MS. IFILL: It turns out the debt deal didn’t stop the economic rollercoaster. We look at why and what it means for you, tonight on “Washington Week.”
PRESIDENT BARACK OBAMA: We are going to get through this. Things will get better and we’re going to get there together.
MS. IFILL: Perhaps, but nothing about this week suggested confidence in the economy or in the nation’s leadership.
REP. JOHN BOEHNER (R-OH) [Speaker of the House]: The bill is passed without objection.
MS. IFILL: The debt ceiling was finally raised.
REP. ERIC CANTOR (R-VA) [House Majority Leader]: I think the big win here for us and for the American people is the fact that there are no tax hikes in this package.
REP. KEITH ELLISON (D-MN): This is the wrong approach for our economy at the wrong time. It goes against our basic values.
MS. IFILL: And there will be some pain.
SECRETARY OF DEFENSE LEON PANETTA: Make no mistake about it. We will face some very tough challenges here as we try to meet those numbers.
MS. IFILL: But 74,000 aviation industry workers were temporarily sidelined by another Washington disagreement.
SEN. JAY ROCKEFFELER (D-WV): It’s a tragedy about ego, about bullying, about an attempt to prove one side would cave.
MS. IFILL: The unemployment rate ticked slightly downward, but the stock market took a jarring plunge. As the nation’s capital catches its breath in August, what happens now?
Covering the week, Charles Babington of the Associated Press; Michael Duffy of Time magazine; and Deborah Solomon of the Wall Street Journal.
ANNOUNCER: Award winning reporting and analysis, covering history as it happens, live from our nation’s capital, this is “Washington Week with Gwen Ifill,” produced in association with National Journal.
ANNOUNCER: Once again, live from Washington, moderator Gwen Ifill.
MS. IFILL: Good evening. It’s been a dizzying week – good news followed by bad news, followed by mystifying news starting with today’s new jobless numbers. The good news, better than expected job creation, but those who are unemployment have been out of work much longer.
PRES. OBAMA: The unemployment rate went down, not up. But while this marks the 17th month in a row of job growth in the private sector, nearly 2.5 million new private sector jobs in all, we have to create more jobs than that each month to make up for the more than eight million jobs that the recession claimed.
MS. IFILL: By the end of the day, the Dow Jones industrial average was up 61 points after a bone-rattling 512-point drop only yesterday, leaving us more confused than ever. Is the economy just recovering slowly or is it headed back into recession? Deborah.
MS. SOLOMON: Well, if you ask six different economists, you’d probably get six different answers. The reality is we just don’t know. This recovery has been unlike any we’ve seen in the past. And you used the word “mystifying,” and that’s a pretty apt description for this recovery. It’s mystifying markets, economists, even the Federal Reserve. You know, many economists put the risks of recession higher now than they did a few months ago. Marty Feldstein, the Harvard economist, says odds are 50 percent.
That said, today’s jobless claims did come to market somewhat and eased some fears that we’re going to head into a double dip unless – and this is a big caveat, unless some big event spooks the markets. And that’s not a riskless proposition. I mean, we are in the middle of global turmoil. You know, Europe has all these debt problems and we are somewhat exposed. So there is a risk.
And the good news is that we’re adding jobs. The economy is growing. But the bad news is is that the fundamentals are just so weak. I mean, let’s look at the unemployment rate. Yes, it went down to 9.1 percent, but the reason is because so many people stopped looking for jobs -- 193,000 people just vanished from the labor market.
MS. IFILL: As bad as that is, I can’t help but imagine – if the unemployment rate had ticked up even a fifth of a tenth of a percent, people’s hair would have been on fire today.
MS. SOLOMON: Right.
MS. IFILL: So on balance, that word balance, is it still better good than not?
MS. SOLOMON: Yes. Yes. Definitely. I mean, part of this is a confidence game. A lot of this has to do with just people being completely scared that we are headed back into a recession. If you see the unemployment rate go back up to 9.3 percent, 9.4 percent, you’re going to see people just hoarding cash more than they are. Corporations already are not investing and they’re worried about the climate.
