I was pretty dismissive of Standard & Poor's debt downgrade last month. Re-reading that post, I stand by my political analysis of events going forward. Furthermore, the recovery of U.S. equity markets, the sharp reduction of yields on U.S. debt, and the failure of the other ratings agencies to follow suit are further data points suggesting that the S&P decision was flawed.
There's reality and perceptions of reality, however. On that latter front, after a recent expedition to Washington, I've concluded that regardless of whether S&P was right, they've won the argument in terms of perception. The summer debt debacle is, in many ways, the political equivalent of Hurricane Katrina. Perceptions of the Bush administration never recovered from that event, even though one could plausibly argue that the policy outputs of Bush's second term were better than the first term. Neverthelesss, Katrina was an inflection point that has caused a number of actors to reassess their perceptions about the political and policy competency of the White House and Congress.
Something similar seems to have happened with the debt deal. Politico's Ben White relays the dramatic effect on consumer confidence:
The Conference Board this week reported the biggest monthly decline in consumer confidence since the height of the financial crisis in 2008, its consumer confidence index falling from a reading of 59.2 to 44.5, the lowest in two years....
“The debt ceiling negotiation is an extremely significant event that is profoundly and sharply reshaping views of the economy and the federal government,” Republican pollster Bill McInturff wrote in a presentation of survey work he has done recently that suggests the debt ceiling debate has led to a significant shift in public opinion.
The partisan struggle over raising the debt went on for weeks before Obama finally announced on the night of Aug. 1 that a deal had been reached that resolves the issue for now. But while Washington has moved on to its next drama — the deliberations of the so-called supercommittee agreed to in the deal — its psychological impact has resonated widely.
McInturff said the result has been “a scary erosion in confidence” in both the economy and the government “at a time when this steep drop in confidence can be least afforded. … The perception of how Washington handled the debt ceiling negotiation led to an immediate collapse of confidence in government and all the major players, including President Obama and Republicans in Congress.”
A recent Washington Post poll found that 33 percent of Americans have confidence in Obama to make good decisions on the economy and just 18 percent have confidence in Congressional Republicans to do so.
These are especially dangerous readings when Federal Reserve Chairman Ben Bernanke has essentially said it is up to politicians to help boost the economy now that the Fed has fired nearly all its monetary policy bullets.
Speaking of Bernanke, he had this to say at Jackson Hole last week:
[P]erhaps most challenging, the country would be well served by a better process for making fiscal decisions. The negotiations that took place over the summer disrupted financial markets and probably the economy as well, and similar events in the future could, over time, seriously jeopardize the willingness of investors around the world to hold U.S. financial assets or to make direct investments in job-creating U.S. businesses. Although details would have to be negotiated, fiscal policymakers could consider developing a more effective process that sets clear and transparent budget goals, together with budget mechanisms to establish the credibility of those goals.
Ten days before Bernanke's speech, FP's Josh Rogin reported that Secretary of State Hillary Clinton had acknowledged the global ramifications of the debt fracas, telling a forum at National Defense University:
I happened to be in Hong Kong a few weeks ago, and I said confidently that we were going to resolve this; we were not going to default; we would make some kind of political compromise.
But I have to tell you, it does cast a pall over our ability to project the kind of security interests that are in America’s interest. This is not about the Defense Department or the State Department or USAID. This is about the United States of America. And we need to have a responsible conversation about how we are going to prepare ourselves for the future
Clinton's statements were confirmed by officials I talked to while down in DC.
So, can this perception be changed? Here, I'm bearish in the short-term. These kind of perceptions can be self-fulfilling. Economic growth is a remarkable political palliative, but growth looks anemic for a good long while. The Obama administration can try to change the narrative, but that's almost as difficult as Inception -- for the same reasons:
As Reinhart and Rogoff have observed, the economic aftereffects of debt crises are long-lasting. From here on out, the political effects of such crises will be on full display.
As someone who studies global political economy, this is fascinating. As a U.S. citizen, this is utterly depressing.
My latest diavlog is with
the man in the black hat LGM's Rob Farley about Israel, Turkey, the Koreas, and patron-client relationships more generally. One of our areas of agreement was that, with regard to the Cheonan incident, South Korea's government played things pretty damn well. The Lee government went slow on blaming the DPRK even though they knew it was a North Korean torpedo almost immediately. They boxed China into a corner by issuing a report that no one except Pyongyang really disputes. They took measures to indicate that they thought this was a serious breach, but also dialed down the rhetoric when things got particularly nasty last week.
And for all of this, the Lee government was rewarded with... a trouncing at the ballot box:
South Korea’s left-wing opposition has unexpectedly mauled the ruling conservative party of President Lee Myung-bak in regional elections, boosted by surging discontent about the way Seoul handled the alleged sinking of a warship by North Korea.
