It's just like old times. From September 11, 2001, to September 15, 2008, war politics dominated Washington. Public and partisan controversy centered on the war on terror and the Bush administration's response to al Qaeda's attacks on the World Trade Center and Pentagon.
War politics began to subside when the surge in Iraq turned near-defeat into a fragile success. Then the collapse of Lehman Brothers on September 15, 2008, drove foreign policy out of the headlines almost entirely. So today's controversies are reminiscent not of the Bush years, but of the Clinton era, when Washington spent its time squabbling over budgets.
And what a budget. No one seems to know what to make of it. Does it "restore balance" and "correct the irresponsible habits of the Bush era"? Or is it the beginning of "the most radical agenda of social transformation seen in our lifetime"? Will it lead to a "moderately more equal country"? Or is it a "major, perhaps irreversible step toward a European-style social welfare state with its concomitant long-run economic stagnation"? Beats me!
I am pretty sure of this, however: the budget debate is almost completely beside the point. Much of Obama's agenda will be enacted. If the past is any guide to the present, that means the spending provisions will become law while the revenue hikes (cap and trade, fixing the private-equity and hedge-fund loophole, capping farm subsidies and the mortgage and charitable interest deductions for high earners) will not.
But the fundamental question is whether or not the Obama administration will implement policies that clean up the mess in the housing and banking sectors and allow economic recovery to take place. It's that simple. The stimulus package tackled the symptoms, not the disease, and it's not likely to be an incredibly effective cure in any case. When it comes to fixing the debt mess, however, the Obama administration seems paralyzed. They don't want the banks to fail and have their balance sheets worked out that way. But they also don't want to take the banks over and wind them down directly. The result has been institutions - Citi, AIG, GM - kept on public life support that prevent dollars from flowing to productive uses and therefore delay economic recovery.
But the risks associated with pulling the plug on these zombies are too scary to contemplate. So what happens? Nothing. And the economic suffering continues.
