Category: Financial Crisis

Categories
Barack Obama Economics Financial Crisis Political Philosophy

A Scientific Approach To The Economic Crisis

[digg-reddit-me]There are relatively few serious political figures who argue that our economy does not need fiscal stimulus at this time – few political figures are comfortable advocating inaction while serious disruption occurs. But there are a significant minority who do take this position – including, it seems likely, some number of Republicans who though publicly are not advocating this extreme course, position themselves to oppose what Obama is doing in whatever ways are feasible.

The majority of Republicans in power seem to advocate stimulus by enormous tax cuts while railing against deficit spending (although the proposed tax cuts cost more than the proposed spending). This piece does not address their concerns – although independent, non-partisan Congressional Research Service did – explaining why the economic consensus was that tax cuts stimulated less and less quickly than spending – and I will address them again later today. A significant number of other Republicans simply have a bad feeling about the stimulus and are looking for which approach best suits them to oppose it.

For those who do oppose any form of stimulus, James K. Glassman’s article in Commentary has proven to be a rallying cry. But it has also provided ammunition to many others who seeking to oppose Obama by any available means. Cited by House Minority Leader John Boehner and many others, this article has found a large audience despite Glassman’s previous infamous prediction (as an author of Dow 36,000) that the stock market was undervaluing companies in 1999 at the height of the tech boom. I addressed some of the questionable historical claims Glassman made to build his case in an earlier post, but now I’m going to address his broader, more basic argument.

Glassman makes two points which leads him to label fiscal stimulus a folly repeated throughout recent economic history:

  • Economics is a limited profession and we can never quite understand the market enough to affect it the way we intend to; which is why, “Government simply cannot know enough to direct an economy successfully.”
  • “Meanwhile, left alone, what Hayek called ‘spontaneous order’ will find its way forward;” meaning the market is self-correcting as long as the government does not interfere.

The inherent contradiction is obvious. If we do not understand the market enough to affect it deliberately, how can we predict how it will act. If economics is such a limited profession that it cannot provide us with enough information to affect the economy in any predictable way, how can we trust an economist’s presumption to do nothing? The market – as Glassman describes it – is a kind of god who we must have faith in. Letting our economy slide deeper into recession while taking no is the economic equivalent of a “leap of faith.” Given this understanding, economist are little more than priests of the free market – who cannot predict or effect their god’s will – but whose job is to assure us that this god will bless us eventually with plenty in its own good time, but only if we trust it and restrain sinful (government) interference.

But Glassman then says something extraordinary given the two above statements and the inaction he is advocating now:

[I]n the 1930’s, “something in the normal regenerative process was missing.”

He doesn’t offer an answer to this – but the economist he derides throughout, John Maynard Keynes, does.  My meager understanding of Keynes suggests he believed the economy, like an engine, would need to be primed from time to time to prevent it from stalling – and he saw the best means of doing this as stimulus spending. The spending boom of the Second World War, for example, can be seen from a Keynesian perspective, as finally getting the world economic engine started again.

Obama however seems to have incorporated Hayek’s admonition that he “cannot acquire the full knowledge which would make mastery of the [economic] events possible” with a cautious Keynesianism. For those who believe that grand challenges such as possible financial collapse demand a grand ideological vision, Obama’s approach will disappoint. But the kernel of wisdom in Hayek (as well as many other truly conservative thinkers) is that grand visions are as likely to fail as minor tinkering projects – except when they fail, they will cause far more damage than the tinkering. 

Obama’s approach to the crisis is in this mold; some call his bill too cautious and too small; some call his stimulus bill an ideologically mixed up mash with a little of everything; some are frustrated his bailout approach focuses more on process than results. But all of this makes sense if Obama is approaching this crisis as a tinkerer. 

Hayek believed that the economy was a mysterious thing and that, to quote another philosopher/economic thinker, we shouldn’t “disturb complicated systems that have been around for a very long time [as w]e don’t understand their logic.” This other thinker, Nassim Nicholas Taleb, believes that if we must act, we should “tinker” to use his word. As “[w]e have the ability to identify our mistakes eventually better than average,” we can avoid the worst outcomes, and potentially latch onto the best innovations:

Look at the three big inventions of our time: lasers, computers and the internet. They were all produced by tinkering and none of them ended up doing what their inventors intended them to do…We choose the iPod over the Walkman. Medicine improved exponentially when the tinkering barber surgeons took over from the high theorists. They just went with what worked, irrespective of why it worked.

