A Squandered Presidency, Not Quite, But Not Transformational Either

Just 18 months into the Obama Presidency, the verdict of the academy is already beginning to take shape. This summer has seen an array of assessments specifically on Barack Obama and his Administration and more generally on the triumph of corporate politics in the Age of Obama.

Apart from the Jonathan Alter book The Promise: President Obama, Year One, which was published in May and the forthcoming Paul Street book The Empire's New Clothes: Barack Obama in the Real World of Power which will be released next month, the assessments have been in op-eds or essays in scholarly journals and leftist publications. And again apart from the Alter book, the assessments have been more critical than glowing. The Street book, from what I've heard, promises to be an evisceration of the Obama Presidency. Not surprising given that Paul Street is one of the nation's leading radical historians along with Mike Davis. 

The Alter work, of which I have only read excerpts, while praising the young President isn't exactly a tribute either. According to Michiko Kakutani's review in the New York Times, "Alter gives this White House a mixed grade so far on achieving its policy goals, working with a highly politicized Congress and communicating with the public." Tim Rutten's review in the Los Angeles Times finds Alter "sympathetic to the President's goals" while casting "a cold eye on his most vociferous political antagonists" and yet "independent enough to criticize the administration's — and the chief executive's — shortcomings." Alter, of course, has known the President nearly two decades or put another way the pair have been acquainted nearly half their lives. If your friends aren't willing to raise their voices on your behalf, who will? 

While the right is populated by sycophantic obstreperous propagandists who inhabit the rive droit of the Potomac think tanks that are wholly servile to the interests of the American corporate-led oligarchy and seemingly allergic to facts, the left, to begin with, lacks that vast corporate-funded infrastructure. Even if they did possess it, the left is hardly going to countenance such a wholesale capitulation to longstanding Democratic goals that the Obama Administration has set aside.

While the vitriol may emanate from the right, some of harshest rebukes have come from the left. The President can brush off being called a socialist but the appellation of a Bush third term clearly stings. Newt Gingrich, a career politician with presidential ambitions, can call him "the most radical president in American history" and "potentially, the most dangerous" urging the GOP faithful and indeed all "patriotic Americans" to resist the President's "secular, socialist machine" and Obama says not a word. But Glenn Greenwald and Dylan Ratigan, two journalists, discuss the President's targeting of American citizens with extrajudicial executions on a television programme and that unleashes the volcanic wrath of Robert Gibbs

The litany of progressive complaints slip off the tongue effortlessly. Single payer didn't have a prayer much less a hearing. The public option wasn't an option. Lip service to LGTB goals but not much real movement even when the opportunity arises to make a definitive stand. Leaving Iraq is defined as garrisoning 50,000 troops indefinitely. With each new boot on the ground in Afghanistan, the Taliban only has spread like a wild fire across the country returning to the north after a nine year absence even as General Petraeus assures us that we are turning the tide. Guantánamo, still open and now hosting the trial of a child soldier. The Patriot Act extended without tighter privacy protection for US citizens. The Employee Free Choice Act all but forgotten. Comprehensive immigration reform indefinitely delayed even as the Immigration and Customs Enforcement agency expects to deport about 400,000 people this fiscal year, nearly 10 percent above the Bush administration's 2008 total and 25 percent more than were deported in 2007. Comprehensive climate and energy legislation stalled with public support melting away faster than Greenland glacier. The financial sector reform law still doesn't solve the Too Big to Fail problem thus all but guaranteeing another bailout when our high rolling casinos overextend themselves as they inevitably will. The initial trepidation over the appointment of 18 unrepresentative, inordinately wealthy individuals to the recently formed National Commission on Fiscal Responsibility and Reform is now giving away to outright despair at the thought that the President as he finds his fiscal religion might be willing to balance the budget on the backs of the poor and the elderly.

While one wants to be supportive of the Administration, it is increasingly difficult to do so when one senses that things are seriously amiss. Even the Center for American Progress' John Podesta, the former Clinton Chief of Staff who headed the Obama Transition that filled the key posts in the Administration, has said that the White House had lost the narrative by the end of this first year in office.

