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Barack Obama Political Philosophy Politics The Opinionsphere

The Real Obama Enigma

[digg-reddit-me]A thought-provoking essay by Liam Julian in the Hoover Institution’s Policy Review explores the relationship between Obama and Reinhold Niebuhr. The essay unsurprisingly concludes that Obama failed to learn the essential lesson of Niebuhr (unsurprising because it appears in the far-right Policy Review) – namely that: 

[M]an must act forcefully but humbly and free from naïve expectations.

Julian explains the appeal of this Niebuhrianism as a kind of balancing act:

[Obama] is a liberal, as was Niebuhr, and idealism smolders within even the most sensible liberals. The point is not to suffocate the idealism but to control its flames…

The conservative Julian sees Obama flaming idealistically in his first few months in office because any liberalism is too much for him. But E. J. Dionne – like most liberals – sees Obama as constantly balancing opposites, attempting to control the risks associated with progress while not yielding to a reactionary politics:

That’s the Obama enigma: boldness wrapped in caution rooted in an ambivalent relationship to the status quo. This is why Obama will, by turns, challenge not only his entrenched adversaries but also his natural allies.

The Obama enigma is about balancing opposites. It is an idealistic pragmatism, a conservative liberalism. This constant balancing is inherent in every aspect of the Obama administration. As James Surowiecki observes in the New Yorker with regards to the banking crisis for example:

[T]he Administration is trying to do two things at once. In solving the current crisis, it’s partnering with Wall Street, using the existing system to try to stabilize the economy. But in thinking about the future it’s trying to use hostility to Wall Street to bring about serious changes in the system. This is quite a balancing act: let’s hope the Administration can pull it off.

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Barack Obama Politics The Opinionsphere

Orwellian Tactics

According to an article in the GuardianClive Stafford Smith and his colleague Ahmed Ghappour wrote a letter to President Barack Obama asking him to reconsider the American stance on releasing information related to their client’s detainment at Guantanamo. Smith, who has some level of American security clearance, attached a memo to this letter which included some information which he had gleaned due to his security clearance – and so he submitted the memo to a privilege review team at America’s Department of Defense for clearance. 

 

[T]he memo was redacted to just the title, leaving the president unable to read it. Stafford Smith included the redacted copy of the memo in his letter to illustrate the extent to which it had been censored. He described it as a “bizarre reality”. “You, as commander in chief, are being denied access to material that would help prove that crimes have been committed by US personnel. This decision is being made by the very people who you command.”

The privilege team argue that by releasing the redacted memo Reprieve has breached the rules that govern Guantánamo lawyers and have made a complaint to the court of “unprofessional conduct”.

 

The Guardian has posted the full letter here (pdf).

If the privilege review team is successful in pressing their complaint, Stafford Smith will be receive a six-month prison sentence. Unfortunately, the privilege review team has not yet identified what rule was supposedly breached.

Categories
Barack Obama Domestic issues Economics Financial Crisis Health care The Opinionsphere

The Master Plan Always Has Flaws

Daniel Drezner at Foreign Policy summarizes my feelings about Krugman in almost as complete a way as Evan Thomas did:

The fundamental question is whether Krugman is a brilliant hedgehog, an insecure pain in the ass, or – as frequently is the case – both at the same time. 

One suspects that Krugman is at least part right – and that Obama and his team realize this. Obama’s response to the financial crisis has been significant – and more than any government response in history – but it is dwarfed by the scale of the crisis, as Krugman is fond of pointing out. Nicholas Lemann in the New Yorker tries to explain why Obama seems to be ignoring Krugman’s advice so far:

[Obama] has to address the crisis, and he is trying to add enough new controls to the system to prevent a repeat of it, but it looks as if his heart is with the big new programs in his budget and with his foreign-policy initiatives. Bank nationalization would drive the stock market down and increase theagita of people with 401(k) plans. Moderate Democrats in Congress would further soften in their support for the Administration’s legislation. The price of bank nationalization might be Obama’s super-ambitious plans in other realms, which, if history is a guide, are likely to pass only in this first year of his Presidency. If they do pass, he will have generated tax revenues from affluent people for social purposes far beyond those of the House’s tax on A.I.G. bonuses, and he will have significantly eased the distress of people who can’t get good health care or education. That is a lot to put at risk.