Instead of the paralysis and faith preached by Hayek, Taleb offers us a path forward – one of action tinged with doubt, of trial and error, of identifying mistakes quickly, of evaluatinr results honestly. His approach to economics is, at its base, science, in it’s most basic and primitive form. 

This seems to be the approach Obama is taking – pragmatic, cautious, aware of the wisdom of both Hayek and Keynes. He’s tinkering. And that’s exactly what we need.

Categories
China Economics Financial Crisis Political Philosophy

Stimulus Is What We Need

[digg-reddit-me]It is commonly stated that China’s ruling power has struck a kind of bargain with it’s people – that they will accept the one-party rule and other political restrictions – as long as the government is able to keep the standard of living rising. Orville Schell, Dean of the Graduate School of Journalism at the University of California at Berkeley and author of several books on China, gives a typical explanation:

…it would not be excessive to say that everything – economic health, social stability, political reform, environmental modernization, etc. – all depend on China’s economy maintaining at least a 6 percent to 7 percent growth rate. This is something that most market economies cannot do in perpetuity given the nature of cyclical growth cycles.

When this topic is brought up in foreign policy discussions, it is often understood as a uniquely Chinese problem – this bargain between the people and the state that they will accept an authoritarian government in return for a growing economy. But a government’s dependence  on its ability to increase opportunities for its people for its legitimacy is not a uniquely Chinese problem. The Chinese government may only be able to survive as long as it continues to provide economic growth to it’s citizens, but how different is this bargain the Chinese people have made with their government from the bargain the America people have with ours? As long as American citizens have their basic needs met and a reasonable opportunity to succeed, they will accept a polarized distribution of wealth, corruption of various sorts, and sundry other injustices. And as long as the Chinese citizens are moving towards having their basic needs met and have a reasonable opportunity to succeed, they will accept a single-party state, restrictions on freedom of speech and assembly, and other restrictions.

Any state’s constitutional structure is legitimated by whether it provides for the needs of it’s people. In another age, the state merely provided security against hostile invasions and criminals; later, it provided an identity as well; by the middle of the 20th century, a state was legitimated by the extent to which it could provide for the basic needs of it’s citizens. The Cold War was, to a large degree, a competition between the capitalist states and the Communists states to see which could provide more ably for the needs of it’s citizens. Today, the state is evolving from providing for the needs of it’s citizens to providing opportunities for it’s citizens. The basic problems of sufficient housing, food, clothes, and other necessities are able to be met with our global prosperity. ((Clearly, the problems associated with deficiences in these areas aren’t gone. But technologically, we have solved them. The problems remaining are systematic – how to satisfy the needs of those who don’t have access to the excess prosperity of the developed world.))

This evolution of our state into a market-state can best be seen by looking at the long-term trends in politics, shaping both the left and the right – as politiciains, with their ears constantly attuned to changing expectations, have sensed this evolution before most. Looking from Carter to Clinton to Obama, we can see how each has progressively embraced a different sort of liberalism – each less focused on a government providing services and more focused on government providing opporunity. Carter was a traditional big state Great Society liberal; Clinton favored free trade, ending welfare, and reining in the deficit; Obama’s liberalism accepts a number of libertarian premises and seeks as it’s goal the maximization of opportunity – as his health care reform plan, for example wouldn’t force people to join any particular program while offering a stable base for a necessary service that often causes people to remain in jobs they would not otherwise. A similar evolution can be seen in Nixon to Reagan to Bush – as Nixon favored big government programs; Reagan attacked big government; Bush focused on creating an ownership society among other reforms. Even when misguided – as for example his Social Security proposal – it was focused on offering greater opportunity.

James Glassman speaks for many doctrinaire anti-government conservatives when he suggests we allow our economy to contract – as eventually, it will reach bottom and bounce back. Stimulus – he says – is the wrong metaphor:

“We’re going to have to jump start this economy with my economic recovery plan,” [Obama] said on January 3. According to the image, one can jolt a dormant economy into action just as one can hook up polarized cables to a car battery, clamp a defibrillator to the chest, or breathe into the ear of a reluctant lover. Suddenly, the object of our attention will be back in action, aroused…

In fact, stimulus may be precisely the wrong metaphor. Rather than getting jazzed up, we need to be calmed down and to take the time to learn from the Great Depression, a time when government did too much, not too little.

