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Posted at 12:59 PM ET, 03/11/2011

What matters for 2012 today

By Ezra Klein

The most important political story of the day isn’t about politics at all. It’s Neil Irwin’s article arguing that “new worries about Europe’s debt crisis,” “continued turmoil in North Africa and the Middle East” and “a widening U.S. trade gap and slowing Chinese growth” leave us with “a world economic recovery that is menaced from all directions.”

Add to that picture a House Republican majority determined to pursue contradictory fiscal policy in 2011 and it’s easy to imagine America’s shaky recovery derailing altogether. And if the recovery derails, then it’s very difficult to see Barack Obama getting reelected in 2012. Incumbents who run successful political campaigns run on “things are pretty good” or “things are clearly and quickly getting better.” They don’t run on “but weak growth in China isn’t my fault.”

There are obviously two buckets of problems here. One bucket Obama — and the U.S. government in general — can’t fix. The other bucket is full of stuff we can fix, or at least influence — contradictory policy in 2011, high oil prices that could be eased by opening up the Strategic Petroleum Reserve (though that needs to be done carefully) and central bank policy during a difficult period in the global recovery. The interplay between the stuff we can’t control and the stuff we can will decide what happens in 2012. It is far and away the most consequential political story right now, even though it’s not being covered as such.

By Ezra Klein  | March 11, 2011; 12:59 PM ET
 
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Comments

Excellent Ezra, finally you are hammering the points we really need to address.

That is why I do not understand Obama and his advisers - why do they fear so much to take on the 'contradictory policies' of GOP? They are wrong to assume that Obama CAN KICK THE CAN till 2012. Neither Obama can kick 'that can' nor Obama will get a chance to repair these things in his second terms because as you have rightly pointed, outside of USA challenges are enough powerful to derail our recovery. That means he needs to be totally with arms in fully forging what is right for us - remove the budgetary contradiction of USA (trying to balance budget by cutting short term growth generating spending while longer term things remain untouched).

You see those unfortunate Japanese Tsunami pictures - that is how Obama and Dems are going to get swept in the Tsunami of 2012 unless he becomes proactive here to do his job.

Obama and Dems are wrong here to assume that 'by being pliant' participants in GOP policy contradiction, they are living for another day. They are not going to live for any day....

Posted by: umesh409 | March 11, 2011 1:15 PM | Report abuse

2011 thus far is the year of "cognitive dissonance" in the national political agenda.

Posted by: Patrick_M | March 11, 2011 1:19 PM | Report abuse

the biggest problem with Obama losing in 2012 is the PPACA goes away and we'll see repeal. I definitely think (and a lot can change between now and then) that we'll see a Republican led Senate and House considering who's retiring and who's up for re-election.

I also don't see a Republican in the field or even with a chance of running that has a shot against Obama unless of course we go into a double dip and then all bets are off.

Posted by: visionbrkr | March 11, 2011 1:40 PM | Report abuse

Ezra - Do you mean "contractionary" fiscal policies? I guess it could be contradictory to cut both spending as well as taxes if you purport to care about the deficit, but it seems that the actual problem is the spending cuts, at least from a Keynesian perspective.

Posted by: BGPoutsideDC | March 11, 2011 1:41 PM | Report abuse

Agreed umesh and Patrick. I'm still waiting for someone to run with the baton Schumer tried to pass earlier this week in his deficit speech. So far, Obama in today's news conference has scolded Congress, but not offered any real position on his own. His "being pliant" drives me nuts.

Posted by: pbasso_khan | March 11, 2011 1:45 PM | Report abuse

Gee, thanks for the apocalyptic post. As if today weren't apocalyptic enough. (I have family in Japan.)

Posted by: JJenkins2 | March 11, 2011 2:03 PM | Report abuse

My one pushback on this would be: Who are the Republicans going to run? The GOP field is incredibly weak, and I find it hard to believe that even the strongest of them - Pawlenty, Huckabee, or Romeny - could beat Obama. And if it's Palin, Barbour, or Gingrich then Obama should be OK.

Nonetheless, Obama shouldn't get too comfortable thinking about his possible opponents. I agree with you that he and his people are doing a piss poor job of taking advantage of their opponents' many weaknesses and faults. 2012 isn't a long way away; in fact it's just around the corner.

Posted by: stlyrface | March 11, 2011 2:14 PM | Report abuse

Ezra claims that politicians don’t run on “but weak growth in China isn’t my fault.” but Obama will surely run on "The mess that I inherited." You can bet on that.

Posted by: cummije5 | March 11, 2011 2:27 PM | Report abuse

Will Dems come out and vote next year? Or will they punish themselves by allowing Republicans to gain more power?

That'll show Obama!!