But the 9.1 percent it’s good news in terms of perception. But you don’t want to see – you want to see your employment rate go down and your labor participation rate go up. And that’s not what’s happening. We’re at a low, at a point we haven’t been since the 1980s. So it is good in a sense of optics, but not great in terms of the real fundamentals.
MR. DUFFY: Over the last two and a half years, the big question in Washington that we were talking about week after week after week is what government can do to stimulate the economy, both fiscal policy and in terms of monetary policy. And the argument politically is what it should do, but there’s been a lot of talk about what it can do. Is it now – are we now at the point where the government simply has no cards left play?
MS. SOLOMON: Well, yes. I mean, you know, they don’t have cards left to play in two respects. One is that they did this massive stimulus program, and you can argue things would have been a lot of worse and they probably would have been.
MS. IFILL: But we are those who thought it would have been more massive than it was.
MS. SOLOMON: Right. Exactly. But, I mean, what we got for that amount of money, for that $800 billion, is a very sluggish recovery. You know, there is no appetite for additional spending. You saw in the debt debate they couldn’t event extend the payroll tax cut or the unemployment insurance. These are small things, but they still are crucial for things like state and local governments, which is where you’re seeing a lot of the jobs being lost. At the same time, interest rates are near zero. The Fed has very little left that it can do. It can continue buying treasuries. It stopped this program in June. I think it’s going to take a lot more than a kind of wild ride on Wall Street and a couple of months of bad numbers for them to do anymore of that. But there very little – few things that they – the tools are not there so much anymore.
MR. BABINGTON: You mentioned Europe. We tend not to think much about the economy of Greece and Portugal having anything to do with our big economy, is that right?
MS. SOLOMON: No. I mean, we are linked together. You know, the 2008 financial crisis showed us that everybody is kind of in this together. And U.S. institutions are exposed to European financial assets and in part money market mutual funds which everybody has. These are where you park your cash. They’re supposed to be really safe. About half of their holdings are in European assets, so we do face exposure there.
And just sort of in the broader sense, in kind of the more macro-sense, the worries help kind of fuel this worry about the overall economy. But also we want Europe to buy our stuff. And if they’re not spending money, if they’re not borrowing, our exports are not going to go to those countries.
MS. IFILL: You mentioned a word a moment ago: “confidence” or lack thereof, which seems to be a theme throughout our program tonight because what a lot of the nervousness is, including are the ratings agencies going to downgrade the government’s rating again, all these things that somehow have not gone away in spite of the debt deal. It makes you wonder whether everyone has braced for this double-dip recession we keep hearing about.
MS. SOLOMON: Right. I mean, in some ways, it might be a self-fulfilling prophecy – as people get more nervous and more worried about what’s going to happen, they’re just going to retrench even more. I heard somebody say, you know, after the wild ride on Wall Street yesterday people stopped going out to dinner. Restaurants got cancellations for reservations. Consumer spending hit an – you know, basically, which is 70 percent of our economic activity, hit a two-year low in June. So people are nervous and it’s not going to take much more for them to basically just stop and kind of say, whoa, I’m worried about my 401(k). I’m worried about sending my kids to college. I’m going to hold back.
MS. IFILL: And that’s something which business theoretically could spark if they get off some of cash which they’re sitting on.
MS. SOLOMON: Right. Right.
MS. IFILL: Which somehow this administration can’t talk them into doing
MS. SOLOMON: No. And they’re worried about a number of things. I mean, yes. They’re worried about the debt downgrade but they’re also worried about what’s going to happen in kind of this post-debt ceiling debate, what’s going to happen with taxes. There’s all this uncertainty. And they say, I’m not going to spend money on trucks or plants or equipment if I don’t know what my taxes are going to be. And you can say that’s a red herring, but businesses say it’s true. They just don’t want to spend money if they don’t know what they’re going to be taxed on.
MS. IFILL: You know, you talk about this post-debt deal environment which we’re all living in because, as you recall, this time last week, we thought this was all – that was supposed to solve everything. It was supposed to calm the markets, calm the economy. But oddly enough, the markets began to shake only after Congress passed and the president signed the agreement to raise the debt limit that has crippled Congress for the last several weeks.
