On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Francis Cianfrocca to discuss the claim by DNC Chair Debbie Wasserman Schultz that Obama has turned around the U.S. Economy, Michele Bachmann, and whether or not the Fed’s dual mandate should be reconsidered.
Find a Topic:
00:31 – Debbie Wasserman Schultz and Obama’s Economy
06:29 – Michele Bachmann
17:00 – The Federal Reserve
Domenech: Start spreading the news, Francis. Start spreading the news.
Cianfrocca: What’s that?
Domenech: Haven’t you heard? That President Obama has turned the economy around.
Cianfrocca: Oh, really.
Domenech: Yes. The head of the DNC has said so. She says that under his leadership that he has turned the economy around. Isn’t that great news?
Cianfrocca: In which direction?
Domenech: No seriously?
Cianfrocca: I don’t know. Maybe she’s right.
Domenech: But seriously, and folks you can check under the Podcast. Debbie Wasserman Schultz this weekend on Meet the Press in response to a question from David Gregory says that under President Obama’s leadership they’ve turned the economy around. And David Gregory, to his credit, he says, “Let me stop you right there.”
Jackson: Yes. Let’s run over the stats that he had on the screen here, because I think this was a great summary of Debbie Wasserman Schultz’s here. Unemployment up 25% since Obama took office from 7.3 to 9.1. The debt up 35% from 10.6 trillion to 14.3. Gas, the price of a gallon of gas is up 104% from $1.83 to $3.74. If George Bush was in office this would be Bush and Cheney coming up with a scheme to rape Americans on high gas prices.
Domenech: Don’t forget killing the puppies.
Jackson: Don’t forget killing the puppies.
Cianfrocca: (Unintelligible) with the kittens.
Jackson: We have lost 2.5 million jobs and 45% of those people have been out of work for six months or more. Francis, I think you’re right. I think she did make an argument for turning around the economy in the wrong direction.
Cianfrocca: Right. I have to assume that what she was talking about really was aggregate GDP, which indeed is up slightly if you just, you know, just look at the quarterly GDP numbers that the government publishes, the Commerce Department. But A number one, we were coming off of a, like a 6% recession so it has to come back somewhat. You know, it’s not, most people and we’ve made this point abundantly on Coffee and Markets will tell you they don’t feel recovery. All right. It’s concentrated among a very few sectors of the economy.
Domenech: I think she’s actually making a political argument here, not one related at all to GDP. And that’s, you know, as the head of the DNC she understands that what matters to people is not actually where we are on election day, it’s where they think we’re going. It’s the trend lines. And so she needs to start advancing this mean that the economy was turned around, that it would have been much worse without the things that they’ve done.
Cianfrocca: Oh, right.
Domenech: Because otherwise everything looks bad. It’s not from the perspective of, you know, anything accurate when it comes to the experience of the average American. It’s about installing the mean that things would have been much worse without us.
Cianfrocca: Yeah. But that flies in the face of the idea that what matters on election day is the direction. Because things are probably, there was a, did you see the story from Muriel Nubini (phonetic sp.).
Cianfrocca: Remarkable. He’s talking about 2013, but again for Wasserman Schultz to say well look, I mean things would have been a whole lot worse. And Obama’s people wer,e say that back in 2009 with the whole we created or saved 3.5 million jobs. Well, how are you ever going to prove that, point one? And point two, since nobody sees that or feels it, you know, she’s trying to create a storyline that things would have been a whole lot worse if not for them. Well who knows, it may be true. But it doesn’t mean things are getting better. So, how she is responding to her own need to get her guy reelected?
Domenech: I think that that’s a little bit too much of an ax for Debbie Wasserman Schultz, Francis.
Cianfrocca: Too much of an ax, yeah.
Domenech: But let’s shift away from this –
Cianfrocca: Just before you move off that point. Look I mean, she as well as Nancy Pelosi, both came out in favor of Antony Weiner resigning and they both shot that bullet and missed if he’s not resigning.
Domenech: You think that he’s going to hang on for the long haul?
