Rick Santelli, a walking embodiment of bridge-and-tunnel finance, hit a fever pitch on the floor of the Chicago Board of Trade during a CNBC live shoot on Feb. 19, 2009, a few weeks after president Barack Obama’s inauguration in the midst of the largest financial collapse since the Great Depression.
“Why didn’t you put up a website to have people vote on the internet as a referendum to see if we really want to subsidize the losers’ mortgages?” Santelli demanded. “This is America! How many of you people want to pay for your neighbor’s mortgage that has an extra bathroom and can’t pay their bills? President Obama, are you listening?”
The rant is often cited as the catalyst for the political movement that became known as the Tea Party. But this explosion did not begin after the government began bailing out the financial sector five months earlier.
Before becoming a talking head, Santelli was a commodities trader at Drexel Burnham Lambert, an investment bank that went bankrupt due to its role in the junk bond scandals of the 1980s. He viewed the traders on the floor around him as a “pretty good statistical cross section of America, the silent majority.” He wasn’t angry about their rescue.
He was angry because the Obama administration was choosing to divert some of the money earmarked for the bank rescue to help homeowners. Many Americans had seen the value of their homes plunge during the recession, and some now owed more on their mortgage than their homes were worth. Others could no longer afford their monthly payments because they had lost their job. The Obama administration’s effort would ultimately help millions, but did not prevent a record spike of more than four million foreclosures in the years ahead.
It’s important to understand this because the “Tea Party” has become a shorthand for opposition to corporate bailouts, but that isn’t how it began or how it expressed itself. First and foremost, it was about dividing Americans into the deserving and the undeserving, and making sure that government benefits didn’t reach the second class. Sparked by an attempt at mortgage relief, its main targets would be Obama’s expansion of health insurance coverage and immigration reform.
The reverberations from the 2008 crisis set the tone for the entire Obama administration: A two-year push for rescue and reform became subsumed by an eight-year battle over government spending that effectively shut down policymaking. Pressing issues like climate change, immigration reform, and trade were pushed to the back-burner, never to return.
Now, the US, like much of the rest of the world, is rescuing the economy again, not from a collapse driven by speculation, deregulation, over-investment and a collapsing bubble, but from a pandemic that has forced entire sectors into mothballs. The fiscal cost is already higher than we saw in 2008 and 2009. Will the political price be higher, too?
Divergent narratives
The left and the right took very different lessons from the events of 2008 and 2009.
For the left, bailing out Wall Street without fundamentally changing the financial sector was the original sin, compounded by an economic stimulus act that proved too small to prevent years of high unemployment. In 2010, the Dodd-Frank financial reforms and the expansion of health insurance known as Obamacare were seen by the left as creating little real change, even as the industries in question screamed at the shift in their business models.
The left’s analysis is reflected by statistics showing that low-income and young people still haven’t recovered from the recession, while wealthier Americas did just fine.
For the right, the narrative is less about the failures of Wall Street and more about the failures of government. In this view, the financial crisis is the fault of the Fed’s low interest rates and government efforts to expand minority homeownership, not the actions of predatory mortgage lenders or over-leveraged investment banks. And the Fed’s unprecedented action, taken to rescue the financial system, played into the right’s fears of central banks and fiat money—indeed, the only real effort to police the bank bailout that conservative politicians supported was an audit of the Federal Reserve. (Few economists support the idea that the government subsidies or loose monetary policy were primarily responsible for the crisis.)
For progressives, the Occupy Wall Street demonstrations in 2011 became a touchstone. But after being evicted from Zuccoti Park in lower Manhattan, the movement became diffuse. The Obama White House’s insistence on futilely seeking Republican votes at the expense of progressive priorities created an increasingly wide fissure between the center and left of the Democratic Party. On the right, however, Tea Party activists quickly attracted the attention and funding of major right-wing donors like the Koch Brothers, who distributed talking points, paid for trainings, and subsidized events. Soon, the major focus of the Tea Party was anti-tax and anti-Obamacare, not anti-bailout.