At the same time, Obama’s team seems to think that, to quote my post of yesterday:

[I]n the short term, the Geithner plans will work to restart the “old” economy. In this moment before that happens though, pressure from Europe and internal critics as well as a desire to avoid a repeat of this fiasco will enable enough forward-looking, gradualist regulation and legislation to correct the long-term problems with high finance.

E. J. Dionne Jr. in the Washington Post explains where the administration’s focus is:

Obama’s top budget officials seem confident that they can deal with this immediate difficulty. His larger challenge is to take on the politics of evasion promoted by those who would indefinitely delay health-care reform, energy conservation and the expansion of educational opportunities. Already, his lieutenants are signaling how he will cast the choice: between “taking on the country’s long-term challenges” or just “lowering our sights and muddling through,” as one senior aide put it.

If Geithner is responsible for fixing the current crisis, Peter Orszag is responsible for the long-term outlook – of balancing Obama’s plans to expand government’s role and stabilizing our deficit spending. As Jodi Kantor in the New York Times explained:

Mr. Orszag embodies the administration’s awkward fiscal policy positioning: big spending now, with a promise to scrub the budget of waste and a bet that economic recovery and changes to health care will gradually reduce the deficit.

A lot of pieces need to fall together for this to work. I have confidence in each piece of this plan – but together, the venture seems a bit bolder than is wise.

Perhaps this is a perfect moment in history for Obama’s plan – and Obama has the insight to see this; perhaps Obama is a master of politics who is able to get all of these items through; but it’s hard for me not to be discomfited by the manner in which everything is coming together.

Categories
Barack Obama Economics Financial Crisis Politics The Opinionsphere

Financial Markets : Real Economy (Is There a Proper Balance?)

[digg-reddit-me]Simon Johnson’s article in The Atlantic Monthly continues to generate attention and controversy. His thesis is essentially this:

In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.

But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

Top investment bankers and government officials like to lay the blame for the current crisis on the lowering of U.S. interest rates after the dotcom bust or, even better—in a “buck stops somewhere else” sort of way—on the flow of savings out of China. Some on the right like to complain about Fannie Mae or Freddie Mac, or even about longer-standing efforts to promote broader homeownership. And, of course, it is axiomatic to everyone that the regulators responsible for “safety and soundness” were fast asleep at the wheel.

But these various policies—lightweight regulation, cheap money, the unwritten Chinese-American economic alliance, the promotion of homeownership—had something in common. Even though some are traditionally associated with Democrats and some with Republicans, they all benefited the financial sector. [my emphasis]

My only worry about Johnson’s argument is that he portrays the crisis as the result of individuals’ actions. His experience with emerging economies trained him to view the “Masters of the Universe” as oligarchs corrupting politics. But what I think is going on is more insidious. The problem is not that democracy is becoming oligarchy – although this is a danger we are closer to than we realize given the escalating consolidation of wealth – it is a financial sector that has grown out of balance with the real economy. ((With again the caveat that this is not backed up as much with economic analysis but with my sense and knowledge of politics, government, and history.)) Johnson and Paul Krugman both point this out repeatedly in their work – but neither of them identifies this as the problem. They instead see this as a symptom.

They are probably right – but I have a nagging suspicion that the core of this financial crisis – and that of the Great Depression – is at root a similar imbalance between the size of the financial markets and the size of the real economy.

Fundamentally, it seems there must be a limit as to what percentage of an economy can be managed by the financial markets. Just as the centralization of decision-making in the government can lead to inefficiencies, so can the centralization of decision-making in large financial instituions. Many of these factors that Johnson and Krugman talk about – increasing income disparity, asset bubbles, solvency issues, etcetera – can easily be seen as causes and/or effects of this central imbalance.