He's not the only one. When Democracy: A Journal of Ideas, a center-left publication, asked leading liberal progressives thinkers to assess President Obama's performance this past April, a recurrent theme among the nine contributors was a fear that the Administration had lost control of the all important economic debate. Robert Reich, President Clinton's Labor secretary, lamented that Obama's failure to provide "a larger narrative" to explain the causes of the crash and his response to it had left the public "susceptible to [conservative] arguments that its problems were founded in 'Big Government.'

Here's how Ronald Brownstein of the National Journal summarized the debate among many of the nation's leading progressive voices:

The fear among the Democracy contributors is that against this disciplined assault the White House is suffering from what could be called a "narrative gap." By which they mean that the White House has inadvertently allowed Republicans to shift public discontent from business to government by not working more doggedly to link President George W. Bush's anti-regulation, tax-cutting policies not only to the 2008 meltdown but also to the economy's meager performance over his entire tenure. (During Bush's two terms, the economy created only one-fourth as many jobs as it did under Clinton; poverty rose sharply; and the median family income declined, after rising 14 percent under Clinton.)

Among those who haven't taken their quills to penning paeans to the virtues of Barack the Great Disappointment are Frank Rich, Michael Tomansky, Eric Alterman, Joe Klein, Brad Carson, David Swanson, Danielle Allen, Michael Walzer and Barbara Ehrenreich. All have published essays - devastating critiques of varying degrees - on Obama the man and Obama the President over this the summer of our discontent. Even if they express some sympathy for his plight given the condition of the country he inherited, these voices point more to the bad and the ugly than to the good the Administration has accomplished. Progressive economists like Robert Reich, Dean Baker, Joseph Stiglitz and Paul Krugman continue to bemoan the President's economic policies often wondering if the President and his economic team gets the magnitude of our malaise. Others befuddled by the President's lackadaisical approach to the severity of the crisis include Simon Johnson, Felix Salmon, Nouriel Roubini and Martin Wolf.

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Boehner Sets the Terms of the Fall Election Debate

"President Obama should ask for - and accept - the resignations of the remaining members of his economic team, starting with Secretary Geithner and Larry Summers, the head of the National Economic Council," said Minority Leader John Boehner in a morning speech to business leaders at the City Club of Cleveland. And with that masterful stroke of political rhetoric, long called for by many observers on the left including this one, John Boehner has set the terms of the debate for the Fall election. Granted, the Fall election was always bound to be a referendum on the President's economic policies but now Boehner has floated an idea that many outside the GOP's base can latch onto.

Beyond that demand for personnel changes in the White House Economic Team, Boehner's speech offered the standard Republican boilerplate of failed ideas: lower taxes, fewer regulations, free trade agreements, and unspecified spending cuts but presumably to social safety net entitlement programmes. While the speech is disingenuous -  he quotes John F. Kennedy "an economy constrained by high tax rates will never produce enough revenue to balance the budget, just as it will never create enough jobs." but neglects to mention the top marginal rate in 1961 was 91 percent a far cry from today's 35 percent - the speech, politically speaking, is Boehner's finest hour. It's the pitch for a man who thinks himself the Speaker-in-waiting.

Mind you, the Democrats have somewhat pre-empted Boehner by making him a campaign issue and the White House is firing back. Bill Burton, the White House deputy press secretary, said he had reviewed Boehner's speech and found "what was most surprising was his full-throated defense of the indefensible." Burton rejected Boehner's call for Obama to dismiss Geithner and Summers, saying the "irony of this is that Boehner would fire the people who made the tough decisions, who did the hard work to get the economy going again." And the problem with the Administration, they think the economy is on the right track when we are headed for long period of Japanese-style malaise.  

The other must read piece of news today is in the Wall Street Journal where Jon Hilsenrath covers the on-going debate at the Federal Reserve over how to kick start the economy.

After steering the economy away from another Great Depression, Mr. Bernanke confronts a painfully slow rebound.

Unemployment is still high and inflation is uncomfortably low. Fed officials, who spent much of the early part of this year planning for an exit from easy-money policies, have been forced to think about doing more to jolt the economy to life.