These alternate views are crystallized in how each side responded when Rahm Emanuel, the hard-charging Democratic lawmaker who became Obama’s chief of staff, said in an interview that “you never want a serious crisis to go to waste…it’s an opportunity to do things that you think you could not before.” Progressives came to see it as a bitter irony or even misdirection by a sell-out. Conservatives saw evidence of big-government overreach that cynically used a crisis to win policy battles.
The elections following the crisis, in particular the 2010 midterms which saw Republicans regain control of the House of Representatives, played out on these lines. Disappointment with bailouts animated many voters, but Republicans told pollsters they were more motivated by opposition to the new healthcare law.
Just consider who came into office on the Tea Party wave: The three Republican “young guns” who became the face of the 2010 election, representatives Eric Cantor, Paul Ryan, and Kevin McCarthy, had all voted for the bailouts, officially called the Troubled Asset Relief Program, or TARP. Scott Brown, who won a special senate election in Massachusetts after the death of Ted Kennedy, was running against Obamacare, not bailouts—his victory speech didn’t mention them. In 2010, Marco Rubio made the leap from state to federal office in a tight three-way race, focusing on Obamacare and immigration, not TARP.
Mike Lee ousted a sitting Republican senator in Utah, Bill Bennett, who voted for TARP but whose real crime was a widely-touted healthcare compromise bill authored with Oregon Democratic senator Ron Wyden. Self-proclaimed Tea Party darling Ted Cruz was elected to the Senate in 2012—not running against bailouts, but financed with a $1 million loan from Goldman Sachs, his wife’s long-time employer.
If the election wasn’t really about bailouts, it’s also hard to disentangle the election results from other factors: The reaction to the first black president elected in the United States. A general historical pattern of the president’s party losing seats in their first midterm election. And the economic situation on Election Day, with the country still facing nearly 10% unemployment, is generally bad news for incumbent politicians. Democrats argued that things could have been even worse, but counterfactuals rarely deliver votes.
Lessons learned
This year, as county and state health officials asked citizens to stay home and businesses to close, it soon became clear that the economic consequences would be brutal. Economic officials sprang into action, with the Federal Reserve in particular deploying financial market backstops with astonishing speed. Lawmakers soon provided relief funding for businesses small and large, and for the unemployed. Still, as with the failure to help homeowners during the last crisis, the government is turning too late toward the fundamental work of deploying a national test program to defeat the virus.
And we are already seeing the same dynamics: Republican senate leader Mitch McConnell has suggested that the growing national debt should prevent future rescue funding, and that states should go bankrupt rather than seek federal aid. Conservative donor networks who backed Tea Party groups have begun funding and coordinating protests against shelter-in-place policies, trotting out the usual suspects bearing Confederate flags and AR-15s. Meanwhile, progressives are railing at bailouts that seem more generous to the largest and most-well capitalized companies than smaller businesses, which are finding it difficult to obtain aid.
Some things have changed. For one, bailout designers have learned that getting money into people’s hands is as important as keeping the financial system from collapse—for both economic and political reasons. Lawmakers juiced unemployment benefits, sent stimulus checks to individuals, and have made an effort to tie funds for small businesses to continued employment. And the arguments about moral hazard apply less strongly to the current set of corporate rescues: The pandemic is nobody’s fault, so it’s hard to blame CEOs or spendthrift fellow citizens.
Public opinion data collected in late April by researchers at Tufts University show that most Americans favor the government spending more money, and faster, to boost the economy, even businesses. Some 66% said that the government needs to spend more, even if that means increasing the national debt. Surveys also find that, at least for now, most Americans are concerned about the impact of coronavirus and support the shelter-in-place guidelines being used to slow the spread of the virus rather than seeing it as a frivolous infringement on their liberties.
Conventional political wisdom is that incumbents “own” the economy come Election Day. That helps explain why Republicans have been eager to launch a massive fiscal stimulus—a key lesson of the last crisis is that incumbents will be punished for economic conditions, and need to do what they can to improve them. The challenge is dealing with policies that are necessary but unpopular, like rescuing the financial system in 2008 or asking people to shelter in place today.
