was not mainstream thought. With concerted effort by the “reactionaries, the rentiers and their political consultants” this was turned around. I would like to believe that with concerted effort by progressives and the people we choose to elect to office, this can be changed. In the election of 2008, Obama did seem to bring about such change. Perhaps that is what got him elected.

      What is so disappointing about Obama is that after he got elected he abandoned all efforts to shape public opinion. He seemed to think that negotiating with the Republicans in Congress was all that he needed to do to get what he wanted to achieve.

      The hope with people like Elizabeth Warren is that they seem to realize that public opinion is a necessary support for a politician even after they are elected. It doesn’t seem to be a problem understanding this for Republicans like Ted Cruz, Rand Paul, John Boner, and Mitch McConnell.

      Obama’s electoral losses in 2010 are a result of his not paying attention to keeping the public informed about the necessity of what he was trying to do during the preceding 2 years. He let the Republicans explain the necessity of stopping him from doing these things. Absent an opposing story to what the Republicans were selling, it is not surprising that the voters turned.

      Many voters might even have been convinced by the Republicans because of the absence of an opposing narrative might have looked like proof that there was not opposing narrative to be stated.

  10. You are just realizing now that Krugman is full of doody? Really? I remember when we had large deficits and debt during the Reagan years. You would have thought the sky was falling and the earth as we know it was coming to and end. Huge deficits and 17 Trillion in debt (not to mention tens of trillions in unfunded liabilities)? No problem, Barack Obama is in the White House. Krugman has long ceased being a serious economist/Journalist. He is a hyper partisan ideologue and it is a joke that you are just realizing what a DB he is now.

    • “… tens of trillions in unfunded liabilities …”

      That’s Peterson tripe. What Peterson fails to say about those is that they are also (1) as yet unincurred, and (2) substntially have established funding mechanisms already in place.

  11. I admire you deeply. Wish that you could call the shots. It would make the world of difference.

  12. Your ideas need wider exposure. The popular response to the 2008 financial crisis did not meet with the proposals of actual reform that you present. I wonder what could have been done if the the Occupy movement embraced your ideas.