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Jack Lew’s Nose is Getting So Long He Needs a Hacksaw

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Jack Lew really needs to get better at lying in public. So far, he’s making a hash of it.

A Reuters story reports on Lew telling a series of whoppers:

Dysfunction in Washington is one of the biggest drags on the U.S. economy, undermining confidence and crimping growth, Treasury Secretary Jack Lew said on Tuesday.

“One of the most significant speed bumps for growth is coming straight from Washington, where some political leaders continue to generate one manufactured crisis after the next,” Lew said in remarks prepared for delivery at the City Club of Cleveland.

There’s actually a lot to unpack here. First is the embedded claim that the economy was on a strong trajectory (“speed bumps”). In fact, ERCI in an admittedly contested call pegged the economy as going into a recession in 2012 and has not backed down, insisting that some indicators are consistent with a recession and expects others to confirm it when data is revised. Commenting on ECRI’s view in March, Henry Blodget indicated that regardless of whether you agree with ECRI, we are still in a “crappy economy”. Yes, stock markets keep rising, but that seems to be a function of too much liquidity with nowhere to go, as S&P earnings continue to fall. And as this blog and others have observed, for the last three years, the first quarter has looked strong but then growth has faltered as the year progressed. This pattern suggests that seasonal adjustments that might be appropriate for the old normal are now out of whack.

Put it another way: it’s hard to characterize an economy that isn’t generating enough jobs to absorb the entry of new prospective workers into the economy as in good health. It’s hardly any secret that the reason the headline unemployment numbers aren’t worse is that so many people have given up looking for work or are underemployed.

And why do we have this malaise? Lew conveniently ignores the elephant in the room: the global financial crisis. Of course, since he was getting pay increases while working for then ward-of-the-state Citigroup, it might be a tad awkward to mention that big reckless financial firms got us in this mess. Or that Obama’s failure to seize a historic moment to bring them to heel is a big contributor to continued economic sluggishness.

Then we get to the next layer of obfuscation: it’s the sequester’s fault! Now it is true that the sequester is putting a serious damper on economic activity. But Obama WANTED to cut the deficit. And reducing Federal spending, which is something both parties have said they wanted, is a braking operation. So while it is narrowly accurate to say that the sequester is slowing the economy, Obama has been insistent on pursuing policies that would produce that outcome. Moreover, in late 2012, when serious negotiations were underway, Obama at one juncture put forward a bigger debt-cutting figure than John Boehner had on the table.

So the real issue is in fact not spending cuts, which Obama wanted, but what is being cut. And the “dysfunction” is code for “those big bad intransigent Republicans who won’t agree on some token tax increases to help Obama save face so we can all get to what we really want, which is cutting Social Security and Medicare.”

Lew also underplays his role in bringing about the sequester and Reuters plays along:

The spending reductions were designed in 2011 to be so onerous that they would force the White House and Republicans in Congress to find a less drastic way to trim U.S. budget deficits.

Notice the lack of agency? In fact, the sequester was Lew’s baby. From a 2012 Washington Post article:

As the saying goes, success has a thousand fathers, while failure is an orphan. And if there ever is an orphan in Washington these days, it is that odd duck known as “sequestration.”…Fortunately, there is a detailed and contemporaneous look at the debt ceiling deal that led to the current budget crunch: Bob Woodward’s “The Price of Politics.” The book clearly had the full cooperation of top White House and congressional officials. With the help of our colleague, we took a tour through the relevant sections in order to determine the accuracy of the president’s statement [that Congress "proposed" the sequester].

Woodward’s account indicates Gene Sperling was the brainchild, and that Obama immediately grabbed the idea. Boehner was “nervous” about it.

Two weeks after that conversation:

Page 326 (July 26):

At 2:30 p.m., [White House Budget director Jack] Lew and [White House legislative affairs director Rob] Nabors went to the Senate to meet with [Senator Majority Leader Harry] Reid and his chief of staff, David Krone.

“We have an idea for a trigger,” Lew said.

“What’s the idea,” Reid asked skeptically.

“Sequestration.”

Reid bent down and put his head between his knees, almost as if he was going to throw up or was having a heart attack. He sat back up and looked at the ceiling. “A couple of weeks ago,” he said, “my staff said to me that there is one more possible” enforcement mechanism: sequestration. He said he told them, “Get the hell out of here. That’s insane. The White House surely will come up with a plan that will save the day. And you come to me with sequestration?”

Well, it could work, Lew and Nabors explained.

What would the impact be?

They would design it so that half the threatened cuts would be from the Defense Department….The idea was to make all of the threatened cuts so unthinkable and onerous that the supercommittee [tasked with making additional cuts] would do its work and come up with its own deficit reduction plan.