This helps messaging coming from US president Donald Trump, who has backed public health guidelines about physical distancing in an effort to slow the virus, and also called for the “liberation” of states where Democratic governors have adopted similar policies.
One thing is for certain: The next six months are the best chance at taking big-ticket action. “The time during which the political system has a whatever-it-takes attitude toward fiscal policy is very limited,” says Jason Furman, the former chair of Obama’s White House Council of Economic Advisers, who adds that the key focus for Democrats should be sending money to cash-strapped state and local governments and making crisis response more automatic.
Senator Wyden, for example, has proposed that expanded unemployment insurance benefits should only be ended when the unemployment rate falls significantly.
“Given that the Democrats are, for all intents and purposes, somewhat easing Tump’s reelection prospects for the national good, they should be aggressive in getting conditions stuck on to that,” Sean McElwee, a strategist at the progressive think tank Data for Progress, says.
After the flood
The true fallout will come after the election in the fall, itself likely to be disrupted by the disease and perhaps, experts hope, conducted entirely by mail. Whatever the results, the US is likely to limp into 2021 in the midst of a recession, with high unemployment and record national debt.
The first questions for the next administration, Democratic or Republican, will be about its budget proposal. In 2010, this became a battle over austerity, with Democrats fighting a rearguard battle to avoid massive cuts, and Republicans using the US statutory debt ceiling to force costly brinksmanship over spending. Painstakingly negotiated fiscal compromise proposals floundered over Republicans’ refusal to increase taxes.
Mick Mulvaney, then a Representative and until recently a senior official in the Trump White House, explained the circumstances fairly succinctly earlier this year: “My party is very interested in deficits when there is a Democrat in the White House. The worst thing in the whole world is deficits when Barack Obama was the president. Then Donald Trump became president, and we’re a lot less interested as a party.”
What may be different now is how much Democrats are willing to play this game. “You definitely have had an elite shift in opinion on the dangers of deficits, and I think Democrats are a little bit tired of being played by a fool on a Republican deficit hypocrisy and are kind of over it,” McElwee says.
Part of it is personnel change. Conservative Democratic senators who dominated the budget debates in the Obama years and gave cover to bad-faith deficit criticisms like North Dakota’s Kent Conrad, Nebraska’s Ben Nelson or Arkansas’ Blanche Lincoln don’t have many equivalents in the current party. Part of it is experience: The predictions of inflationary doom and financial collapse attached to deficit spending in the Obama years did not come true.
Still, if the gains among suburban voters in places like Orange County during the 2018 midterm election is any indication, any newly-elected Democrats in 2021 may feel their constituents will fret about debt.
“The Democratic Party has shifted much less on the deficit than people believe,” Furman says. “Democratic policy types have shifted, I’ve certainly shifted. [But] if you look at the Democrats that were elected in 2018, they are pretty fiscally conservative group by and large.”
That may make it harder for former vice president Joe Biden, the putative Democratic nominee, to push for his ambitious green infrastructure plan if he is elected, or for congressional Democrats to resist budget cuts to key programs in a second Trump term.
The key may be the perception of who benefits from these measures, and why. The Tea Party’s corporate backers convinced its participants that illegal immigrants were a bigger threat to jobs than shrinking public investment, and that healthcare reform would waste their tax dollars on benefits for the underserving. Democrats in the White House and Congress were unable to close the fissures between their center and left, or out-shout Fox News and Americans for Prosperity among independent voters.
Republicans are already focusing their campaign, as they did in 2016, on foreign influences, working to link the pandemic to Chinese malevolence and immigrants arriving in the US, and on Democrats, with White House officials suggesting repeatedly that the coronavirus is being overplayed to hurt Trump. The doddering federal response is likely to hurt Republican campaigns, but the bigger challenge for Democrats will be convincing voters that their ambitious policy agenda is made more relevant, not less, by the crisis.