Fed officials emphasize they have common objectives despite being deeply divided over what to do next: They seek to avoid either deflation, a broad decline in prices and wages, or an upsurge of inflation. And they share a strong desire to get the economy growing fast enough to sustain a recovery without unusual government support.

The Fed already has cut the short-term interest rates it targets to near zero, vowed to keep them there for an extended period and purchased trillions of dollars in securities, with money the central bank creates, to push down long-term interest rates.

The most contentious issue now is whether to print more money and buy even more long-term securities, which would expand the Fed's portfolio further. An earlier bond-buying program ended in March.

A decision hinges largely on whether the Fed sees inflation falling much further or if economic growth fails to revive. The Fed and most private forecasters still expect faster growth in 2011, and few economists are predicting outright deflation.

Among the other issues: Should the Fed act quickly, or should it wait for firmer evidence that the economy is truly faltering? And if it does decide to act, should it take small, cautious steps or large, dramatic ones?

Deflation is a concern of mine but what troubles me most isn't the Fed's wrangling though it sheds clarity over the situation but rather that Administration appears lackadaisical in tackling unemployment. From day one, it should have been priority one but the views of Christina Romer were dismissed by Summer, Geithner and Emanuel, the troika that runs the White House economic policy. Rightly or wrongly, the troika is perceived as putting the interests of Wall Street ahead of Main Street and perceptions do matter. Still, it is hard to discern a sustained effort by the Administration on the nation's unemployment problem. By letting unemployment fester, it has gives credence to the GOP thus giving them an opening.

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Beyond the Efficient Market Hypothesis

I've got to run because I'm volunteering on two political campaigns. The thought of Barbara Boxer losing her Senate seat drives me to despair and I'm also volunteering for a local candidate for the Board of Supervisors.

A quick post on the efficient market hypothesis or EMH. “The Efficient Market Hypothesis is not only dead,” noted the financial blog Minyanville on July 29, 2010. “It’s really, most sincerely dead.” Perhaps, first, a quick definition is in order. From Investopedia:

The Efficient Market Hypothesis (EMH) is an investment theory that states it is impossible to "beat the market" because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. According to the EMH, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. As such, it should be impossible to outperform the overall market through expert stock selection or market timing, and that the only way an investor can possibly obtain higher returns is by purchasing riskier investments.

The EMH is at cornerstone of our economic model because it lies at the Greenspanian (and conservative) notion that financial markets can be self-regulated, even though financial markets operate very distinctly from normal supply and demand economic principles. As The Economist has noted that “Financial markets do not operate the same way as those for other goods and services. When the price of a television set or software package goes up, demand for it generally falls. When the prices of a financial asset rises, demand generally rises.”

Financial markets are too often guided by a herd mentality that leads to financial asset bubbles. This was true in the Tulip Mania of the early 17th century in Holland and it was true in the more recent Dot Com Stock Market Crash and US housing bubbles. Irrational exuberance trumps information. The EMH is built on the assumptions of investor rationality. 

John Maynard Keynes, however, argued that the stock market should be seen as a "casino" guided by an "animal spirit". Keynes held that investors are guided by short-run speculative motives. They are not interested in assessing the present value of future dividends and holding an investment for a significant period, but rather in estimating the short-run price movements.

Today, Joseph Stiglitz in the Financial Times writes on the need for a new economic paradigm of moving beyond the efficient market hypothesis.

The blame game continues over who is responsible for the worst recession since the Great Depression – the financiers who did such a bad job of managing risk or the regulators who failed to stop them. But the economics profession bears more than a little culpability. It provided the models that gave comfort to regulators that markets could be self-regulated; that they were efficient and self-correcting. The efficient markets hypothesis – the notion that market prices fully revealed all the relevant information – ruled the day. Today, not only is our economy in a shambles but so too is the economic paradigm that predominated in the years before the crisis – or at least it should be.

It is hard for non-economists to understand how peculiar the predominant macroeconomic models were. Many assumed demand had to equal supply – and that meant there could be no unemployment. (Right now a lot of people are just enjoying an extra dose of leisure; why they are unhappy is a matter for psychiatry, not economics.) Many used “representative agent models” – all individuals were assumed to be identical, and this meant there could be no meaningful financial markets (who would be lending money to whom?). Information asymmetries, the cornerstone of modern economics, also had no place: they could arise only if individuals suffered from acute schizophrenia, an assumption incompatible with another of the favoured assumptions, full rationality.