Lew and Nabors went through a laundry list of programs that would face cuts.
“This is ridiculous,” Reid said.

That’s the beauty of a sequester, they said, it’s so ridiculous that no one ever wants it to happen. It was the bomb that no one wanted to drop. It actually would be an action-forcing event.

“I get it,” Reid said finally.

Short version: Once tax increases were off the table, the White House staff came up with a sequestration plan that only had spending cuts and sold Harry Reid on the idea.

In fairness, Lew does make a coded acknowledgement that he was a midwife to this scheme:

“I remain optimistic that there will be a resolution to this,” said Lew, who as Obama’s budget director in 2011 participated in discussions that led to the sequester.

“But I will admit I underestimated the change in the political landscape, such as the defense cuts we’re describing are not considered troubling to many Republicans now.”

Conventional wisdom is that the both parties will give variances where the shoe really pinches, such as with air traffic control, which takes the sting out of this scheme. If Obama were serious about inflicting pain to get a deal, he would have talked down a deal on the FAA. But the reality is he’s not willing to make corporate executives suffer but he’ll use other victims, like college aid candidates and children in Head Start, as talking points. Oh, and notice how we are hearing nary a peep about the looming debt ceiling deadline of May 19? Lew isn’t concerned because no one is willing to anger the Bond Gods.

The interesting bit here is that one of Obama’s big reasons for giving Lew the nod was he expected budget fights, and in particular, his hoped-for rollback of key elements of the New Deal, to be major focuses of his second term. If both parties decide they’ll settle for the half-a-loaf of the sequester, Lew may not be so well-suited for his job, particularly if financial regulation heats back up (not in terms of real action, the Administration isn’t keen to see anything happen here, but in fighting rearguard actions by both obstructionist bank stooges and reformers). We’ll see soon enough if he is able to rise to the occasion.

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23 comments

  1. Chris Engel

    The essence of the comment quoted is still true though (Washington dysfunction, as in, inability to reject austerity and pass large stimulus packages directed at productive human and infrastructure assets, is a huge reason why things are messed up, in addition to the general “global financial crisis”).

    But the irony of his involvement in setting up the sequestration, which is symptomatic of the dysfunction he’s lamenting…that’s quite rich.

    I don’t like Lew. I don’t like Holder. I don’t like White.

    1. ArkansasAngie

      Well gee … I don’t like Obama. I don’t like Boehner.

      Gosh … this could be a long list

      How about we just say I don’t like Washington

      unelect the lot of them

  2. Jim Haygood

    ‘Variances where the shoe really pinches, such as with air traffic control, take the sting out of this scheme. If Obama were serious about inflicting pain to get a deal, he would have talked down a deal on the FAA. But the reality is he’s not willing to make corporate executives suffer but he’ll use other victims.’

    Last time I flew, most of the pax didn’t look like corporate executives to me. They already get herded like cattle through the TSA checkpoints. A couple of more hours parked at the gate thanks to ATC delays tends to make them stew.

    In fact, that’s the usual way to make sequesters hurt: concentrate on penny-ante but highly visible consumer-facing services such as licensing offices, parks and traffic management.

    Like Britain before it, the U.S. someday will have to abandon its global garrison state. It doesn’t generate cash; it burns it. The empire is bankrupt, but our KongressKlowns still fantasize about picking winners in Syria, before they’ve even finished losing Afghanistan.

    1. charles sereno

      @ Jim Haygood
      “They already get herded like cattle through the TSA checkpoints.”
      I propose an easy, collective action: Baa or Moo in unison. All it takes is one intrepid soul to start it. I for one would happily join in what could become a national fad. I can picture it now…practicing my bleats and moans in anticipation of a visit to the airport.

      1. gepay

        In World War One at Verdun, the French army first started bleating like sheep when told to go the front. then they mutinied. Petain quellied the mutiny by hanging the ringleaders.

      2. MaroonBulldog

        “Baa or moo in unison”? Not for the flights that bring the legislators in and out of Dulles and Reagan. They only know how to oink.

    2. Yves Smith Post author

      The comparatively few business class travelers (the ones who actually pay, as opposed to the ones who get upgrades due to frequent flier miles) are KEY to airline profits. And a lot of people in the back of the bus who are business travelers (remember, dress codes are more casual today and some guys and gals dress down when flying for business. I sure do).

      And those business travelers stay in hotels and eat out, so hotels were up in arms about the air traffic control issues too.

      I have one data point that proves the sequester did affect air travel. I’m lifetime gold on American. That’s the lowest of their elite categories. So in theory I’m eligible for upgrades and have a zillion upgrade segments, but despite having applied for upgrades religiously, the only time I’d gotten one was on Austin to Dallas (as in a 40 minute flight where the only virtue was you get a free drink).

