The Republican strategy: Create a second recession to win in 2012.

The Republicans are seeking to plunge the country into a second recession or possible second Great Depression in order to win the Senate and White House in 2012.  This may not be their explicit strategy but it is a strategy implicit in their actions, particularly in regard to deficit reduction and the debt ceiling.  So far, it is a strategy that is working.

After the 2008 election, Republicans openly said their number one goal was to deny Obama a second term regardless of what they had to do and regardless of how their actions might affect the country.  They did all they could to sabotage efforts to create a stimulus package large enough to turn the economy around in the hope that they could keep the economy in a recession and unemployment high.  They believed that a bad economy would help them defeat Obama in 2012. 

While they were not able to defeat stimulus legislation, they were able to keep the size of the stimulus at a level far below that most economist saw as necessary to create demand and get the economy moving again.  Republicans were unhappy to see the stimulus work as well as it did but were glad that it did not work as well as Obama and the Democrats hoped.  Republicans were able to prevent a second stimulus by arguing that the first one, which they kept too small to do the job, had not achieved some of its goals such as getting unemployment down to 8%.  They repeatedly cited unemployment over 8% as clear evidence that the stimulus had little or no impact on creating jobs.  That argument was bogus, of course, but Democrats were never able to refute it and perhaps, disappointed that the stimulus did not do more, didn’t even try.  Eventually, Democrats gave up on any hope of a second stimulus, even though most economists said it was badly needed.

Fast forward to November 2010.

Republicans won control of the House in the 2010 election because anti-Obama forces (many racists) were energized and mobilized to vote while liberals, progressives, and other pro-Obama voters stayed home.  After the election, Republicans felt good about their chances in 2012 to retain control of the House and possibly win control of the Senate.  With the right candidate, they felt the White House was in reach.  Obama seemed taken off guard by the 2010 election results even referring to them as a kind-of repudiation of his policies.  The Republicans could not have asked for more since Obama’s admission allowed them to claim a clear mandate, even if it was one that they did not have since the election had been decided by an enthusiasm gap and turnout more than anything else.

Then things start going wrong for Republicans and their strategy. The economy was no longer in a recession.  Obama negotiated a deal in December to keep the government operating and got a boost in his job approval ratings.  Business responded positively, thinking that Republicans and Democrats were going to begin cooperating to get things done.  January job numbers were off but hiring picked up in February.  Worse, for Republicans, CEO and Consumer Confidence started to trend upwards.  Republicans saw their opportunity to win in 2012 slipping away.  If there was no second, double-dip recession and the private sector kept adding jobs, their strategy to run on the economy in 2012 would not work.  Just avoiding a second stimulus was not going to be enough. 

Then, they realized they had the perfect opportunity to drive the country back into a recession and keep unemployment high. The federal government would reach a totally arbitrary debt ceiling in March.  In most years, raising the debt ceiling is simple, almost automatic.  But, Republicans said “NO.” This time they demanded major concessions in terms of spending cuts in return for raising the debt ceiling. 

Throughout Obama’s tenure, Republicans had hammered away at the deficit issue.  It fit nicely with their cut taxes, cut spending, deregulate, big government is the enemy ideology.  Republicans convinced the public that the federal government was facing an immediate deficit disaster.  Of course, the truth was that the disaster, if it ever occurred, would not come for decades and was caused not by out-of-control discretionary spending but two unfunded wars, Bush’s tax cuts for the rich, and deregulation of the financial industry that brought on the worst economic crisis since the Great Depression.   The contribution of the stimulus to the deficit was small in comparison and temporary.  Long range, health care costs were probably the biggest driver of future deficits but health reform, which Democrats passed but Republicans strongly opposed, offered the prospect of beginning to bring those costs under control.  Still, Republicans continued preaching that out-of-control Obama/Democrat discretionary spending, particularly spending to stimulate the economy, was and would lead in the near future to a deficit disaster.  They sacred the voters with a contrived horror.  Democrats were never able to counter the Republicans’ “deficit-is-the-problem” propaganda possibly because the truth about the deficit involved macro-economic issues most Democratic politicians did not understand and , even if they did, found impossible to explain to unsophisticated deficit terror-struck voters.  Most Democrats just stopped trying to fight Republicans on the deficit issue.

Republicans decided to link the deficit to the debt ceiling.  Raising the debt ceiling, they argued would allow more “runaway spending.”  Of course, raising the debt ceiling had nothing to do with controlling spending since the debt was caused by spending decisions Congress, with Republican participation, had made previously.  Republicans knew that the budget process was the way, the only way, to control spending, but they knew the public didn’t know that.  Anyway, they were not really seeking to reduce the deficit and they weren’t really concerned that much about the debt ceiling.  They were concerned about delaying or reversing the economic recovery. 