Putting aside the non-consensus historical take on government action in the Great Depression (discussed here), Glassman misses the point our political leaders do not: our societal order is premised on the idea of continuous growth. A growing economy in a market state is like a beating heart – without it, we cannot survive. Perhaps a more apt metaphor is a business not making a payroll – the company can’t continue if it’s employees don’t get paid. The employees will no longer consent to subject to their employer’s authority – and the company will dissolve. When the nation-states of the early 20th century were not able to legitimate their structure by providing for the basic needs of their citizens, radicalism, revolution, and war ensued as the old order broke down and fascism and Communism took it’s place. Today, if market-states are unable to provide opportunity their citizens, they will not survive going forward. 

Our politicians and the elites sense this – which creates the manic desire to arrest this free fall and start our economy moving forward again – before it’s too late.

Categories
Economics Financial Crisis History

James Glassman’s Debatable History

James K. Glassman is the brilliant journalist and opinion-maker whose Dow 36,000 was published just before the tech boom crashed. In this book, he claimed that stocks were woefully undervalued and would rise sharply, with the Dow Jones Industrial Average reaching 36,000 by 2004 – at the latest. This prescient thinker has now written what is turning out to be an influential piece in some circles. For one, House Minority Leader John Boehner cites it on his blog. ((“Wait, he has a blog?” “Yes, he actually does.”)) I even saw some people reading print-outs of the article on my train – which is fairly unusual. It strikes me as an article written for those who already want to agree with the conclusions – and that it’s premises aren’t defended as much as stated as implicitly true.

For example, Glassman makes five historical claims which are – at best – debatable. I am not an expert on economic history – and I am sure Glassman can find an economist who will agree with each of these claims. But my understanding is that they are contrary to the general consensus.

  • From the stock market crash of 1929 to the attack on Pearl Harbor, “fiscal stimulus simply did not jump-start the economy.”

    While it’s clear that the New Deal spending did not get us out of the Great Depression, the economy had made significant progress before Roosevelt raised taxes in 1937 causing a sharp downturn. (See especially the graph of Gross Domestic Product that Paul Krugman produces. It makes clear how disingenuous Glassman is being with the above remark.)
     

  • “[C]onsidering the fact that federal spending tripled during the Great Depression, rising from 3 percent of the country’s gross domestic product to nearly 10 percent in 1939, it does not seem the likeliest explanation” that “World War II and the unprecedented infusion of government dollars” was what brought us out of the Great Depression.

    This claim  is somewhat silly. Glassman fails to account for several basic factors: (1) Stimulus would not work to push the economy into growing in theory unless it was significant enough to counter the downturn. If the economy dipped more than 7% during the Great Depression, then this surge in federal spending would not have been sufficient to counter it. (2) States and other local governments cut their budgets and raised their taxes during the Great Depression, reducing the amount of total government spending more than the federal government was willing to make up. (3) Roosevelt also raised taxes significantly in 1937, thus offsetting the stimulus measures to some degree – and throwing the country into a devastating downturn within the Great Depression. (4) The spending during World War II dwarfed that of the New Deal – it just doesn’t make sense to claim that because spending increased significantly during one period that if it increases still more, it wouldn’t have any effect.
     

  • “[E]fforts [to stimulate the economy through government spending] during the ten subsequent recessions proved…ineffective.”

    Another seemingly true but misleading statement. As the Congressional Research Service explained in their report on economic stimulus (CRS – Report R4104 – Economic Stimulus: Issues and Policies) during the past 8 recessions, legislation was only enacted before the end of the recession once. Government spending was ineffective in combating all of these recessions because it came after the economy had already recovered – and as Glassman acknowledges, the one timely stimulus plan is generally agreed to have had some effect, if not an effect as large as expected. With escalating job losses and many other dire economic indicators, action now would seem to be timely.
     

  • “It appears that the current sickness occurred because the Fed, in an effort to keep the economy stimulated after the collapse of the tech-stock bubble and in the wake of September 11, cut interest rates far too much during 2001 (from 6.5 percent at the start of the year to 1.75 percent at the end) and waited too long to raise them, making credit so easy that businesses expanded beyond all reasonable bounds, and banks, flush with cash and trying to make higher returns, shoveled money at borrowers with poor credit; risk aversion disappeared, and loans, especially to home buyers, went bad.”

    This is a theory – and not an entirely implausible one – but it seems hard for me to presume this – or to accept that this was the only cause – with so many other factors at work. It is a classic Austrian explanation for any recession. Glassman – while portraying Keynes as an enabler of ideological solutions to the business cycle – fails to acknowledge that his explanation is equally driven by ideology. And regardless – there are more than enough alternate explanations to call into question placing all of our faith in a single ideological explanation. 