      Wellie, last week I flew to Dallas. On a Friday, mind you, and that along with Monday are the two busiest business travel days of the week. I got the upgrade. That means that not only was business class not sold out, but that there were no executive platinum or platinum passengers on the flight.

  3. HotFlash

    Re FAA, hello? It is Congresscritters who have to fly betw DC and their districts/constituencies. They were helping themselves to avoid inconvenience.

  4. JCC

    I like this quote the best, “But I will admit I underestimated the change in the political landscape, such as the defense cuts we’re describing are not considered troubling to many Republicans now.”

    These particular Defense Cuts are not considered troubling to many Democrats, Independents, Greens or Libertarians either, for that matter :)

    1. NotTimothyGeithner

      This line from Lew shows what amateur hour this White House’s political operation really is. Enough likely Democratic voters don’t care for defense spending, and the White House doesn’t seem to grasp their cuts target what was largely pork in Democratic districts to get Democratic Congressman and Democratic Senators who might otherwise oppose their more odious policies. The Republicans don’t care because the spending cuts aren’t in their districts, and the big contractors won’t be touched, too many union jobs are at stake which will make Democrats rush to protect those industries even if they aren’t in their district.

  5. Middle Seaman

    The problem is not personal. Replace Lew with Wel and you’ll get exactly the same policies. You have a rightwing president who was supposed to be the new FDR who wants to harm or even destroy FDR’s social innovations. You have total control of all branches of government by the financial institutions and then you there is a bizarre belief in austerity that keeps many millions of Americans unemployed and destitute.

  6. denim

    As in the Great Depression era, I eagerly await the revelation of the fools. Washington and Wall Steet will over flow.
    “The heart is deceitful above all things, and desperately wicked: who can know it?
    I the LORD search the heart, I try the reins, even to give every man according to his ways, and according to the fruit of his doings.
    As the partridge sitteth on eggs, and hatcheth them not; so he that getteth riches, and not by right, shall leave them in the midst of his days, and at his end shall be a fool.” Jeremiah 17:9-11

  7. Susan the other

    Obama is a fool alright. But he is sitting at the table with all fools. And everyone of them is upping the ante even tho’ none of them has the cards. We call this ‘government’. But of course this is working for everyone who matters right now because if we actually addressed unemployment and jobs then the Fed would no longer have a ‘mandate’ to keep zirp or buy up all those MBSs. Duh.

    1. Expat

      Obama’s role in the spectacle of politics is to model behaviour. Even if you have a mandate for change and a world so eager for you to turn the ship of state around that it awards you the Nobel prize, your job — and you know it — is to appear weak, meek and ineffective with respect to what your voters want and to bow and scrape to the .1% A version of kiss up, kick down that we are all supposed to emulate. And some dare call it freedom.

    2. Crazy Horse

      If Obama is a fool, what does that make the “progressives” that form the core of the Demagogue er– Democrat party who are still Hoping that the nice black boy community organizer they voted for will Change?

      Obama is no fool. It takes a master politician to sell a 100% kleptocratic policy to the sheeple as a populist agenda–even when the audience is as brain dead as the American public.

      The task of a Romney, Reagan, or Bush is much simpler–even more honest. They could run on a platform of screwing the middle and working classes and all they had to do is convince the victims that they deserve to be oppressed.

      1. JCC

        CH said: “It takes a master politician to sell a 100% kleptocratic policy to the sheeple as a populist agenda–even when the audience is as brain dead as the American public.”

        I’m not so sure that the American Public is as brain-dead as you think they are. Even when 80% of Americans were 100% against the bailouts, Congress voted for it anyway.

        He is a good bullshitter, but most Americans today understand that it is exactly that – bullshit. They just don’t have the organized power/money to vote these jerks out of office.

  8. Doug Terpstra

    Thanks for the critical analysis as usual, Yves. The consistent dishonesty and rank hypocrisy of the Obama regime is astonishingly brazen, and this nails it again. One day you and Naked Capitalism will reap accolades and dividends from your unflinching critique of this present darkness.

  9. JTFaraday

    “We’ll see soon enough if he is able to rise to the occasion.”

    Well, it is true that even Anton Chigurh stumbled off the set with a broken arm at the end of the film “No Country for Old Men.”

    So, anything is possible.

  10. Doug Terpstra

    Hmmm, a link to Russian dentistry, specializing in tooth extraction. How fitting.

  11. MaroonBulldog

    The more I think about what the leaders of this administration say and do, the more I remember the closing scence of “Animal Farm.”

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