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Barack Obama Economics Financial Crisis Politics The Opinionsphere

Is This Downturn a Crisis of Confidence or a Fundamental Error?

Prefacing my thoughts on economics, as always, with the warning that I am not an economist, but only an amateur…

My non-professional observation is that when a disproportionate amount of money is controlled by the financial sector, a crash soon follows. This observation isn’t original. As Paul Krugman observed a few days ago in the New York Times:

After 1980, of course, a very different financial system emerged. In the deregulation-minded Reagan era, old-fashioned banking was increasingly replaced by wheeling and dealing on a grand scale. The new system was much bigger than the old regime: On the eve of the current crisis, finance and insurance accounted for 8 percent of G.D.P., more than twice their share in the 1960s. By early last year, the Dow contained five financial companies — giants like A.I.G., Citigroup and Bank of America.

Krugman concludes that this structural issue is at the root of the problem – rather than a liquidity issue with the banks:

I don’t think this is just a financial panic; I believe that it represents the failure of a whole model of banking, of an overgrown financial sector that did more harm than good. I don’t think the Obama administration can bring securitization back to life, and I don’t believe it should try.

Simon Johnson, an economist formerly with the IMF, agrees with Krugman in a long piece in The Atlantic Monthly, and he echoes another point I’ve been making:

Oversize institutions disproportionately influence public policy; the major banks we have today draw much of their power from being too big to fail.

Reading both of these men, I find myself hoping they are wrong while sensing that they are at least partially right. Evan Thomas of Newsweek captured this balance nicely in his cover piece from the current issue:

If you are of the establishment persuasion (and I am), reading Krugman makes you uneasy. You hope he’s wrong, and you sense he’s being a little harsh (especially about Geithner), but you have a creeping feeling that he knows something that others cannot, or will not, see. By definition, establishments believe in propping up the existing order. Members of the ruling class have a vested interest in keeping things pretty much the way they are. Safeguarding the status quo, protecting traditional institutions, can be healthy and useful, stabilizing and reassuring. But sometimes, beneath the pleasant murmur and tinkle of cocktails, the old guard cannot hear the sound of ice cracking.

At the same time as Establishment defenders such as Robert Samuelson are uneasy about the scope of what Obama is proposing, other members of the Establishment are uneasy that he may not be doing enough. We don’t know who is right.

To some extent we can discount Krugman’s opposition due to his personal fantasy of how his life might work out:

Krugman says he found himself in the science fiction of Isaac Asimov, especially the “Foundation” series—”It was nerds saving civilization, quants who had a theory of society, people writing equations on a blackboard, saying, ‘See, unless you follow this formula, the empire will fail and be followed by a thousand years of barbarism’.”

His critique of Obama’s plans seems to follow this model – as his warnings take on more prophetic tones.

But there is real intellectual weight to this theory of the financial crisis as something more than a liquidity or confidence crisis. Krugman outright rejects this explanation:

[T]he banks [are] really, truly messed up: they bet heavily on unrealistic beliefs about housing and consumer debt, and lost those bets. Confidence is low because people have become realistic. [my emphasis]

In other venues, Krugman describes the problems as extending far further than this – as above when he discusses the trend towards increasing the influence of American finance and increasing income disparity. This stands on contrast to the approach of both Hank Paulson and Tim Geithner who believe that the crisis is primarily one of confidence. They are treating the crisis as a more technical and esoteric version of a bank panic solved by a show of strength, as for example, the Panic of 1907:

Shipments of gold were on the way from London to New York, and confidence had returned to the French Bourse, “owing,” reported one paper, “to the belief that the strong men in American finance would succeed in their efforts to check the spirit of the panic.” During a panic, confidence is almost as good as gold.

Today, the government has taken the role of “the strong men in American finance” who are seeking a show of strength to boost confidence.