Categories
Barack Obama Financial Crisis Politics

Interpeting Obama’s Stimulus Strategy

Noam Scheiber at The Plank:

Barack Obama is nothing if not a master rope-a-doper. For months last year, anxious liberals pleaded with him to respond to John McCain’s lacerating attacks. And, for months, Obama soared above the fray. Then, in early September, the McCain campaign squeezed out two ludicrously dishonest ads—accusing Obama of force-feeding sex education to kindergarteners and of calling Sarah Palin a pig. The press screamed bloody murder—Joe Klein labeled the former “one of the sleaziest ads I’ve ever seen;” Joy Behar of “The View” personally told McCain they were “lies.” At which point Obama saw an opportunity. With the media having pronounced McCain the aggressor and him the victim, Obama began to whale away—on healthcare, on McCain’s age, even Charles Keating—with virtual impunity.

My sense is that we’re seeing something similar play out with the stimulus.

Andrew Sullivan quotes one of his readers:

What many do not understand is that the government is playing for time, not some brilliant economic miracle. We do not have the money or political leverage to solve this problem from the top down by divine fiat. We have to buy time — literally — for the ten-thousand smaller acts of restoration and renewal to take place. All this flow of money, this vast seemingly indiscriminate transfusion of economic blood, has one purpose: to keep the patient’s heart pumping until the systemic crisis is past — another 6-12-18 months. It is messy, sloppy, gross heroic medicine.

Andrew Sullivan has his own just slightly less optimistic interpretation.

Yglesias points out some of what Obama is dealing with as Representative Steve Austria explains his opposition to Obama’s stimulus in historical terms:

“When (President Franklin) Roosevelt did this, he put our country into a Great Depression,” Austria said. “He tried to borrow and spend, he tried to use the Keynesian approach, and our country ended up in a Great Depression. That’s just history.”

“That’s just history.” The article Yglesias cites points out the slight problem with this “history”:

Most historians date the beginning of the Great Depression at or shortly after the stock-market crash of 1929; Roosevelt took office in 1933.

Categories
Economics Financial Crisis

Reading the Independent Congressional Research Service Reports on the Stimulus So You Don’t Have To

[digg-reddit-me]According to Wikipedia, “the Congressional Research Service (CRS) is the public policy research arm of the United States Congress. As a legislative branch agency within the Library of Congress, CRS works exclusively and directly for Members of Congress, their Committees and staff on a confidential, nonpartisan basis. CRS reports are highly regarded as in-depth, accurate, objective, and timely, but as a matter of policy they are not made directly available to members of the public.”

Which makes the reports it has prepared on various stimulus measures extremely interesting – as their reports strive to give the consensus expert view of the issues involved, without partisan affiliation. I’ve prepared some highlights from the non-partisan (and confidental) CRS reports on the effectiveness of tax cuts and other stimulus measures (available thanks to Wikileaks…H/t Marc.)

CRS – RS21126 – Tax Cuts and Economic Stimulus: How Effective Are the Alternatives (PDF)

The summary:

While temporary individual tax cuts likely have smaller effects than permanent ones, temporary cuts contingent on spending (such as temporary investment subsidies or a sales tax holiday) are likely more effective than permanent cuts. (Sales tax holidays may, however, be very difficult to implement in a timely fashion).

The report offers a quick explanation of why tax cuts aren’t ideal short term stimulus on page 1:

A tax cut that is saved will have no short term stimulative economic effect (or long term one, if the cut is financed by a deficit, since increased private saving would be offset by decreased government saving). Thus, in general, tax cuts received by individuals will not be successful as a short run stimulus if they lead to additional saving, and tax cuts received by firms will not be successful unless they lead to spending on investment (or lead quickly to spending on consumption by shareholders).

The problem in this instance is that private virtue – saving money – undermines the public good stimulus seeks to achieve – stimulating the economy – which can only be achieved by spending money. The report discusses corporate tax cuts on page 5:

General corporate rate cuts are less likely to be effective than investment subsidies because they have a smaller “bang-for-the-buck.” because much of their cost is a windfall that only affects cash flow and not the return to new investment. Since even temporary investment subsidies do not appear to have worked effectively, a corporate rate cut would be expected to have a small effect.

CRS – Report R4104 – Economic Stimulus: Issues and Policies (PDF) (It appears the Wikileaks link is down, so try this.)