Cianfrocca: I think it’s, the long haul? The long haul is the next business cycle to me.
Domenech: Yeah. Yeah.
Cianfrocca: I think if he holds on past, you know, I think he’s going to try very hard to hold on, yeah.
Domenech: Yes. You know, it’s interesting to see what’s going to come from that because I think that Weiner’s situation, you know, it’s hard for me to put myself in his situation but if you were, I think that –
Cianfrocca: Oh, really?
Domenech: I think that the rationale here –
Cianfrocca: Oh, I didn’t know that Ben.
Domenech: You know, I just don’t understand the appeal, Francis. I just don’t understand the appeal. If you’re going to have a sex scandal you might as well have some sex.
Domenech: But here’s the –
Jackson: He’s all tease, Ben.
Cianfrocca: Yeah. In a way that makes it worse, because this is so low rent. I mean, he’s showing himself to be a real loser. And I think you know, at least when you look at how New Yorkers react to this, because he wanted to be our mayor.
Cianfrocca: I think that New Yorkers are, I mean, if you look at people like Rudy Gulianni (phonetic sp.) and Ed Koch, we’ve got no problem with sexual deviants. We do have problems with losers.
Domenech: Oh, that’s a great way to put it. Now Francis, shifting away from this wonderful economic recovery that we’ve experienced under President Obama, I wonder if you could chat with us a little bit about this interesting interview that Michele Bachmann gave over the weekend in the Wall Street Journal to Stephen Moore that has been sort of going around the e-mail threads over the past couple of days. I’ve gotten it from about half a dozen different sources.
I wonder if you could give us sort of your reaction to the interview overall and then maybe we can draw a few points out.
Cianfrocca: Right. I think it would be good to go into it a little bit, because Michele Bachmann, at least among people who are not political junkies thoroughly engaged in the Republican nominating process, I think she’s very much an open question. And the people on the left and in the media, of course, are operating to present her as a complete nut case. As Stephen Moore in this piece actually refers to that. At one point he, I think, this has to have been intentional. He says, “Oh, she does everything like a maniac” referring to her incredible amount of energy and personal drive. But you know, to use that word I thought he was referring to the press she was getting. And of course, the media very much wants to portray the fact that both Michele Bachmann and Sarah Palin who I would describe as Tea Party conservatives, you know, to use that label, are kind of having a steel cage grudge match. A big cat fight. And that is going to be very attractive and entertaining for the media to play. So, you know, everyone is trying to suck her into this.
Michele Bachmann is interesting because she came out of nowhere. She got her seat in Congress by, and this is her telling the story, going up in a Republican Convention meeting, a state convention meeting, which state is she from? Somewhere in the upper Midwest. Minnesota? Wisconsin?
Cianfrocca: Yes. Minnesota. Thank you. Went to a Republican Convention and basically challenged the incumbent congressman on the basis of some fairly standard issue conservative rhetoric, and through her total surprise and against her objectives, she got nominated and she won, so she’s in Congress now. It’s quite a story. I mean, it reminds me a little bit of Patty Murray (phonetic sp.) the Washington Senator who said well, I’m just a mom in tennis shoes. She turned out to be quite a liberal mom in tennis shoes, where as Bachmann is the opposite.
But I think when you read over Stephen Morris’ piece, I think it was very interesting because he goes through in some detail, point by point, a list of Bachmann perspective on economic policy management. And it’s a pretty standard recital of what, of what you get from Tea Party people. It’s a small government, low tax, pro-business, pro-growth perspective. You also get a similar perspective, a lot of the details match, when you talk to her and McCain. And you know, if Bachmann does well in the Republican primaries, it’s going to be clear, and I think this is, I think there’s no doubt, that message is going to resonate with some important segment of the Republican nominating electorate.
And you know, whether or not, you know, we should discuss next whether she stands an honest chance of becoming nominated for, to run for president, or will play an important part in the debate. But that’s it. She was presenting the Tea Party side. And you make a distinction between the conservative, but the Tea Party side is Republican views on economic policy.