On the one side, you have economists – from Simon Johnson to Paul Krugman to Nouriel Roubini – who have been predicting doom for some time claiming that there are fundamental problems with our finance industry – and as a result of the size and influence of our finance industry – our entire economy. On the other you have men and women with power – in both finance and government – who are acting as if the problem is mainly one of a lack of confidence and a broken mechanism. 

My bet – based in no small part on my innate optimism as well as a respect for people on both sides of this debate – is that in the short term, the Geithner plans will work to restart the “old” economy. In this moment before that happens though, pressure from Europe and internal critics as well as a desire to avoid a repeat of this fiasco will enable enough forward-looking, gradualist regulation and legislation to correct the long-term problems with high finance.  Already, there are some signs that this is what is happening.

Categories
Economics Financial Crisis The Opinionsphere

Why It’s A Good Sign That Byron Trott Is Leaving Goldman Sachs

[digg-reddit-me]Though the articles about investment bankers leaving the big firms to start up their own smaller, competing firms seem to be trying to suggest that this is a bad thing – I find it hard to see it as anything but good. For example, an article in today’s Wall Street Journal by Heidi N. Moore and Scott Patterson suggests Byron Trott is leaving Goldman Sachs to start his own firm because of caps “on executive pay and calls for tighter regulation” on large banks. Byron Trott is significant because he is Warren Buffett’s favorite investment banker – but the article also suggests he is part of a larger trend. 

This strikes me as an almost unalloyed good. If banks like Golman Sachs, Citibank, Bank of America, JPMorgan Chase, etcetera are too big – and if the government isn’t going to break them up – then this draining of talent and resources into smaller firms run by highly competent former members of these organizations seems like the next best thing. Hopefully, this will help defuse the centralization of power and money in a few big firms which is one of the major factors that led to this crisis. 

Simon Johnson and others have argued that we need to break up these banks that are too big to fail:

Anything that is too big to fail is too big to exist.

My thought is that this might be accomplished with less political capital and more “naturally” in a market-driven approach that simply imposed regulations and costs on institutions that are “too-big-to-fail” that would serve to drive individuals to set up smaller companies.  At institutions that are too big to fail, there should be, for example, a fee similar to that paid to the FDIC by banks to finance the protection given to them. At the same time, pay – rather than being capped at a particular hard amount – should be forced to be tied to long-term results to avoid drastic short-term risk-taking; I’m sure there are other ways out there to limit pay without imposing caps. And of course, regulations should ensure that an appropriate amount of capital is available to handle any leveraged risks.

Even if this market-driven approach is not sufficient, the steps taken so far are at least moving people in the right direction.

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Barack Obama Humor Politics The Opinionsphere

Joe Campbell: I’m Not a Sexist Because I Disagree With Angie Harmon

 

[digg-reddit-me]Contra this tirade which the Drudge Report is somewhat inexplicably promoting. (Inexplicable because it seems like such a fluff story of Hollywood conservatives elites.)

Joe Campbell (me) is not afraid to come out and say he doesn’t like how Angie Harmon is insinuating Barack Obama is accusing people of racism — but he’s sick of having to defend himself from being deemed a sexist.

“Here’s my problem with this,” I quote myself, “I’m just going to come out and say it. If I have anything to say against Harmon it’s not because I’m a sexist, it’s because I don’t like what she’s saying and anybody should be able to feel that way, but what I find now is that if you say anything against her you’re called a sexist,” Campbell told a reporter for 2parse.com, the esteemed blog. “But sexism has nothing to do with it, I don’t care what genitalia she has or doesn’t have – or what gender she identifies herself as. I’m just not crazy about what she’s saying. I mean – I understand Obama has been in office for 69 days so it’s hard to understand how he hasn’t accomplished everything he promised he would. He only has about 1,400 days in office. I know he said he’s gonna do that and change and change, so okay … but he’s still got some time. There’s still a recession over here, woman, and you clearly don’t know what you’re talking about when you say that “we’ve got unemployment at an all-time high” (Unless you mean “all-time” since after Reagan was president.) If I’m going to disagree with Angie Harmon, that doesn’t make me a sexist.  It has to do with the fact that she sounds like an uninformed dolt. If I was to disagree with W, that doesn’t make me sexist. It has nothing to do with it, it is ridiculous.”

