Matt Yglesias posts the chart on the right today, and it's a useful reminder that as bad as the Great Recession has been, it's still not within light years of being in the same league as the Great Depression. This has all sorts of implications for assessing things like monetary policy, Obama's ability to get things done, the depth of anger in the country, and so forth.

So yes: things are much better today then they were in 1933. Still, whenever I look at comparisons like this, I'm always struck by one way in which our situation today is worse. In 1933, nobody really knew what to do about a massive, persistent economic downturn. Keynes's theories hadn't yet gained wide currency, and conventional wisdom of the day was uniformly unhelpful. Certainly FDR was never a deliberate Keynesian: He did end up spending a lot of money, but mainly because he wanted to help people, not because he really thought that deficit spending per se was the answer to our problems. So in some sense it's forgivable that they didn't do a better job of combatting the Great Depression. They really didn't know any better.

Today we do, of course. And yet, we're still not willing to do what needs to be done. Partly this is thanks to mindless partisanship, partly because we just don't have the guts. It's pretty damn discouraging. At least our predecessors had the excuse of ignorance. What's our excuse?

Is today's stock market tumble a sign of concern over the national debt? Paul Krugman says no:

The “signature” of debt concerns should be stock and bond prices both falling; what we actually see is those prices moving in opposite directions. And that’s normally the signature of concerns about a weak economy and deflation risk (see Japan, decline of).

What triggered economy fears? To some extent I think this is a Wile E. Coyote moment, with investors suddenly noticing just how weak the fundamentals are. Also, the mess in Europe.

And maybe, maybe there is an S&P story — but not the one you think. Arguably, that downgrade will bully policy makers into even more deflationary, contractionary policies than they would have undertaken otherwise, which has the perverse effect of making US debt more attractive, since the alternatives are worse.

But all the Very Serious People, having totally misdiagnosed our problems so far, will probably double down on that wrong diagnosis as markets fall.

Roger that.

We Deserve Our Pain

Steve Benen is puzzled:

Two weeks ago, Neil Cavuto and John Stossel had an exchange on Fox Business Channel that was startling at the time, but seems even more relevant now....Cavuto, Fox News' vice president of business news, told viewers, "I would welcome a downgrade. I really would. I think it would be the pain from which we have a gain." Stossel added, "Maybe that would wake people up."

They didn't really elaborate why they would "welcome" the "pain," or what Americans were supposed to realize after having been awoken.

Well, I'm here to help. I learned two things during my morning ten minutes of Fox News today. First, Megyn Kelly is back. With new hair! Hoorah! Second, Jon Scott interviewed a psychologist "licensed in both Kansas and Missouri" — one whose name I've thankfully already forgotten. He was on the show to explain how growing government debt is related to our growing national obesity epidemic, and at first I figured there must be some dumb new study making this connection. But no. This was pure pop psychology: when times get "too good," people overindulge. Likewise, governments overindulge. They lose the discipline that makes both people and governments great. And then —

And then, even though I hadn't finished my morning stretches, I turned off the TV. This guy was just unwatchably lame. But his message was obviously one that both Scott and (presumably) his audience ate up: we have sinned, we have lived too high on the hog, and now we have to pay the price. Hopefully this will make us all into better people.

That's why they welcome the pain. We have sinned and we deserve it. Austerity will make the pain worse, but that's all for the best too. Because we deserve it. Oh, and maybe it will also help get that socialist Obama out of office. Boo-yah.

What with the debt ceiling and the eurozone crisis and the S&P downgrade, I haven't spent any time digging into the Wisconsin recall election and blogging about it. But Andy Kroll has been doing yeoman work on the recalls, and today he has a great short handicapping of the six races that will be decided tomorrow. Nickel version: it's gonna be a squeaker. Definitely worth a read.