Domenech: So Francis, I wanted to drill down a little bit though into some of the things that she said. Because I think when you, you know, look at Bachmann from afar you see someone who I think typifies the challenges of this upsurge in populous conservative sentiment. She’s clearly smarter than I think a lot of people give her credit for –
Domenech: – especially just, you know, in talking through some of the things that she reads, and pays attention to, and you can talk about that a little bit more. But I wondered, you know, what do you think of her if I put it in this frame? Compare the Michele Bachmann who comes across in this interview to the Michele Bachmann who runs through staff like a warm knife through butter. And just, I can’t seem to put together the kind of communications infrastructure and people behind the scenes who can elevate her to a higher stature that she currently holds. When you put that in perspective, then you see the challenge of this.
Jackson: But then she hired Ed Rollins.
Domenech: Yeah. See, see –
Cianfrocca: I think that he’s making your point.
Domenech: Yeah. I think he just made my point for me. Here’s the problem with somebody like Bachmann. It’s not, when you’re a political neophyte and when sort of the elite sort of churning group of people who, you know, make political decisions about structure and about the way that you run a campaign, the way that you run an organization, the kind of people who just fled in terror from Newt Gingrich’s campaign –
Domenech: – then you see that maybe, that things are conventional because something new and innovative hasn’t been tried. But it also may be that some things are conventional because they work. And because it’s been proven time and again, that these are the things that you need to do. These are the steps you need to take. These are the skill sets you need on your team in order for them to work. And I think that when you look at Bachmann you see someone who in rejecting convention in so many other respects, needs to have a little bit more of it in the way she constructs her team.
Cianfrocca: I think you’re activating two completely separate concerns here. One is, what is the policy message and what is the basic intelligence and quality of the individual here? And I do expect, and Stephen Moore’s writing reinforces this in my mind, when people start hearing Michele Bachmann perhaps in the debates, and she’s not going to get wide attention, okay. She’s going to be paid close attention to among Republicans, and among partisans, among conservatives. The wider press is obviously going to, you know, stick to the story line that she’s a nut case.
But, so the two points, the two poles are what is she saying in terms of policy? And there, I do think there is a lot of stuff worth thinking about, worth engaging, and perhaps worth, you know, that’s going to be compelling to people. The other half, which I think where you’re going is, should she be president of the United States? Or generally should she have a senior management position? And she’s not, by my reading, I could be wrong, by my understanding of her background she does not have the kind of background where she’s been an effective leader of large teams, either in business, or government, or elsewhere. And I always look to somebody, see in business, business leaders they are fairly easy. All right. You put a guy into a CEO position based on what it is that the Board needs to accomplish over the next, you know, several relevant periods.
Politics, political leaders, it’s very different. But again, the thing that I always look for with a really effective leader, especially where the, some things where the portfolio is so broad as national or state government. All right. Somebody, you’re not going to get a domain expert. You know, Bill Clinton said, and he was right, nobody can train for President of the United States. You know, it’s a unique job. And you’re not going to be expert in any of the, or all of the things that you need to be expert in. So, what is most critical is the ability to hire in really quality people. And, you know, having done that for years, and years, and years, I can tell you what makes that hard, you can hire, there is a saying. Half of our audience will have heard this so I apologize. A people hire A people. B people hire C people. Okay.
If you’re a quality manager who is not afraid to bring in really strong subordinates that he or she is then going to need to ride herd on, and be in control of, and continually inspire. This is where Reagan, Ronald Reagan had such an unbelievable, he was off the charts in this regard. You bring in Alexander Hague. Bring in George Schultz. All the guys that he had working with, Don Regan (phonetic sp.). All the people he had working for him, total alpha males. All right. Any one of them who were thinking half the time, I’m better, I’m smarter than this idiot. Right. But to meld that together into an effective team and work through it. Hillary Clinton, whether or not she can do this, she thinks about this. You know, she said that this is one of the things she needs to be thinking of, and be aware of, in terms of being president of the United States.