The summary:

Economists generally agree that spending proposals are somewhat more stimulative than tax cuts since part of a tax cut may be saved by the recipients. The most important determinant of the effect on the economy is the stimulus’ size. [my emphasis]

The report describes the cause of our current panic/crisis as the ripple effect of the sudden collapse of Lehman Brothers, the near miss at Merrill Lynch, and the government rescue of AIG – all following upon the failure of other large institutions over the months before hand – from Bear Stearns to Fannie Mae and Freddie Mac.

These actions eroded market confidence further, resulting in a sudden spike of the commercial paper rate spread from just under 90 basis points to 280 basis points, a spike that in times past might have been called a panic. If financial market confidence is not restored and private market spreads remain elevated, the broader economy could slow more due to difficulties in financing consumer durables, business investment, college education, and other big ticket items.

The report doesn’t get into telling the story of how the world economy almost came to an end at 2pm on September 18. One of the problems the report explains with stimulus is that we can only design it to be effective based on our economic forecasts. As the report explains on page 8, economic forecasting has its problems:

Economic forecasts are notoriously inaccurate due to the highly complex and changing nature of the economy, so it is difficult to accurately assess how deep the downturn will be, and how much fiscal stimulus would be an appropriate response.

But the report nevertheless ventures a guess, on page 2, based not on any particular forecaster, but only the consensus among them:

Forecasters now predict that GDP will continue to contract until the second half of 2009 and the rate of decline will accelerate.  If correct, this recession would be the longest in the period since World War II.

The report discusses three elements by which to judge the stimulus – how fast it works; how effective the stimulus is per dollar paid; and the size. Predicting the right size for the stimulus must primarily be based on the economic forecasts – which the report notes are “notoriously inaccurate.” But the first two measures should be maximized no matter what the forecast is. The report describes why effectiveness is important in a section called “Bang for the Buck” on page 8:

If the goal of stimulus is to maximize the boost to total spending while minimizing the increase in the budget deficit (in order to minimize the deleterious effects of “crowding out”), then maximum bang for the buck would be desirable. The primary way to achieve the most bang for the buck is by choosing policies that result in spending, not saving. Direct government spending on goods and services would therefore lead to the most bang for the buck since none of it would be saved…

One non-spending measures the report analyzes is seen to have a good “bang for the buck” but to take too long to act:

Investment incentives are attractive, if they work, because increasing investment does not trade off short term stimulus benefits for a reduction in capital formation, as do provisions stimulating consumption. Nevertheless, most evidence does not suggest these provisions work very well to induce short-term spending. This lack of effectiveness may occur because of planning lags or because stimulus is generally provided during economic slowdowns when excess capacity may already exist.

On page 10, the report cites Mark Zandi of Moody’s Economy.com, and an advisor to John McCain, and includes a chart of his estimates of the multiplier effect of the various policy proposals. The report qualifies it’s endorsement of Zandi’s work, saying, that there is significant disagreement about fundamental matters among economists, but that:

Qualitatively, most economists would likely agree with the general thrust of  [Zandi’s] estimates, however—spending provisions have higher multipliers becausetax cuts are partially saved, and some types of tax cuts are more likely to be saved by theirrecipients than others.

I’ve graphed the values Zandi provides to give a visual measure of the different in the types of stimulus:

[Click on the image for a larger version of the chart.]

As you can see, the spending measures have far greater “bang for the buck” values. The report acknowledges that Zandi’s and most other economic models might understate the stimulus from tax cuts – but the alternate explanation for the data given by defenders of tax cuts is that they take longer to have an effect:

there is a behavioral lag, since time elapses before the recipient of a transfer or tax cut increases their spending. For example, the initial reaction to the receipt of rebate checks was a large spike in the personal saving rate… It is unclear how to target recipients that would spend most quickly, although presumably liquidity-constrained households (i.e., those with limited access to credit) would spend more quickly than others. In this regard, the advantage to direct government spending is that there is no analogous lag.

These reports seems to provide a good deal of information mainly missing from the public debates – as Republicans talked about tax cuts, tax cuts, tax cuts as the best type of stimulus. Whether the stimulus bill we end up with works or not, these reports at least help explain the assumptions underlying it.

Categories
Barack Obama Financial Crisis Politics The Opinionsphere

Obama’s Long Game

Peter Baker quotes Robert Gibbs, Obama’s press secretary, in his description of Obama’s take on the state of politics and the stimulus bill:

Robert Gibbs, the White House press secretary, decried what he called a “myopic viewpoint in Washington,” disconnected from the troubles of the country.