I happen to think that all the chatter about the markets responding to the S&P downgrade is mostly misplaced. Obviously there's some reaction, but markets have been nervous for the past two weeks, and most of it seems to be related to problems in the eurozone. And I don't blame them: I'm pretty nervous about the eurozone too. Still, here's a contrarian take from Stuart Staniford. Back in the panic days of 2008, one of the financial indicators we all paid a lot of attention to was the TED spread, which measures how much banks charge to lend each other money. When it's high, it means there's a lot of stress in the system, but right now it's chugging along extremely placidly and indicating no problems at all. There's apparently no exact parallel measure for Europe, but as a rough proxy he looked at Euribor, the interbank lending rate in Europe. It's up a bit, but only a bit:

Stuart: "This is also showing no sign of undue stress. In short there is no evidence of any kind of generalized credit crisis in markets at the moment. However, it's worth noting from the TED data at top that such things can change extremely rapidly." This is your good news of the day, such as it is.

The LA Times warns budget cutters, who are disproportionately from non-urban districts, who the big losers are likely to be from their efforts:

The recipients with the most to lose are the ones in rural America, who are almost twice as reliant on federal largesse as city dwellers and suburbanites. A recent fight over subsidies for flights to small-town airports is a good example of the battles likely to come. It also illustrates the trade-offs that Congress will confront as it tries to close the yawning federal budget gap.

Another good example is the postal service. Mail volume is down and they're hemmorhaging money, so among other things they'd like to close 3,700 underused post offices. And guess where most of those post offices are? They're in the same place as all the underused train stations that rural congressmen fight like crazed lemmings to protect: small towns and villages.

This is why the postal service has never been fully privatized, and it's why the free marketeers in the Republican Party have never quite brought themselves to permit private companies to compete with the postal service outside of parcel delivery. The postal service is required to provide universal service at a fixed price, even though service to rural areas costs far more than service to cities. The first thing a private competitor would do is specialize in junk mail, which heavily subsidizes ordinary letters, and the second thing it would do is restrict its service to densely populated areas. This would give it far, far lower costs than the USPS and allow it to siphon off its most profitable business segment. To compete, USPS would have to match private sector prices. Then they'd have to (a) raise prices substantially on first-class mail and (b) either pull out of rural areas entirely or else raise the price of delivery to small towns even more. The fire-breathing tea party conservatives responsible for this would find themselves in the unemployment line at the next election.

Eventually, of course, something like this is going to happen anyway. But the free marketers will put it off until catastrophic losses finally force them to admit the obvious: it costs a lot for the federal government to service rural America. Personally, I'm happy to do it, for the most part. We're all part of a single country and it's worth a little subsidizing of non-urban areas to keep everyone feeling that way. I just wish the residents of rural America would stop their endless whining about Uncle Sam's grasping tax bite when they're the ones who get the biggest piece of the pie. We can even things up any time they'd like.

From Economics of Contempt, formerly an in-house lawyer for an investment bank, explaining the difference between S&P and the other rating agencies when it came to making their case for getting a deal rated:

With S&P, it got to the point where we were constantly saying, “that’s a good point, but is S&P smart enough to understand that argument?” I kid you not, that was a hard-constraint in our game-plan.

That's actually one of the kinder things he has to say. The rest of the post is worth reading for the entertainment value alone.

Jon Chait shakes his head at the S&P downgrade:

The "conclusion was pretty much motivated by all of the debate about the raising of the debt ceiling," John Chambers, chairman of S&P's sovereign ratings committee, said in an interview. "It involved a level of brinksmanship greater than what we had expected earlier in the year."

Meanwhile, the political effects of the downgrade will primarily harm the Obama administration. So now the Obama administration is fiercely contesting S&P. In other words, a ratings agency has sensibly concluded that the Republican Party poses a long-term threat to the stability of the U.S. financial system, and the Obama administration insists otherwise....I understand the logic here, but it's just a little odd for the Democratic-controlled Treasury Department to be pleading that the Republicans aren't really dangerous maniacs at all.

