By William K. Black

In July 2011 President Obama and Speaker of the House John Boehner were on the verge of agreeing to the “Grand Bargain.” The Grand Bargain was not finalized, but its key terms were agreed to. It involved massive cuts in social programs and the safety net, modest increases in tax revenues, and an increase in the debt limit. It was a massive austerity program of the kind that was hurling the Eurozone back into a gratuitous recession. U.S. unemployment was 9.1% in July 2011 and the austerity package and resultant recession would have caused unemployment (and the deficit) to grow. Unemployment would have been over 10% and rising in the run up to the 2012 election. Obama would have further enraged Americans by cutting many popular programs and betraying the Democratic Party’s crown jewels – the safety net – in return for far smaller in revenues from the wealthy. Instead of solving the supposed deficit and debt crises the austerity-induced recession would have likely caused the deficit and the national debt to grow.

The political results of the entering into what could more accurately be termed the Great Betrayal through such a self-destructive budget austerity deal were predictable. Obama would have been crushed, the Democratic Party would have lost its majority in the Senate, the Republican majority in the House would have been greatly increased, and Democrats would have faced severe losses in state and local elections.

Obama and the nation were saved from these catastrophic results by good luck, not good sense. The Senate “Gang of Six” (moderate conservative Republicans and conservative “blue dog” Democrats) was negotiating in parallel their own budget austerity deal. I drew primarily on the Washington Post’s description of the parallel negotiations because its coverage is so sympathetic to Obama and Boehner and their joint effort to impose austerity and begin to unravel the safety net. The Post explains that the Gang of Six’s negotiations posed a severe problem for Obama because the Republican members of the Gang had agreed to a budget deal that was far better than the deal Obama had negotiated with Boehner. When the Gang briefed the Senate on their deal most Senators praised the deal, including some prominent Republicans.

“At the White House, Obama showed equal enthusiasm. He made a rare appearance in the White House pressroom, surprising reporters who had been awaiting the regular briefing from press secretary Jay Carney. As Carney stood to the side, the president hailed the plan as ‘broadly consistent with what we’ve been working on here in the White House and with the presentations that I have made to the leadership when they have come over here.’

In private, however, he and his aides were alarmed. The emerging deal with Boehner looked timid by comparison.

‘The Democratic leaders already thought we were idiot negotiators,’ Daley [Obama’s Chief of Staff] said. ‘So I called Barry [Jackson] and said, ‘What are we going to do here? How are we going to sell Democrats to take $800 billion [in increased tax revenue] when Republican senators have signed on to’ nearly $2 trillion?

Daley added, ‘I don’t think it was a mischaracterization on our part to say we’d be beat up miserably by Democrats who thought we got out-negotiated.’”

This was the key role that Senate Democratic Party liberals played in killing the austerity program that would have crushed Obama and the nation. The liberals “already thought we were idiot negotiators.” The Gang’s deal proved that the Senate liberals’ concerns were correct. The administration’s negotiators were being taken to the cleaners by Boehner. The $800 billion of increased tax revenues Boehner agreed to were partially fictional.

Obama tried to push Boehner to agree to increase the amount of austerity produced by increased tax revenues in order to respond to the concerns of liberal Democrats. Obama, via an aide, proposed changes to the basic deal with Boehner.

“[Obama’s] plan backed away from earlier positions on taxes in a number of ways, including pushing the top rate below 35 percent. But there was a deal-breaker for the Republicans — a demand for additional tax increases to match proposed cuts to Medicare and Medicaid. To keep the health-care cuts, a critical component of the deal for the GOP, Republicans would have to swallow about $400 billion more in tax hikes — a 50 percent jump from the figure that had been under discussion. Inside the White House, the offer reflected the new political reality shaped by the Gang of Six. In light of that farther-reaching proposal, White House officials worried that the deal under discussion with Boehner would meet resistance, particularly among Obama’s Democratic supporters. Higher taxes explicitly targeted toward the wealthy offered an element of fairness, in the White House view, and a way to sweeten any deal for the Democratic base. Obama aides said the new offer also reflected their frustration at what they described as an unrelenting effort by the GOP to cut safety-net programs.

Obama then further proved the accuracy of critics of his negotiating skills, abandoning his new plan and going back to the original deal with Boehner – the one that demonstrated the administration’s negotiating idiocy when compared to the Gang of Six’s deal. Obama now put pressure on the Congressional Democratic Party leaders to support his original deal with Boehner.