When asked to provide any examples of the accusations of sexism that provoked this tirade, Campbell finally fell silent. 

Angie Harmon has also neglected to provide any examples of accusations of racism. 

Unfortunately, Matt Drudge has only been promoting one of these stories, so the unfounded allegations of charges of sexism insinuated by Campbell will not gain as large of an audience as the unfounded accusations of Harmon.

Campbell admitted though that the fake umbrage-taking in the media circus was entertaining, even if it detracted from the overall political discourse. “But I get to promote myself!” he said.

[Image courtesy of Bristol Motor Speedway and Dragway licensed under Creative Commons.]

Categories
Criticism Economics Political Philosophy The Opinionsphere

The Government Role in a Capitalist Economy

[digg-reddit-me]Robert J. Samuelson does a pretty good job in his column from last week of illustrating the incoherence of “the Establishment’s view” of government’s role in capitalism.

He begins his article discussing the prescient observations of Joseph Schumpeter, a 20th century economist who predicted that capitalism “sowed the seeds of its own destruction.” He described Schumpeter’s understanding of capitalism:

[Capitalism’s] chief virtue was long-term – the capacity to increase wealth and living standards. But short-term politics would fixate on its flaws – instability, unemployment, inequality. Capitalist prosperity also created an oppositional class of “intellectuals” who would nurture popular discontents and disparage values (self-enrichment, risk-taking) necessary for economic success.

Samuelson observes that Schumpeter’s observations seem to get to the heart of capitalism – yet he says, their conclusion is wrong – because capitalism survived. It survived Samuelson observes because:

We have subordinated unrestrained profit-seeking to other values. “We’ve gradually taken into account the external effects (of business) and brought them under control,” says economist Robert Frank of Cornell University. External costs include: worker injuries from industrial accidents; monopoly power; financial manipulation; pollution.

Samuelson goes on:

Successful capitalism presupposes three conditions: first, the legitimacy of the profit motive – the ability to do well, even fabulously; second, widespread markets that mediate success and failure; and finally, a legal and political system that, aside from establishing property and contractual rights, also creates public acceptance. Note that the last condition modifies the first two, because government can – through taxes, laws and regulations – weaken the profit motive and interfere with markets…

Now we’re really getting somewhere. Capitalism, it seems, must not be a matter of pure natural forces. It is not “unrestrained profit-seeking” in Samuelson’s view – nor does it exclude government intervention, as legal and political structures must modify markets and profit-making in order to “create public acceptance.” That’s a bit of an odd formulation, as anything could be justified as being done in order to “create public acceptance.” Circuses, beheadings, propaganda, war, large-scale confiscation of property – whatever. What Samuelson must mean – although it has to be inferred – is that measures designed to “create public acceptance” can only go so far before the essence of capitalism is destroyed – as he warns is imminently possible in his concluding paragraph. There is only a “thin line” he explains between capitalism and socialism – because:

If companies need to be rescued from “the market,” why shouldn’t Washington permanently run the market? That’s a dangerous mindset.

To illustrate this dangerous mindset which is empowered by an equally dangerous populism, he points to interjections of the government into the economy in the past half-century that have not been for the good – that is, those interjections in which the benefits are concentrated and the costs are dispersed, for example, ethanol subsidies and the promotion of the advantages for politically-connected companies; and those interjections that have scapegoated various groups – such as the anti-bonus tax bill. This implies – if nothing else – a confusion on Samuelson’s part.

Political actions in which the benefits are concentrated and the costs are dispersed are – as George Will put it “the supreme law of the land.” They have been the main business of American government since shortly after it’s founding – from subsidies for railroads to the laws enabling the various cartels of the Gilded Age to the military-industrial complex to agriculture subsidies in general to the bailouts of various industries. Only a few presidents have ever taken on this “supreme law of the land” and decided to extract costs from the politically influential few for the good of the many – Teddy Roosevelt as he sought to bust the trusts; FDR as he re-wrote the social contract. Most other presidents have tried to have it both ways – to give the politically influential few what they want while also attempting to achieve some common good. This has often been the source of their failure. The populist scapegoating is an entirely different matter – and is generally fleeting and while distasteful does little real damage. 