In the end, the deal made a lot of people on both sides unhappy. One Democrat memorably called it a sugar-coated Satan sandwich, my favorite line of the week. Here’s how Senate leaders characterized the final deal.
SEN. HARRY REID (D-NV) [Senate Majority Leader]: The debate was long. It wasn’t easy. For weeks the American people have watched and wondered whether Congress could get its job done. Well, we got it done and brought our economy back from the brink of disaster.
SEN. MITCH MCCONNELL (R-KY) [Senate Minority Leader]: I’m often asked what would you do to get the economy going. My answer is always the same: we need to quit doing what we’ve been doing – quit borrowing, quit spending, quit trying to raise taxes, quit over-regulating and let the private sector flourish.
MS. IFILL: There were so many moving pieces in this story that in the end we thought we’d ask Chuck to explain tonight how did it all finally come together.
MR. BABINGTON: Well, Gwen, there were 1,000 moving pieces, but in the end the two most important people that mattered here were John Boehner, the speaker of the Republican-controlled House, and Mitch McConnell, who we just saw, the minority leader in the Democratic-controlled Senate. And both of them did not want default. They knew it would be bad for the country and they knew it would be disastrous for the Republican Party.
Now, not everybody in the Republican Party agreed with that. So, right off the bat, they had a problem that they were facing. But they weren’t going to be rolled because they had leverage, some leverage. Boehner did not completely control his caucus as we saw, so there was a danger that he might not be able to rein them in. And, of course, in the Senate, as almost always is the case, the minority party has filibuster power. So that gave both of them enough power to have some negotiating ability.
At the end, it really came down to two big issues: would there be tax increases? Remember, President Obama repeatedly said there has to be a balanced approach, there have to be new revenues. Those in the end were not in it. And then, the other thing was, was it going to be a two-part increase in the debt ceiling where the second part would be contingent on more votes by Congress? And President Obama was adamant that that not happen so before the next election we would have another go-round of this circus. And he won on that point.
So those were the two big concessions. And once those two things got settled, the last minute was a little minor haggle about the Pentagon and they were done.
MS. IFILL: You know, what puzzled me about this is that there was a moment – there were several moments – where it felt like they had a deal, right?
MR. BABINGTON: Right.
MS. IFILL: At one point Senator Reid, Senator Boehner seemed – Congressman Boehner seemed to have figured it out. At one point, the president seemed to have figured it out. What happened in the week between the last almost deal and the final deal, because it didn’t seem like the details changed that much?
MR. BABINGTON: The details – that’s exactly right, Gwen. The details didn’t change that much. So really it was a matter of the Republicans having to convince the Democrats – and, frankly, this probably happened a good number of days before. We cannot get new revenues through. It will not happen. And then, on the other hand, the president pushing back to say, okay, that’s the deal. You will not get this two-step, two-part, two-bites-at-the-apple increase.
And once they all kind of realized that was a deal – and then, again, once the – the deal has to come out of the Senate because that’s where the minority party has control – once it came back to the House, there was really no way that the House could vote it down. But if the Republicans voted it down, it would be disastrous for their party. And the Democrats had plenty of incentive to vote by that point because it was essentially a Democratic deal.
MR. DUFFY: Chuck, they’ve kicked the can down the road on the bigger deal, the –
MS. IFILL: The thing they swore, by the way, they were not going to do.
MR. DUFFY: Exactly. Right. That’s how you knew it was going to happen. The idea of doing a grand bargain where you actually do something much broader than just another round of cuts or another round of sort of attempts to get at the deficit and debt problem. What really are the prospects now for doing the kind of big thing that Boehner and Obama talked about in one of the earlier incarnations? Any better or just as bleak as they were before?
MR. BABINGTON: There are some people who think it’s possible. The grand bargain is one of the most fascinating parts of this whole story. I think it’s a little untold because a lot of it was done in secret. And it turned out that John Boehner was seriously considering a deal that would have $4 trillion in deficit reduction, including about $1 trillion in new revenues. Twice he kind of walked up towards the edge of that and pulled back. He probably would have had a very hard time selling that to his constituents. And President Obama might well have also.