Dan Pfeiffer, the White House communications director, recalled that the president and his team felt the weight of the global economy “on our shoulders.”

‘Is there political benefit to coming to a big budget deal with John Boehner? Sure,’ Pfeiffer said. ‘But every other political and message imperative was thrown out the door to prevent a disaster and do the right thing for the country. That’s why we were willing to do things we wouldn’t normally do.’ Reluctantly, [Senate Majority Leader Harry] Reid and [House Minority Leader Nancy] Pelosi agreed to do their best to support the plan.”

The self-serving nature of a communications director’s comments is obvious. It is revealing that the Washington Post reporters did not provide any critical analysis about the concept that agreeing to austerity and the Great Betrayal of the safety net was “the right thing for the country” and the “global economy” because it was “imperative” to “prevent a disaster.” The reality is that the cynical deal that Obama was trying to do with Boehner would have thrown the nation back into a recession, gravely harming the global economy and that the cuts to government services, particularly the safety net, would have greatly increased the misery that such recessions cause and greatly delayed the recovery from the new recession. Any “political benefit” Obama would have received from his Great Betrayal would have been ephemeral because the new recession would have begun within months. Obama’s principal economic advisor is Treasury Secretary Geithner. Geithner is a failed regulator and a pro-austerity Republican (he officially became an Independent as a fig leaf). Geithner is to economics as Karl Rove is to predicting 2012 election results in Ohio.

Fortunately, the House Tea Party members (unintentionally) chose in July 2011 to save the nation, Obama, Reid, and Pelosi from disaster. They did so, of course, for mostly bad reasons. Obama’s demand for meaningful tax increases caused the House Tea Party members to revolt against any Boehner concessions on taxes. Boehner refused to accept Obama’s final capitulation in which he agreed to Boehner’s earlier offer and withdrew his proposed increase in tax revenue. Boehner wouldn’t take Obama’s “yes” for an answer because he feared his Tea Party members’ reaction to agreeing to any increase in tax revenues.

It is important to remember what Obama’s flack was claiming was the necessity for making the deal with Boehner. Obama was claiming that doing the deal was “imperative … to prevent a disaster.” What disaster? There never was a credible basis for claiming that not adopting austerity and not beginning to unravel the safety net would cause a “disaster.” Everything we know from economics told us the opposite – austerity would cause a disaster and damaging the safety net would increase the human suffering. We have run the experiment. The U.S. lucked out and did not follow austerity. The Eurozone inflicted austerity. Despite the grossly inadequate stimulus program, the U.S. recovery since July 2011 has been steady (albeit far weaker than it would have been with adequate stimulus or a federal jobs guarantee program). Unemployment has fallen. The major exception – the loss of jobs by state and local government workers – is due to austerity imposed on state and local governments. Austerity has forced the Eurozone back into recession. Unemployment is 50% higher in the Eurozone than in the U.S. Austerity has thrown Greece and Spain into Great Depression-levels of unemployment (over 25% of all workers and over 50% of younger workers). The austerity deal that Obama and Boehner tried to inflict on America was the disaster, not the means to “prevent a disaster.”

Sometimes a nation gets lucky. In July 2011, the leaders of both of our dominant parties tried to follow the insane austerity policies that were throwing the Eurozone back into recession. The result would have been catastrophic for the nation, Obama, and the Democratic Party. We were saved for all the wrong reasons. Republican members of the Gang of Six’s effort were so eager to unravel the safety net (and its Democratic members so willing to betray the safety net) that they agreed to modest increases in tax revenues in return for severe cuts in the safety net. The House Tea Party coalition was death on taxes and removed much of Boehner’s negotiating leverage. Two groups that exasperate Obama – liberals and the Tea Party – saved him from himself and saved our nation from suffering a second recession. The amazing thing is that the first thing Obama wanted to do upon being re-elected was to re-up on the Great Betrayal – and that the media still loves the idea and views anyone who opposes it as unserious and un-American. We obviously fail to understand the obvious: austerity is “imperative … to prevent a disaster.”

Bipartisan austerity sounds so good to the Beltway class. They yearn to see Obama and Boehner working together again to commit economic suicide and unravel the safety net. The Beltway’s baby boomers will show that they understand joint sacrifice. They will sacrifice the poor, sick, and the unemployed in a gratuitous recession. They will begin the process of giving Wall Street its greatest dream – the privatization of Social Security. That will produce hundreds of billions of dollars in additional fees to Wall Street. When you read odes to the Grand Bargain you are reading Wall Street propaganda (directly or via regurgitation).