According to preliminary results on Thursday, the leftwing Democratic party confounded opinion polls to win seven mayoral or gubernatorial seats, compared with just six for Mr Lee’s Grand National party. The ruling conservatives narrowly held the mayoral seat in Seoul, where the challenger had styled herself as the “peace” candidate. Her campaign slogan was: “The last chance against war”
South Korean voters regularly punish governments in mid-term polls, but some of Thursday’s results sent shockwaves through political circles and prompted the leader of the ruling party to resign.
The Democratic party won the eastern province of Gangwon-do, on the border with North Korea, for the first time in 16 years.
In its campaign, the opposition had condemned Mr Lee for risking war by taking too hard a line against the North, despite the death of 46 sailors in March in the alleged torpedo attack on the Cheonan corvette. Two previous liberal presidents had engaged in a “sunshine policy” of rapprochement with the North, which Mr Lee ended.
What does this mean for the future? Unfortunately, more North Korean provocations.
As Kenneth Schultz demonstrated in Democracy and Coercive Diplomacy, opposition parties can send a powerful signal in world politics. If they go against the ruling party in a crisis, it signals the domestic vulnerability that these governments will face if a crisis escalates. The lesson that North Korea will draw from this electoral outcome is that it can engage in further provocations and the Lee government will be forced by its own domestic constraints to act in a more conciliatory manner.
Chung Sung-Jun/Getty Images
A few days ago, Rob Farley made an interesting point about the asymmetry of policy successes and failures:
Crisis prevention and effective crisis response... are inherently less interesting and less attention-getting than failed crisis response. If the 9/11 hijackers had been captured prior to conducting their attacks, very few people outside the intelligence community would have much recollection of a crucial policy victory. If the Bush administration had conducted adequate preparation for Katrina and responded effectively, there’d be relatively little shared memory of the disaster.
Success and failure in crisis response, consequently, have asymmetric political effect. The Obama administration’s response to the Haiti earthquake, in my view, has been a resounding success for responsible, capable governance. No one will remember that in six months. Bush’s response to Katrina will endure in the political memory for decades.
I bring this up because of the attempted Times Square bombing, and the rather bizarre effort by the Pakistani Taliban to claim credit for it. This is bizarre for two reasons: 1) There appears to be no evidence to support their claim; and 2) All reports suggest this was a pretty amateurish effort. Jonathan Chait captures my view of this:
Rushing to take credit for a bungled attack is fairly pathetic. It's another piece of evidence of al Qaeda's severely degraded capability of launching attacks on American soil, where leaving a smoke-filled car in Manhattan is an operation worth boasting about. The Christmas bombing likewise failed on account of miserably low quality.
I'm not making an argument for complacency. It's obvious that al Qaeda wants to kill as many Americans as possible. But it's equally obvious that our counter-terrorism strategy is actually working. We should not feel hesitant to celebrate success.
It's worth noting that both the Bush and Obama administrations -- not to mention the NYPD -- deserve credit for the eleven thwarted attacks in New York City alone. But, as Farley notes, you don't get credit for things when the counterfactual is not observable or verifiable.
Of course, the policy is seen as working until a bomb actually goes off in the United States.
My question to readers: what precise combination of skill, will and fortuna has permitted the U.S. homeland to be relatively secure? How much credit does the U.S. goverment deserve?
Chris Hondros/Getty Images
It looks like the Democratic Party of Japan (DPJ), which used to be the Socialist Party, is poised for victory in next month's elections. And they're proposing some pretty radical stuff, according to the FT's Mure Dickie:
The party’s manifesto pledges to end “bureaucrat-led” government by posting about 100 party Diet members to government ministries and agencies, setting up a national strategy bureau under the prime minister and taking control of senior bureaucratic promotions.
Cabinet meeting agendas would no longer be set by unelected administrative vice-ministers, while the practice of amakudari, or descent from heaven, where elite bureaucrats are parachuted into jobs at government agencies or private companies, will be banned.
“When all this is done, we will have realised a new politics for all: no longer a politics of the bureaucrats, by the bureaucrats and for the bureaucrats, but of the people, by the people and for the people,” said Yukio Hatoyama, DPJ president.
This is pretty radical stuff by Japanese standards, changing practices that have been around for more than half a century. And even though this is coming from a left party, I wonder whether this would lead to an entrepreneurial boom in Japan.
Japan has always funneled its best and brightest into Todai law school, and then to the economic bureaucracies, and then amakudari. If that system ends, will Japan's brightest minds even go into government service? Will they stop going to Tokyo law school? Might they -- gasp -- go into business instead?
Maybe not -- entrepreneurs do not necessarily come from the ranks of the elite. But it's going to be a veeery interesting social science experiment if the DPJ does what it says.
Daniel W. Drezner is professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University.