You see, President Obama had to surrender to the Tea Party Republicans on every major economic issue in order to get the debt-ceiling deal.
If the president had not agreed to massive cuts, the establishment of a structure that could undermine Medicare and an approach to future economic debates that virtually assures that the United States government will have neither the ability nor the will to stimulate job creation. he would not have gotten the deal.
And if Obama had not gotten the debt-ceiling deal, the markets would have tanked.
That was the calculus at the White House, and among the Democrats who made the mistake of backing Obama as he veered far to the right in the debt-ceiling negotiations.
Unfortunately, it was wrong. Not just morally wrong. Not just politically wrong. Not just economically wrong. It was wrong with regard to the cherished markets.
The Dow finished Thursday down 512 points for the day—a 4.3 percent loss.
The S&P 500 and Nasdaq experienced similarly dramatic declines.
The three major indexes have in recent days erased all their gains for 2011—and they are nearing the 10 percent drop from the year’s highs that would be defined as a major market "correction." The correction could, in fact, accelerate, especially if jobs figures that are expected tomorrow turn out to be disappointing.
The market dive started July 25, when it began to become clear that the Obama—who refused to take decisive action to raise the debt ceiling himself and declined to hold firm for new revenues that might have gotten the government some flexibility—was going to defer to the Republicans in the debt-ceiling fight.
There was never any question that the debt ceiling needed to be increased. Nor was there much question that steps needed to be taken to address concerns about debts and deficits.
But there was a right way to do the deal and a wrong way, The right way was to increase revenues—with tax hikes for billionares and the ending to tax breaks for corporations that invest offshore—and cut wasteful defense and corporate-welfare spending. The wrong way was to maintain tax breaks for the super-rich while cutting education and safety-net programs that actually pump money into the economy.
The point here is not that the debt-ceiling deal, in and of itself, caused the markets to tank. The nation’s economic challenges—high unemployment, a widening gap between rich and poor, tight credit, weak consumer spending, declines in manufacturing, a slowing of home sales—extend far beyond Washington and its silly fights.
But Obama’s refusal to lead, and his seeming inability to check and balance the craziest excesses of an economically-illiterate Tea Party Republican caucus—which has few qualms about creating a crisis in order to score political points—is the problem. Bending to the right does nothing to stabilize the economy, let alone to start creating jobs or renewing hard-hit communities.