“It’s illuminating because it may not necessarily be where cable television is on all of this,” Mr. Gibbs said. “But you know, we’re sort of used to that. We lost on cable television virtually every day last year. So you know, there’s a conventional wisdom to what’s going on in America via Washington and there’s the reality of what’s happening in America.” [my emphasis]

John Dickerson of Slate makes a similar case:

Remember back in the Democratic primary, when the consensus was that Obama was too soft, too deliberative, and too nice to win the election? These current gripes remind me of those days. It takes time to govern.

Overall, this reinforces my post of last week about why I am (still) confident about Obama in which I wrote that:

This seems to have been Obama’s strategy – to allow his campaign to take hits and play defense, sticking to an overall strategy that would gain him a final decisive victory rather than exhausting his staff fighting every daily flair-up.

Obama is once again playing the “long game” on this stimulus fight. I wonder how many times Obama will be able to do this – lose the daily fight while winning the broader point – before the media figures out his game. Clearly some of the more astute observers have.

Categories
Economics Financial Crisis Politics

Commenting on Paul Krugman

Daniel Drezner over at Foreign Policy on Paul Krugman:

 

I’m 50% convinced that Paul Krugman’s op-ed today is correct, and the moderates wound up damaging the stimulus more than they improved it. 

The thing is, I’m also 50% convinced that Krugman is to Keynesians as Richard Perle is to neoconservatives.  When an embittered ideologue derides his political leader for demonstrating a willingness to compromise and “negotiating with yourself,” well, one does get the sense of deja vu.

 

Will Wilkinson on Krugman:

Perhaps more than any economist of his caliber, Krugman understands that policy is largely determined by the outcome of the public opinion shoutfest. Yet this recognition seems to have no effect on Krugman’s ideas. Rather than bring inside his models disagreement over economic theory and the lack of political incentive to faithfully apply them, which would lead him to radically revise his prescriptions, Krugman leaves his textbook theory untouched and simply tries to win the shoutfest. Krugman’s often unbearable stridency seems to reflect an attempt to overcome the problems of democratic disagreement and incentive compatibility through sheer force of will–as if the deep reality of politics is no match for the rhetorical gifts and gold-plated reputation of Paul Freaking Krugman.

This is certainly my sense of Krugman as well. He lets his partisanship overcome his scholarship – but fails to account for partisanship in his scholarship.

Like Glenn Greenwald, he is a voice I hope those in power listen to – so long as they do not follow his advice too closely.

As I wrote during the earlier days of the 2008 campaign as Krugman railed biweekly against Obama:

I fear Paul Krugman is becoming the left-wing’s William Kristol in his single-minded partisan fervor, indifferent to political realities on the ground but true to the vision that shaped him years ago.  He remains interesting – much as Kristol has – but he seems to be somewhat disconnected from reality.

I drew a distinction then between Krugman’s approach to politics and Obama’s:

Paul Krugman illustrates as well as anyone the value of partisanship. For a political minority, partisanship is the key to survival, and the only means of blocking change. Partisanship is, in essence, a defense. The problem with the Democrats from 1994 to 2005, and even with some Democrats today, is that they were trying to be non-partisan in an environment that demands steadfast opposition – that demands partisanship…[But if] partisanship is the best strategy for a minority party, because, by it’s nature it is biased and divides the population; it is not the best strategy for a majority party…

Partisanship can only take us so far. In 2008, we need Barack Obama.

It is not surprising the Krugman now seeks to push Obama to abandon the politics that worked so well for Obama during his campaign – defeating the partisan fervor whipped up by Hillary Clinton and John Edwards, and then John McCain. Because – for Krugman, radicalized by the Bush years – partisanship is the only approach to politics he knows.

Categories
Barack Obama Economics Financial Crisis

The Obama I Remember

[digg-reddit-me]This is the Obama I remember – the one I’ve been waiting to appear since his election back in November:

If you wonder where his urgency comes from, check out the following graphs:

This first one is from Nancy Pelosi’s blog, The Gavel:

[Click on the above image for a full size version.]

CNN released this graph at the beginning of this year, attempting to place 2008’s job losses in historical perspective:

What’s scarier is that before September, 2008 was not shaping up to be a bad year in terms of job losses. Instead, in the last four months of the year, almost 2 million jobs were lost. 