Posted by: will12 | March 11, 2011 2:50 PM | Report abuse

Ezra,

If you did a little research, you'd find out you're totally wrong about the SOR. We don't have any shortages whatsoever of oil here in the US. In fact there is a build in Stillwater OK where the tanks are filled to the top. It's refining capacity that we lack to do anything to ultilize that in an expanded way. Also the Europeans use Brent Crude, not WTI. We wouldn't be able to ship all that oil into the world market effectively in any reasonable period of time.

There are two major things that Obama could have done to lower oil prices however. One would have been to intervene in an effective way in Libya, and the other would be to put drilling on the fast track either off shore or in Alaska, Neither would directly expand supply, but the message to the international markets would have been very powerful.

Bone up on your oil knowledge!

Also as far as central bank policy, real interest rates are negative and the Fed is currently buying about 70% of all Treasuries. Could you please explain exactly what more you would like them to do specifically.

Posted by: johnmarshall5446 | March 11, 2011 3:09 PM | Report abuse

Additionally all this talk about spending cuts is unnecessarily angst ridden (I was thinking about using "feckless" but the right seems to have adopted that word lately and I'm a Dem, so I'm not allowed).

There are no REAL spending cuts in this budget overall, just a few pointed attempts by the GOP to strangle a few Democratic babies in their cribs. The overall effect of the dollars involved would be about the same as trying to pay off your mortgage by discontinuing your newspaper delivery.

Posted by: johnmarshall5446 | March 11, 2011 3:20 PM | Report abuse

Yeah, I remember in '08 when Bush opened the oil reserve hearing a lot of arguments that A) we didn't have enough oil to really create much downward pressure on prices, and B) we didn't have enough refining capacity to get the oil on to the market fast enough to make a difference.

High oil prices are certainly a drag on the economy we can ill afford given the shakey recovery, but why is this different from the last time? Unless the last time proved so effective that those arguments are moot and I just didn't hear about it...

And even in a shakey economy, there's nobody in the Repubican field that I think has a chance against Obama in '12. Who knows, maybe Romney or Pawlenty will become much more attractive in the next 18 months, but I very much doubt it. That doesn't mean the White House and Congress shouldn't be trying everything possible to improve the economy, but I don't think reelection is the primary worry here.

Posted by: MosBen | March 11, 2011 3:29 PM | Report abuse

mosben:

Here is the info:

"A Presidentially-directed release has occurred two times under these conditions. First, in 1991, at the beginning of Operation Desert Storm the United States joined its allies in assuring the adequacy of global oil supplies when war broke out in the Persian Gulf. An emergency sale of SPR crude oil was announced the day the war began. The second was in September 2005 after Hurricane Katrina devastated the oil production, distribution, and refining industries in the Gulf regions of Louisiana and Mississippi. Hurricane Katrina's impact was so great, in fact, that SPR emergency oil loans preceded the President's decision to drawdown and sell oil from the Reserve. The first of several emergency loan requests from refiners was received and approved within 24 hours of Hurricane Katrina making landfall.

In addition to national energy emergencies, crude oil has been withdrawn many times from the SPR sites for other reasons. Small quantities of oil are routinely pumped from the storage caverns in tests of the reserve's equipment. And in several instances, oil has been removed from the caverns under the legal authority to "exchange" SPR crude oil. This authority allows the SPR to negotiate exchanges where the SPR ultimately receives more oil than it released; in other words, the exchanges can be used to acquire additional oil for the SPR. The Hurricane Katrina loans, mentioned above, were conducted using the exchange authority as were a series of loans resulting from Hurricanes Gustav and Ike in September 2008."

Posted by: johnmarshall5446 | March 11, 2011 3:41 PM | Report abuse

Ezra

I will throw you a bone in your state of dismay, and you will here it from me before anybody else as always.

The market has completely discounted the possibility of QE3, which you no doubt would love. HOWEVER, the Japanese are the second largest foreign buyer of Treasuries after the Chinese. As a result of the quake, they will be largely exiting that market at least temporarily.

I'm NOT predicting this will happen mind you, but the resultant drop in purchases will create at least the talk of a QE3 to supplement the Japanese exit or an extension of QE2 beyond June.

I DO get to say I told you so, if it comes about!

Posted by: johnmarshall5446 | March 11, 2011 3:47 PM | Report abuse

You folks who claim the Republican field is so weak make me laugh. Star power wise there may not be anyone who jumps out at you thats fine. However Pawlenty, Huckabee,and Romney are all former Govenors.

The man who is currently our President wasnt even a Democratic favorite when the campaign started. President Obama was a little known 18 month Senator when he started and managed to get elected.

If this economy goes back in the tank wether its his fault or not. Its going to be his albatross and people arent going to really care about how much flare a candidate has it will be much more about dry substance.

Posted by: bjeagle784 | March 11, 2011 6:23 PM | Report abuse

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