Now we’ve got a – we’re setting up this super-committee of House and Senate members, equally divided between the two parties, that by November has to come up with some plans. It’s possible, Michael, that they will engage in the grand bargain. I wouldn’t look forward to that.
MS. SOLOMON: What happened? You know, the tea party seemed to play a big role here in kind of breaking apart the Republican Caucus and causing all problems for Boehner. So what happens going forward with this super-committee? I mean, how is Boehner going to get his caucus to vote for anything that the super-committee winds up doing or – are they going to pose like a big challenge to the Republican Party, especially as we go into an election?
MR. BABINGTON: You know, Deborah, the Republican Party over the years has become increasingly adamant about no new taxes. And the tea party just put more muscle, if anything, into that position. And we saw that played out in all these negotiations over the last few weeks. And a lot of people feel that because of that, this super-committee which, again, will be evenly divided between the parties, it will be extremely difficult for them to come up with a tax increase proposal.
At the same time, the tea party, which is here to stay and is a very influential organization within the Republican Party, about half of their members in the House did vote for the compromise in the end. So they’re not monolithic. They’re not completely unyielding. So we haven’t seen the whole tea party story play out yet.
MS. IFILL: You know, part of the discussion that developed after this all is that everyone was disgusted with the Democrats. Everyone was disgusted with the Republicans. But, you know, somebody sent them there. Are voters – is this what voters sent to Washington, this – the question of whether it was dysfunction or divided government, I don’t know?
MR. BABINGTON: Sometimes American voters seem to be their own worst enemies. They’ll say in overwhelming numbers they want bipartisanship. They want Congress to work things out. But they vote in ways, Gwen – and this has been increasing over the years – that almost assure that that will not happen. And a big reason we’ve talked about it on this show before is that because of gerrymandering and because of low participation in primaries that liberals dominate the Democratic primaries, conservatives dominate the Republican primaries, and by the time that a lot of people realize, hey, there’s a general election in November, the ball game’s over. The primary determined everything in so many of these districts.
MS. IFILL: Okay. Well, thanks, Chuck. Okay. So let’s try to make sense of it all. Deals get cut, markets go up and then down, and the net result appears to be this: Americans are losing confidence in almost everything. The latest New York Times-CBS News poll offers this gloomy picture. On President Obama, 48 percent approve of his job performance; 47 percent disapprove. It’s worse for Congress: 14 percent approve of them; 82 percent disapprove. And 75 percent say members of Congress do not deserve reelection next year. It goes on like that – Americans think the country is on the wrong track, they’re not enthralled with President Obama’s leadership qualities, and they more dislike than like even the tea party. So what are we to take from all that, all of these gloomy numbers?
MR. DUFFY: I think if you were to put this whole thing to a test, we would be having a vote of no confidence.
MS. IFILL: Right.
MR. DUFFY: The lack of consumer confidence in the economy that you talked about is sort of matched in almost equal numbers to a lack of voter confidence in our political leaders’ ability to solve the economic problems, which creates a kind of double-whammy of gloom. And you can see that in all of the numbers.
And when pollsters actually look at some of the data you’ve talked about, they say, we haven’t seen these kinds of metrics, numbers in 25, 35, 45 years. And that sets up and this is where we really – it gets really kind of hairy, a kind of very unpredictable political environment. And, don’t forget, we were living in an already pretty volatile political environment when this started.
Just a couple of things. That 14 percent number about the number – the 14 percent of Americans who approve of Congress –
MS. SOLOMON: Who are they?
MR. DUFFY: That’s the lowest since 1974 when Richard Nixon resigned. And that’s lower, of course, than when we had the 2010 landslide, the 2006 landslide, and the 1994 thing – election which changed the House of Congress. So you set up the prospect now – we’re still a ways from the real election – of having yet another wave, “toss out the bums” result next fall.