This final graph is from Stephen at Live Granades:

As you can see, the 1974 decline was steeper – and the economy was able to bounce back from that quickly – although that recession was controlled all the way by the Fed – which now has exhausted it’s power.

The escalating rhetoric out of Washington today actually reminds me a great deal of the Bush administration’s reaction to September 11. After the attack, Cheney and Bush and the rest of the team demanded unfiltered intelligence briefings regularly – and as they saw the scope and depth of the dangers that might be facing us, they panicked. Every moment, they were staring into the abyss – and they decided to take any measures possible to prevent “the next attack” which everyone saw as imminent. Their fear was an existential fear – which led them to mistake the threat from Al Qaeda for an existential threat. They weren’t entirely wrong – but where they went extremely wrong was in how they refused to back down from their emergency measures after it became clear that another attack was not imminent – or that we were not under constant assault. 

Today, Obama faces a similar crisis – one that seems – with it’s precipitious declines in economic and financial measures – to be existential. It may be so. No one knows exactly what to do to fix this problem – but they know they must do something. As with the George W. Bush administration, mistakes will be made – and given the size of the government, they will probably be large mistakes. 

But the difference will come in the next step. Responding to an unprecedented crisis, any administration will likely screw up. If you get it right, it will largely be by accident. But following the crisis – when things are beginning to improve and the imminence of the threat to the nation is no longer pressing – we must reevaluate our entire strategic framework, see what worked and what didn’t, what backfired and what might be able to be improved. The great tragedy of the Bush administration was that they refused to do this for the War Against Terrorism. They never took a step back from the emergency mentality that set in after September 11 to evaluate if our strategy was actually working – and instead attacked as weak and even traitorous anyone who suggested doing so. 

Obama will do well to remember that the measures he is taking now are emergency measures to rescue the economy – and to be prepared to re-think America’s financial and economic model as soon as this crisis has passed. He has indicated he plans to do so – with his talk of a Grand Bargain. We need to make sure he follows through.

Categories
Barack Obama Criticism Economics Financial Crisis Politics The Opinionsphere

Why I’m Confident About Obama (Still)

[digg-reddit-me]I’ve struggled to figure out how to respond to the stimulus debate – as I think many are struggling. The blogs and the polls are both drawing muddled conclusions. I share TPIP’s reservation about judging Obama’s strategies too quickly:

When it comes to strategy I never like to question Obama (although I have, like on appeasing ungrateful Republicans on the recovery package), because he has proven himself over and over again to be brilliant when it comes to strategy, particularly when it comes to taking the long view, that many often overlook.

Looking at the recent past, Obama’s savvy has been underestimated again and again – and by defending him in these moments, I think this blog has proved itself prescient – for example, before Iowa, when Hillary seemed inevitable, I wrote a post entitled, “Why I Am Confident About Obama.” I wrote at the time – in October 2007:

Clintonian hubris, an Obama strategy to put the pressure on Clinton late, with Iowa in a statistical dead heat, and a ton of other primaries following hard-upon Iowa.  It seems to me that Obama has a good chance of winning…

That sounds pretty much right even today. After the surprising New Hampshire loss, I wrote that:

Sometimes, it’s hard to have faith in democracy, in people. The same people who, in their wisdom, elected George W. Bush to a second term…

But:

If this election comes down to the fundamentals – if it comes down to people trying to decide the direction of the country – then Barack wins.

On the night of Palin’s convention speech, I wrote:

Palin can rally the Republican base like few others. But tonight, for all it’s electricity, was disappointing – because if Palin is the future of the Republican party, she has nothing to offer but fear – primarily of Obama, secondarilty of Islamic extremism, and tertiarilty, of taxes…

But that this “will not have the effect the Republicans hope it will” because “she had no vision for America, not sense of what comes next. She refused to acknowlege the tough times we are in.”

After the Sarah Palin bump had everyone scared, I tried to calm people down by posting links to various articles and posting this picture:

The reason I was confident in Obama beating Hillary – even in the worst moments – and in Obama beating McCain – even during the worst moments – is that Obama’s campaign was tapping into the fundamentals of what I believed the electorate was looking for. Whether or not he was winning in any specific moment, whether or not he was winning in any of the daily press wars, his overall strategy was a victorious one.  Sun-Tzu advised to “accommodate yourself to the enemy until you can fight a decisive battle.” This seems to have been Obama’s strategy – to allow his campaign to take hits and play defense, sticking to an overall strategy that would gain him a final decisive victory rather than exhausting his staff fighting every daily flair-up. Sometimes, this led to awful weeks – such as the long lack of a complete response to the Rev. Wright fiasco. But Obama ended up winning because, though he lost a thousand daily battles over Rev. Wright, he took the long view and gave a subtle, personal speech about race. He won that war not by fighting back charge after charge but by changing it from a war into a reflective national moment. It’s hard to describe how extraordinary that is – how rarely that has happened in history, and how difficult it was to imagine this was even possible, especially in the frenetic media environment that has existed since 1992. 