I've been browsing through conservative websites tonight, and the amount of crowing over the "Obama downgrade" is really pretty remarkable. S&P made it crystal clear that brinksmanship over the debt ceiling was the reason for the downgrade, and Republicans not only provoked the brinksmanship and bragged about it for months, but have since gleefully promised to repeat their performance at every opportunity. And yet they're now insisting that this is all Obama's fault. It's a display of chutzpah that's shameless even by their standards.

So what does it all mean? Republicans have been very effective over the past couple of decades at breaking norms of behavior for partisan gain: mid-decade redistricting, the institutional filibuster, flat refusals to allow votes on executive appointments, and so forth. This time, there's both a narrow norm and a broader norm they've broken. The narrow one, of course, is that the debt ceiling is an opportunity for a bit of routine invective on the House and Senate floors but nothing more. After the speeches are over the debt ceiling gets raised.

The broader norm they've broken is that you don't abuse the obligation of responsibility that presidents inherently possess. This norm gets broken all the time in small ways: backbench congressman can demand that we bomb Iran, for example, and it's brushed off as nothing serious. Likewise, presidential candidates can demand all manner of "getting tough" on China even though they know perfectly well that no sitting president could ever afford to follow through on the threats. But that stuff is mostly theater. This is different. The debt ceiling is a real, concrete thing with serious global implications, and Republicans knew all along that the guy in the Oval Office simply couldn't afford to let it expire because he's ultimately responsible for keeping things running. What's more, because a president's words are so much more important than anyone else's, they also knew that he couldn't even afford to fight back too hard. Markets would go crazy if he projected anything but a sense of calm confidence.

In the past, this has mostly been tacitly acknowledged, with opposition leaders reining in the bombthrowers when something serious enough was at stake. Not anymore. The president's obligation of responsibility still limits his actions on the global stage, but now, instead of this representing an outer boundary that restrains partisan attacks, it's just another political weakness to take advantage of. Needless to say, this is not a good sign in an allegedly mature democracy.

Over at the League of Ordinary Gentlemen, Elias Isquith is unhappy with my recent defense of President Obama as a pretty effective legislator:

What struck about both of their defenses [i.e., mine and Andrew Sullivan's] is the utter lack of recognition of the President’s role as a rhetorical, political figure. Look at how Drum’s argument side-steps this issue entirely, as if Obama’s job was to be Legislator in Chief.

Well, you can only cover just so much ground in a single blog post, and that one happened to be focused on his legislative record. Anyone interested in my take on Obama's rhetoric should read "The Great Persuader"—not because it's especially brilliant, but because I wrote it in 2008. I've been keenly aware for a long time of Obama's limitations as a national storyteller.

Which brings us to Drew Westen. Isquith is a big fan of Westen's work and points us to an essay he wrote in the New York Times today about Obama's rhetorical failings. It's classic Westen. As it happens, I'm also a fan of Westen's basic message—politicians need to tell stories with emotional appeal, not just rattle off policy positions—but when Westen actually puts his advice into action, the results are a train wreck. Here's the speech he thinks Obama should have given at his inaugural:

I know you're scared and angry. Many of you have lost your jobs, your homes, your hope. This was a disaster, but it was not a natural disaster. It was made by Wall Street gamblers who speculated with your lives and futures. It was made by conservative extremists who told us that if we just eliminated regulations and rewarded greed and recklessness, it would all work out. But it didn't work out. And it didn't work out 80 years ago, when the same people sold our grandparents the same bill of goods, with the same results.

But we learned something from our grandparents about how to fix it, and we will draw on their wisdom. We will restore business confidence the old-fashioned way: by putting money back in the pockets of working Americans by putting them back to work, and by restoring integrity to our financial markets and demanding it of those who want to run them. I can't promise that we won’t make mistakes along the way. But I can promise you that they will be honest mistakes, and that your government has your back again.

This is what would have changed the political dynamic of Obama's first two years in office? Color me unconvinced. In any case, if you don't feel like reading the whole thing, Westen finally gets to his core complaint at the very end of his piece:

When he wants to be, the president is a brilliant and moving speaker, but his stories virtually always lack one element: the villain who caused the problem, who is always left out, described in impersonal terms, or described in passive voice, as if the cause of others’ misery has no agency and hence no culpability.