Bachmann by her relative lack of experience and certainly by the observations you just made about how her team is behaving, shows that she just doesn’t have that, you know, essential leadership, she doesn’t have the stuff. Okay. So, I think that that really in a way, in an important way, disqualifies her for the nomination. But that doesn’t mean she’s not saying things, that are going to be resonate and compelling to the people.
Jackson: Francis, I want to talk about her stance on the Fed here. She says the Fed has had “competing goals and objectives.” She is essentially going after the Fed’s double mandate here. This is something that has come up several times. Do you think the Fed’s double mandate gets in the way these days?
Should we go European Central Bank or do you think that the Fed is still on the right track as far as their job goes?
Cianfrocca: Well okay. This is one of the points that Bachmann makes that, and I’m going to say something that will strike a lot of, especially for partisans it’s very unkind and certainly unjustified. I get the feeling that she has read and evaluated opinions by, you know, a certain set of people that she respects and that is one of them. All right. A lot of what she says on economic policy sounds like a talking point. There I said it. I can’t think of a more sugar coated way of saying it. And what I mean by that is, not informed by any kind of deep analysis that she’s done on her own. Fine. You can’t expect a serious political candidate to be an expert in everything.
But to your question about the dual mandate, I personally am one of the people who think it’s a total mistake. I would like to see, because the Federal Reserve, it’s job, well it’s the letter of last resort and it’s the guarantor the currency. All right. It’s well known from history, from hundreds of years of history, that governments will in general lean toward creating inflation. Toward debasing their money. So periods of stable money which is required for, you know, sustainable economic growth at a moderate level, you look at history you will find that when there is a strong independent, politically independent monetary authority, you get better results.
But Congress in the late 1970s, we were talking about Carter, the ‘70s were a period of stagflation which means high inflation and low growth, right. It’s not supposed to happen. You talk to economists and read papers that were written by academic economists at that time, they will all tell you, this wasn’t supposed to happen. It’s against all the rules. I mean, you know, Kane’s (phonetic sp.) would be, his head would be exploding right now. It’s never supposed to happen. It did happen and that simply means, obviously, that the rules and the then understandings of policy of how economics works, macroeconomics, were flawed. Were incomplete.
So, Congress and the president, Jimmy Carter, facing a politically impossible situation decided well, you know, we’ve got to do something about this. We’ve got to fix the unemployment problem. So, let’s make a law that puts it into the Fed. And they added language to the Federal Reserve Act which states that the Federal Reserve is going to be required to maintain monetary aggregates at a level consistent with full employment. That’s where the dual mandate comes from. Okay. So, the point I’m making here is that for, it was a political expedience that has nothing to do with sound macro policy, so it shouldn’t be there for that reason.
The economic point you would make against the dual mandate is that it puts the Fed into a conflicted position. You know, if you want to ensure full employment or more employment in the current period, without regard to long term, yeah. You can print a whole pile of money and encourage bankers to go out and lend it to businesses, and businesses can, you know, just hire a lot of people, to build a lot of factories and roads and bridges to nowhere. Right. It doesn’t work in terms of stable policy and it certainly doesn’t belong in an institution like the Fed where the hallmark is political independence. You see my point? If you’re going to have, if you’re going to enshrine a very powerful institution and insulate it from political pressure, its mandate must be severely constrained.
Jackson: Now Francis –
Cianfrocca: Otherwise, you know, you’ve got the Fed, you know, which isn’t accountable to the voters making policy, making economic policy. It shouldn’t do that. It’s wrong. So, Bachmann is completely right in this regard.
Jackson: So, the other thing she says is that if she was president she would not rehire, essentially not renominate Ben Bernanke.
Jackson: If you were president, Francis Cianfrocca, would you renominate Ben Bernanke?
Cianfrocca: Yes. Yes, I would.
Cianfrocca: Because I think that Bernanke, keep in mind –
Jackson: Because he’s been steward during all this mess, so why would you put him back in the chair?
