Friday, September 28, 2012

The Price of Fiscal Uncertainty

I have been reading Bob Woodward's new book, The Price of Politics.  It is a detailed recounting of the back-and-forth negotiations among President Obama's White House, the Republican leaders in the House of Representatives, and the major players in the Senate regarding the debt ceiling and long-term fiscal outlook.  The book is primarily an objective narrative, rather than a foaming-at-the-mouth polemic (unlike the over-the-top book The Amateur, which I read over the summer).  Nonetheless, the story Woodward tells does not make this White House look particularly good.

Woodward seems to believe that if we had a President more like Bill Clinton, a fiscal deal could have been struck.  President Obama is described as disdainful of schmoozing with other pols, as mishandling the negotiation process, and as unwilling to move sufficiently toward the political center to get a deal done.  One gets the sense that the Democratic President who signed the 1996 welfare reform would have more easily reached a compromise with House Republicans.

This story brought to my mind recent research by Baker, Bloom, and Davis, which suggests that policy uncertainty has impeded the economic recovery.  If Baker et al. are right that uncertainty depresses the economy, and if Woodward is right that the uncertainty we now face with the upcoming "fiscal cliff" is attributable mostly to the inability of Barack Obama to work with Congress, then the implication is clear: The meagerness of this recovery is not simply a hangover from a financial crisis, but rather a reflection of a fundamental political failure.  The price of politics, indeed.