This is a familiar lament, but to Westen's credit, it really is the core left-vs.-left argument about Obama: Would he have done better and accomplished more if he had laced into his enemies from the start? If he'd made it crystal clear, over and over and over, who the villains were: Republicans, bankers, corporate fat cats, and the rich? Would this have inspired the public into supporting the full-throated left-wing agenda that Westen obviously yearns for?

Maybe my vision is as limited as Obama's, but I just don't see it. As my 2008 piece makes clear, I think Obama's rhetorical style really is too diffuse and too vague to move public opinion significantly. And I also think he had plenty of leeway to take on Wall Street and the banking community much more forcibly than he did—though that's a policy disagreement at heart, not a rhetorical one.1 More broadly, though, there's precious little evidence that turning into a fiery partisan warrior would have impressed the public much at all. What it would have done is unite the Republican Party even more unanimously against him. Most likely that means no stimulus, no financial reform, no DADT repeal, no nothing. He might still have gotten healthcare reform thanks to the filibuster-proof majority Democrats had in the Senate for a few weeks at the end of 2009, but that's it. Your mileage may vary, but I think that's a much worse outcome for Obama's first two years in office.

Beyond this, I think Westen misses the big point. The problem isn't that Obama didn't have a story. He did, and he told it pretty well. His story was one about the dysfunctional partisanship destroying Washington and how to move beyond it. You might not like that story, but it was there. And while it obviously didn't succeed in moving the needle on partisanship, it did allow Obama to produce a pretty decent set of legislative achievements. As much as two years of anti-conservative stem-winders would have thrilled me, I doubt they would have produced anywhere near as much.

1What I mean by this is that once Obama and Tim Geithner chose the banking policy they did—basically soft recapitalization instead of temporary receivership and reliance on Basel III instead of tough financial reform—it was almost impossible to then turn around and start delivering towering diatribes against Wall Street. The policy determined the rhetoric, not the other way around.

UPDATE: Both Joe Klein and Paul Krugman agree with Westen and, implicitly, disagree with me. They make some good points, as did Westen, and if this were an even-numbered day I might be on their side. Still, I'm just not sure I see it. Obama's cool demeanor got him elected and it's kept him personally popular in the face of massive Republican intransigence over the past two years. Like it or not, the public seems to prefer that to the pugilistic style that seems like such a no-brainer to us lefties.

Besides, Obama's biggest problem is a lousy economy, and that's much more the result of poor policies than poor messaging. He should have fought for a bigger stimulus; he should have fought harder for cramdown legislation; and he should have made more and better appointments to the Federal Reserve. Better storytelling would have made a difference, but not nearly as much as better policy.

Steve Benen has a timeline for us today. I'm just going to steal the second half:

September 2010: In Obama's first fiscal year, the deficit shrinks by $122 billion. Republicans again condemn Obama's fiscal irresponsibility.

October 2010: S&P endorses the nation's AAA rating with a stable outlook, saying the United States looks to be in solid fiscal shape for the foreseeable future.

November 2010: Republicans win a U.S. House majority, citing the need for fiscal responsibility.

December 2010: Congressional Republicans demand extension of Bush tax cuts, relying entirely on deficit financing. GOP continues to accuse Obama of fiscal irresponsibility.

March 2011: Congressional Republicans declare intention to hold full faith and credit of the United States hostage — a move without precedent in American history — until massive debt-reduction plan is approved.

July 2011: Obama offers Republicans a $4 trillion debt-reduction deal. GOP refuses, pushes debt-ceiling standoff until the last possible day, rattling international markets.

August 2011: S&P downgrades U.S. debt, citing GOP refusal to consider new revenues. Republicans rejoice and blame Obama for fiscal irresponsibility. 

Congratulations, modern Republican Party! That was spectacularly fast work. The Bush-era party needed seven years to drive the economy into a ditch.