Cianfrocca: Here’s why, because I think the most important role of the Federal Reserve right now, if you look out at the macro picture, in the global economy, the pressures that lead to the 2008 crisis still exist. We will have another crisis equal or worse, I can’t predict the timing, but I know it’s going to happen. And I can also tell you that the authorities in Europe, who are a very big part of the emergency stabilization that took place in late 2008, are now very, very much weaker than they were then. Okay. The Fed is going to be the most important global institution when that crisis hits. I want a guy or a woman running it who is deeply versed in the dynamics of financial crisis that involve illiquidity and a lack of solvency. And Bernanke, for better or for worse, is the guy who knows how this went down in the depression.
Now, I will say I give Bernanke credit, off the charts for how he handled the 2008 crisis. I will also agree with a lot of people that subsequent management of the macro economy by the Fed, including Bernanke, has been indifferent at best. I mean we’ve got 9.1% unemployment. To the extent that the politically accountable part of the government, Congress and the administration, are totally ineffectuale. They are doing nothing but fighting with each other. Okay. So, the Fed is the policymaker of last resort and they are making a mess of it obviously. Just look at the numbers. But in a time of deep rapid systemic crisis, Bernanke is the guy I want in that chair.
Domenech: Francis, I guess that I would close with this. Do you think that when it comes to the national sort of perspective on these things that Michele Bachmann would be better served keeping her take on this in Congress, or do you think that it really adds anything to have her in the presidential conversation?
Cianfrocca: Well, I think you’re better qualified to answer that question than I am. I think that, of course, next year all eyes are going to be on the presidential race and to the extent that, you know, the media is going to try to turn this into a horse race. So, it’s probably too much to hope for that we get an intelligent consideration of the issues. But look, I think that, you look at a guy like Tim Polenti (phonetic sp.), he’s being pulled in the populous Tea Party direction and it shows in some of the things he’s talking about, if you want to consider him the main stream “conservative” candidate.
So, all the ideas that the Tea Party people are coming up with, including much lower taxes on business, a different regulatory regime, and a pro growth agenda, his, so, is she best, sitting in Congress she’s managed to make a certain amount of noise. If she’s in the presidential race what does it hurt her in terms of, you know, she’ll keep her seat in Congress, but she has the ability to make a lot of noise about these pro growth principles. And I think that can be effective and useful, right, because she’s going to have this platform. And again as I say, I don’t think for the reasons that you articulated Ben, that she should be president of the United States but –
Domenech: She’s on a –
Cianfrocca: – she’s saying a lot of stuff that people need to hear.
Domenech: She’s on her sixth chief of staff since she was elected what, five years ago. So, it’s just, I think it’s, here is what I would say. Michele Bachmann speaks for a lot of people in the Tea Party movement. She came up with them. She’s experiencing politics with them. She is learning on the job with them.
Domenech: I think that a lot of her ideas are ones that people on the right broadly would share. But I also think that there’s this, just this natural incentive to, you know, politics abhors a vacuum. And I think in this case she’s looking at a series of guys standing behind podiums and she’s not hearing the kind of things said that she wants, you know, have said. She’s wanting to rush into that and to fill that mix. And I think that, you know, the Tea Party movement would be a lot better served by people who share their values, who work in more gradual ways within the system to advocate for change in a positive direction.
Cianfrocca: Yes. Well, building power.
Cianfrocca: Building power though persuasion is, you know, it’s a craft.
Cianfrocca: But look, I’d like to say one more thing about this. We’re making an assumption. Our whole conversation so far has been predicated on an implicit assumption that this stuff matters. I’ve got a growing sense in my own mind and I talk to people who also share this, that it’s almost getting too late. Okay. We’re talking about no significant change in US macro policy until 2013, at the earliest. And I think, it’s starting to look like a lot of things are coming together in the world to make economic conditions a whole lot more dangerous, and risky, and tenuous. And we may, you know, we may be facing a point where even if something like Paul Ryan Plan becomes law right now, that’s not going to, it’s too little too late. You know, we’ve got some very serious policy issues coming up that have not yet crystallized and they’re going to require very different and possibly radical set of responses.
Jackson: So, are we on the Titanic, Francis?
Cianfrocca: I will say that the aggregate risk in the global economy and in the global financial system is looking more to the downside if you look out over the next six months and certainly over the next two or three years.