How to Win 2010

Health care was “too big to fail.” Mending Wall Street is a different ballgame. Matthew Yglesias on how President Obama can woo back liberals, bedevil the GOP—and change the outcome this fall.

As health reform continues to wend its way through Congress, it’s clear that legislative victory is, in many ways, a dispiriting rather than an exciting process for American liberals. Victory means getting the votes necessary to pass a bill. And that means making the compromises necessary to get the votes to pass a bill. And that means jumping through whichever hoops Joe Lieberman, Ben Nelson, and anyone else want to jump through—presuming that Martha Coakley manages to overcome a late GOP surge in the race to replace Teddy Kennedy, that is. Over the months, as each compromise has been made, hope has been held out that it could be reversed or exchanged for something else. But as we get down to the final leg of the process, it’s becoming more and more clear that Timothy Noah was right to warn in mid-December that in exchange for their compromises on the public option, liberals will get nothing.

To avoid a disaster in the midterms, the White House needs to pick a battle it can afford to lose.

Nothing, that is, except a universal health care bill. And that’s not nothing at all. But therein lies the problem. Once you set yourself up to get something done, then you have to get it done no matter the cost. Health reform became, for the White House and the progressive movement as a whole, a “too big to fail” legislative agenda item. That means that by threatening to kill it, moderates have consistently been able to water it down. The results have sapped the enthusiasm of Obama’s base, while also tying the president to the much-less-popular institution of Congress. To avoid a disaster in the midterms, the White House needs to reverse this trend: it needs to pick a battle it can afford to lose. The ideal candidate is the financial regulatory reform package that’s already passed the House of Representatives and is soon to get more serious consideration in the Senate.

The House version of the bill already exhibits significant symptoms of the problems that beset health reform. Representative Barney Frank (D-MA) who chairs the relevant committee started out with a strong, albeit not radical, proposal. But the committee charged with regulating the financial services industry is, by one of those non-coincidences that make Capitol Hill so dysfunctional, disproportionately stocked with members closely allied with the industry. So it had to be watered down. A few more tweaks were needed to bring it to the House floor. And then, with banks probably the least-popular institution in the United States, every single House Republican still felt comfortable voting “no” on a plan to tighten up regulation.

Given that the Senate features weaker party discipline, generally less left-wing Democrats, and has a 60-vote supermajority requirement, we can already see how the process will go there. More compromises. More need for post-compromise to put pressure on more liberal members to sign on to the compromises. More White House abandonment of positions it previously held. More clucking from the right as a supposedly progressive administration cuts deals with industry stakeholders. A bill that for all its flaws is “better than nothing” and yet gets no Republican support. Then comes the need to twist the arms of the House to backtrack and agree to the Senate’s weaker bill. Then along will come more articles denouncing Obama as a sellout, further demoralization of the base, and no progress in wooing moderates.

What’s needed instead is an entirely different approach—one that abandons Obama’s super-practical, “no drama,” get-it-done spirit.

The road to wisdom begins with the insight that while we really ought to improve our regulation of Wall Street, there’s actually no particular urgency to doing it this year as opposed to next or the year after that. At the moment, the economy’s in a huge recession. There’s no real chance of a new wave of irrational exuberance and bubble behavior in the immediate future. And what’s more, passing a regulatory reform bill that’s weak could do more harm than good. A so-so health care bill still provides actual help to actual people. And health programs are the kind of thing that will inevitably be tweaked over the years. A loophole-ridden regulatory measure, by contrast, does no good at all and may merely give people a false sense of comfort.

Consequently, this is an issue where the administration can afford to draw lines in the sand and refuse to compromise. It can say that real regulatory reform must include a consumer protection agency, must create a non-bailout process for resolving bankrupt large financial firms, must force bankers to bear the costs of the process through fees, must do something to discourage the formation of “too big to fail” institutions, and all the rest.

Then the president can do what progressives would have liked to have seen him do on health care—tour the country denouncing opponents of his agenda as corporate stooges, desperately in hock to special interests. The base will love it, and there’s also every reason to believe that the center has no love for bank-boosting politicians. Opponents might get spooked and cave, in which case the White House would have a nice victory to pocket. Or they might not, in which case Democratic candidates would have a nice issue to run on in the fall.

The key thing, however, is that if they don’t get spooked, the White House can afford to take the legislative defeat and play for a political win. Thus, Obama’s been hobbled by the need to take on issues like the stimulus and health care where everyone knows he can’t walk away from the table. Those are the cards he was dealt, but it’s made him look weak. A good loss, by contrast, could be an opportunity to show some much-needed toughness.

Matthew Yglesias is a Fellow at the Center for American Progress Action Fund. He is the author of Heads in the Sand: How the Republicans Screw Up Foreign Policy and Foreign Policy Screws Up the Democrats.