They refused to vote to raise the debt ceiling without agreement on major cuts in spending.  They demanded “negotiations.”  They had no intention of really negotiating.  They created the debt ceiling crisis out of whole cloth as nothing more than a delaying tactic.  They wanted to create economic uncertainty since that was the best way to reverse the positive economic trends.  The theory was simple.  Businesses don’t like uncertainty.  Consumers don’t like uncertainty.  Uncertainty makes companies cautious about hiring.  Uncertainty causes consumers to reign in and delay spending. 

The Republicans “negotiators” in the Biden deficit reduction/debt ceiling talks never truly negotiated.  Rather they sought to drag the negotiations out as long as possible.  They made demands.  The administration resisted.  Republicans drew a line in the sand.  They threatened to walk out on the negotiations.  The administration, anxious to get a deal and avoid default, gave into Republican demands time and again.  Each time the Republicans demanded more.  After all, they weren’t really trying to reach an agreement but to create and sustain uncertainty.  Will the debt ceiling be raised or not?  Will the government default in August?  If the government defaults, will the nation slip back into a second recession? 

Still, it was not clear if their strategy was working.  Hiring picked up in February, again in March, and once again in April.  The private sector is added an average of 215,000 jobs per month, not enough to bring unemployment down by much (Republicans were happy to see) but the trend was up—192,000 jobs created in February; 216,000 in March; 244,000 in April. 

Then, Republicans got some good news or, at least, good news for their strategy.  May job numbers fell off the cliff.  Only 54,000 jobs were added.  Republicans couldn’t have been happier.  CEO confidence was down and declining.  Consumers were less confident and starting to pull back from spending.  The Republican strategy for creating another recession seemed to be on track. But, analysts said the disappointing May job numbers might just be a bump on the road to recovery.  Republicans hoped not.

Then, the June job reports were released and it was time to celebrate. Thanks to state and local government layoffs that were largely the result of the end of stimulus money going to the states, job creation declined for the second straight month, this time to near-zero.  Republicans pointed to the numbers as proof that “out-of-control spending,” “the deficit,” “job-killing government regulations,” “Obama,” and on and on, pick your talking points, were responsible.  Of course, Republicans knew that what was really killing jobs was their strategy to create another recession by sowing uncertainty about raising the debt ceiling. 

Now, all Republicans had to do was double-down on their strategy.  They backtracked on the debt ceiling negotiations.  They had agreed to talk about $4 trillion in cuts over 10 years and maybe even some tax increases.  Now, they used the June job reports to back out of those negotiations.  They announced they wanted to go back to talking about $2 trillion in cuts and no tax increases.  They knew this new breakdown in negotiations would translate into even more uncertainty.   Uncertainty would  translate into even less CEO and Consumer Confidence which would translate into even few jobs being created in the coming months.  But, that was what Republicans wanted.

Republicans must be feeling pretty confident now.  If they can keep stalling the negotiations for a few more weeks, one of two things will happen.  First, Obama and the Democrats may be so desperate to avoid a government default that they will agree to all the spending cuts Republicans demand.  Those cuts will slow the economy even more and result in another recession.  Alternatively, there may be no deal, in which case the government will default. If the government defaults, then another recession is likely.  Regardless of what happens, Republicans think they can win, even though the country loses. 

There is only one problem with the Republican strategy.  Who will voters blame for the new recession?  Republicans know they are going to have to hang the guilt on Obama and Democrats.  They have started running ads already doing that.

Is this an explicit strategy laid out by cynical Republican operatives in a backroom somewhere and methodically carried out by the Republican leadership?  We will never know.  There is little doubt that it is the implicit strategy derived from (a) a deep seated hatred for Obama and (b) a Conservative ideology built upon fantasy and greed that has become so radical it is pursued as an end in itself regardless of the damage done to the country. 

Can Obama and the Democrats stop the Republicans?  They don’t seem to have many options.  Obama seems to have abandoned consideration of using the 14^th Amendment option to prevent default.  A big stimulus package, particularly one that sent more money to the states to help them avoid additional layoffs of workers, would help but there doesn’t appear to be any support for that in Washington.  Unfortunately, a second recession, or maybe even worse, seems increasingly likely.  If that happens, voters could blame Republicans and turn on them at the polls next year.  However, Republicans recognize that and, as I said, have already started running ads and PR campaigns to blame Obama and the Democrats.  So far, Obama and the Democrats haven’t launched any counter ads or PR efforts and don’t really seem to have any plans to do so.  That leaves Americans hearing only one side of the story.

Deficit reduction/debt ceiling negotiations are set to resume at the White House today at 6PM.  Maybe there will be some kind of breakthrough.  Republicans are rejecting any $4 trillion deal and any deal with tax increases.  The White House says a major deficit reduction deal of $4trillion or so is still possible. 

Stay tuned.  Right now the debt ceiling time-bomb clock keeps ticking.