There was one other thing – President Obama isn’t immune to this. The average weekly tracking poll survey that Gallup does shows that he too is now, as you noted, at the lowest point he’s been since he’s been president. And among independent voters, Gwen, which is what you care about if you’re at the White House, that number is now 37 percent approval and that’s 15 points below where he was before.
MS. IFILL: Is this – it’s tempting to compare this to the Jimmy Carter years, the last time a president had such a tough time. And we know what happened to Jimmy Carter after his first term. Is it comparable?
MR. DUFFY: I think it is. You actually hear people talking about whether the president needed to kind of reset a much bigger part of his presidency than he has, maybe cabinet switches. It’s not clear that that will happen, unlikely I think. I think inside the White House there’s some head scratching about what both to do about the jobs picture – they don’t have a lot of levers to pull. They’re going to hit the road on a bus trip here in a week or two and try to talk about it.
But they also are I think quite confounded by how to deal with this resurgent, reenergized Republican Party that the Republican Party has its own challenge with. And I think what’s going to happen and what they’re talking about is probably – and they really only have one card left to play politically and that is to get tougher, to make their politics edgier. It’s not Barack Obama’s instincts to play dirty at all, but I think he’s going to find that that’s about the only sort of name names, perhaps campaign in people’s districts, do some recess appointments, do the kind of things he’s been so far reluctant to do.
MR. BABINGTON: Well, Michael, is the pathway now open for a presidential candidate from the Republican Party just talk about jobs, jobs, jobs and all these failures, just start ticking off all these numbers or is it more complicated for them? Are they going to start running into some problems, keeping in mind that none of them has won the nomination?
MR. DUFFY: I think the answer is yes, both are happening. They’re already talking about jobs, though they’re not being any more specific about what they would do to create those things than the White House has been able to do. And they have their own challenge because this party is now somewhat under the thrall, maybe even the control, of a group of voters that didn’t exist two years ago that have come on very strong, that have obviously ran the table in the 2010 elections and are even more powerful than they were six months ago.
One quick point about the tea party, you know, they’ve already set their sights post-debt ceiling fight on a balanced budget amendment. Most of us would say that’s not going to happen but I would have said six months ago, oh, they would never take $800 billion out as a result of the debt ceiling vote. So I think anything is possible. I don’t think they’re at their high-water mark.
MS. SOLOMON: I mean, there seems to be just this incredible stalemate in Washington. It usually takes a crisis to act. And they couldn’t even do the grand bargain. They just sort of – they kind of kicked it down the road, as you said. I mean, they’re so divided. What happens over the next year, a year and a half? Can they get more divided? And what does it mean for the presidential election?
MR. DUFFY: What you said about confidence was really interesting because I thought the deal they ended up cooking in the Congress last year was essentially a giant way of saying, no, we can’t. They said, we’ll do this much because somewhere we’re going to have to have a special machine do this other thing to really solve the problem. But we can’t do it, which then adds to the lack of confidence.
The most interesting, I think, number I saw in the polls this week that worries I think me about where we’re going is that in the independent voter, when you really look at it, now nearly a third of the country thinks itself as independent voters and nearly half of them now say they don’t like either party, which really opens up the prospect in this environment for a third party.
MS. IFILL: So what’s the president’s mood about that? What does he do?
MR. DUFFY: I think this is one of the very complicated things that’s going on in Washington. No one quite knows exactly what the president is going to do next. You can see that he has, in addition to the other things that he inherited, has encountered a mood and a political tone in Washington that is much more poisonous than perhaps he expected when he was elected.
MS. IFILL: And so he has to be poisonous in turn.
MR. DUFFY: Well, he may have to just be a little more – a little tougher.
MS. IFILL: A little tougher. Well, we’ve heard that before and we’ll hear it again. Thank you all very much. Very good night. Thanks everyone. We have to leave you a few minutes early tonight to give you the opportunity to support your local PBS station. They in turn support us. But the conversation continues online where we’ll pick up where we left off in the “Washington Week Webcast Extra.” You can find us and let us know what you think of the news of the day at pbs.org. Next week I’ll be in Iowa for the big Republican debate and straw poll. See you from there next week on “Washington Week.” Good night.