Similarly, now, Obama’s stimulus bill is being attacked on it’s thousands of small details. By some accountings, it is only 1% or 2% of the funding of the bill that is being directly attacked. Issues entirely tangential to this stimulus are dominating the media coverage – and it certainly seems true that some portion of the opposition of Republicans to this bill comes from political calculation rather than an honest disagreement with the bill. As the AFP described the dynamic at work:

[I]f Obama’s stimulus works and revives the reeling economy, [the Republicans] would be unlikely to get any credit even if they voted for it – by opposing the measure they can at least expect some political gain if it fails.

Some Democratic Senators are criticizing the bill now – and House Democrats are getting pissed. I agree with a number of the criticisms of the bill and certainly see some good reasons for a Congressman or Senator to oppose this massive new public spending.

All of this has contributed to the growing feeling among some voters and most commentators that this whole thing is being poorly managed.

Except…if you look at Obama’s role in this carefully and see the process which he is creating.

He is once again playing the long game. He did not write the bill himself, but allowed Congress to do its job and draft a bill and then fight over the provisions. This is what Congress is supposed to do. Washington pundits – not used to an executive that allows the Congress to deliberate and debate and actually play a role in governing – are criticizing Obama for not putting a stop to this process of debate and deliberation, drafting his own bill, and then forcing Congress to accept it, perhaps allowing them to amend it a bit if the president is feeling generous. That’s not the Washington that Obama wants. He accepts our Constitution and believes Congress has a role to play even in a financial emergency such as this.

At the same time, he is willing to reach out to the Republicans who might oppose him – to obsequiously try to get their buy-in for this needed stimulus, to engage in civil conversation about the issues – to avoid attacking them directly though they continue to try to score political points against him and the Democrats. He can afford to do this because of his commanding position with large Democratic majorities in both houses of Congress. He knows he can get his way even with strong Republican opposition. But it’s hard to imagine another political figure accepting the number of attacks Obama has without responding in kind. Instead, Obama has reiterated publicly the urgency and seriousness of the crisis – and the need for quick action as he made clear in his comments today:

I hope [the members of Congress] share my sense of urgency and draw the same, unmistakable conclusion:  The situation could not be more serious.  These numbers demand action.  It is inexcusable and irresponsible for any of us to get bogged down in distraction, delay, or politics as usual, while millions of Americans are being put out of work. 

Now is the time for Congress to act…

Now, I have repeatedly acknowledged that, given the magnitude and the difficulties of the problem we’re facing, there are no silver bullets and there are no easy answers.  The bill that’s emerged from Congress is not perfect, but a bill is absolutely necessary.  We can continue to improve and refine both the House and Senate versions of these bills.  There may be provisions in there that need to be left out; there may be some provisions that need to be added.  But broadly speaking, the package is the right size, it is the right scope, and it has the right priorities…[my emphasis]

According to Obama, this stimulus bill is just the first part of a larger package of reforms and bills that will be part of his response to the financial crisis – the first steps in a Grand Bargain to tackle challenges America’s long-term financial and economic stability. 

All of this is why, despite the thousand small attacks and the growing chorus of concern from the pundits, I am still confident in Obama and his plans. 

Confident but not complacent.

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Financial Crisis Politics Quotations

The Brave and Wise Politician

[digg-reddit-me]I was listening to Governor David Patterson speak at the Council on Foreign Relations podcast of a recent session – and was somewhat favorably impressed with him. His remarks were coherent and interesting and clearly showed that he was an intelligent person gathering information and acting as he saw best. He seemed to have an almost Bushian disregard for the legislature though – and a sense that he – and he alone – knew what was best.

Much more interesting than anything Gov. Patterson said though was moderator and former Massachusetts Governor William Weld’s offhand comment:

There’s no one so brave and wise as the politician who’s not running for office and who’s not going to be…

The remark certainly conveys a certain wisdom in itself – as even prosaic politicians are found to have some real insight once they leave office. It’s an interesting comment on our political system – that bravery and wisdom are seen as detriments to political success and acceptance.