Both of these have been part of American capitalism since the beginning. Yet for some reason, Samuelson believes that capitalism is more under siege today than in the past. He never makes the case why – except to point to distasteful and inefficient aspects of American capitalism that have been around since it’s inception. This is little reason to believe that either populist scapegoating or actions with concentrated benefits and dispersed costs have increased significantly. And Samuelson does not try to make that case. Rather, he reveals the same unease that the rest of “the Establishment” has with any significant change. 

The incoherence and of this worldview is clear. What is less obvious is why. The answer is a theme I have been coming to again and again in this blog: that the free market is not a natural phenomonen, but a creation of a society and government. Thus – we did not really “[subordinate] unrestrained profit-seeking to other values” as Samuelson suggests – rather the government created costs to balance the marketplace. If a company was polluting, it was damaging those around it just as much as if it had been stealing from them. By imposing costs, the government was not so much “subordinating unrestrained profit-seeking” to some other values – but preventing one party from stealing from another. So, the government enacted regulations to reduce that pollution – and exacted costs if companies did not follow those limits. The cap-and-trade legislation promises to be an even clearer interjection of the government in this manner. The government and the society of which the government is a part together create the circumstances in which a market can truly be free.

Capitalism – alone, without a society to provide a marketplace – is a meaningless concept. Pairing a capitalist economic model with a democratic state has become a long-term successful model for progress because the “seeds of destruction” that capitalism produces are mitigated and sometimes used by the democratic state to the confer legitimacy on the model. The problem with capitalism has proved to be not as much the “instability, unemployment, inequality” that Samuelson describes – but the concentration of power among a monied and politically-influential elite that has attempted to protect the status quo and their own interests at the expense of the legitimacy of capitalism itself. Once the concentration of power reaches a certain tipping point, the market becomes less free. Which is why the government must, from time to time, step in to allow some sort of balancing to take place and to create rules for the market which allow it to operate freely.

Samuelson is concerned that this means that Washington may take it upon itself to “permantly run the market.” In this he demonstrates his lack of understanding. The government – and the society at large – have always created the rules by which the market is run – have always sought to mitigate the damage wrought by robust competition and worse. What is different now is that once again the government failed to adequately police the market. Or alternately, you could argue that the government failed to ensure the market stayed free, allowing firms to become so big and powerful they posed a systematic risk. Either way, while it would be dangerous to have a government declaring it would “run the economy” – that is not the situation we are now facing. Samuelson’s unease seems more the result of a desire to protect the status quo than any real regard for or understanding of capitalism and free markets.

Categories
Barack Obama Politics The Opinionsphere

The Obama Doctrine

Richard Cohen in the Washington Post:

This is a tricky, auspicious moment for a young president. [Obama] is ending one century, beginning another. Concisely, he essentially laid out his approach to foreign policy in a blurb for a recently reissued book by the late theologian Reinhold Niebuhr. He wrote that he took away from Niebuhr’s works “the compelling idea that there’s serious evil in the world, and hardship and pain.” He added that “we should be humble and modest in our belief we can eliminate those things. But we shouldn’t use that as an excuse for cynicism and inaction.”

This, then, is the Obama Doctrine: wisely, to have none at all.

Categories
Foreign Policy National Security The Opinionsphere The War on Terrorism

Outlasting America in Afghanistan

Andrew Sullivan’s take on Afghanistan strikes me as the sad but honest truth of the matter:

America’s relatively tiny stake [in Afghanistan] means that we will always be outlasted by those with deeper commitments, wider knowledge and much greater fanaticism. And yet we plow on …

It happened before – after the forerunners of the Taliban drove the Soviet Union from Afghanistan.