Bad models lead to bad policy: central banks, for instance, focused on the small economic inefficiencies arising from inflation, to the exclusion of the far, far greater inefficiencies arising from dysfunctional financial markets and asset price bubbles. After all, their models said that financial markets were always efficient. Remarkably, standard macroeconomic models did not even incorporate adequate analyses of banks. No wonder former Federal Reserve chairman Alan Greenspan, in his famous mea culpa, could express his surprise that banks did not do a better job at risk management. The real surprise was his surprise: even a cursory look at the perverse incentives confronting banks and their managers would have predicted short-sighted behaviour with excessive risk-taking.

Stiglitz also points to the work at the George Soros funded Institute for New Economic Thinking (INET) that was founded in October 2009. Its mission is to create an environment nourished by open discourse and critical thinking where the next generation of scholars has the support to go beyond our prevailing economic paradigms and advance the culture of change. Two of my favorite economists are associated with the Institute: Simon Johnson of MIT and Richard Koo of Nomura Securities whose book on Japan's lost decade The Balance Sheet Recession has been my guide for looking at our economic situation.

Here's a short video on the INET:

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The Legislative Box and the Economic Straightjacket

Former Clinton Chief of Staff John Podesta has a theory on why the President's poll numbers continue to sag. In an article by Matt Bai in the New York Times, John Podesta, who now runs the liberal think tank Center for American Progress, finds that the President who came into power facing an economic meltdown faced a “legislative box.” Mr. Podesta believes that Obama's most consequential decisions on domestic policy stemmed from "one overarching conviction — that the President’s most important job in a crisis, requiring nearly single-minded attention, was to pass" monumental once in a generation type legislation.

“By focusing on getting big legislative accomplishments, which was understandable, they necessarily gave up a larger image of him as president,” Mr. Podesta said, referring to White House advisers. “They cast him as the prime minister. They were kind of locked into the day-to-day workings on the Hill.”

This was not a given. All presidents have laws they want to pass, but they have broader thematic priorities, too. Ronald Reagan saw a renewal of American optimism as a vital goal. Bill Clinton publicly hammered away at his ideas about economic transformation and “reinventing government.”

Unlike his recent predecessors, however, Mr. Obama had spent his entire political career in legislative posts, and he seemed determined, above all else, to clear the Congressional hurdles that had thwarted the others. He chose a vice president and a chief of staff who were masters of the legislative arena, and he filled his most senior posts (aside from those occupied by longtime advisers) with former Congressional aides.

Mr. Obama’s central strategy was to concentrate on cajoling Democratic lawmakers into passing a series of bills — the stimulus package, the health care overhaul, a new set of financial regulations.

Mr. Podesta finds that the necessity of pursuing an intense, wide-ranging legislative agenda had other implications for President Obama’s image.

More from the Times:

A more national, outward-looking strategy for creating a “postpartisan” dynamic might have included White House partnerships with Republican governors or even with conservative foundations or industry groups. Because the president effectively boxed himself in to a Capitol Hill-only strategy, though, he handed the Republican minorities in Congress the power to sabotage his goal. 

“Once you became a legislative president, which is arguably what you needed to do, you couldn’t deliver on the nonpartisanship promise,” Mr. Podesta said. “And it’s something people wanted.” 

It’s not hard to extend Mr. Podesta’s theory about the legislative box to other areas in which the administration has faltered. One of the real surprises of the Obama era, for instance, has been the president’s sharp break with the business community. Perhaps it shouldn’t be so surprising, though, when you consider that Mr. Obama’s focus on legislation has forced him to be responsive, above all else, to the shifting tides of populist sentiment in Congress. 

Think of it this way: if your singular goal is to pass bills, and Democratic lawmakers are in a frenzy this week over A.I.G.’s bonuses or Goldman Sachs’s investments, then you might feel forced to castigate big business, too. 

Much of Mr. Obama’s anticorporate rhetoric was probably calibrated more to lawmakers than to business leaders, but what the executives heard were declarations of war against American industry. 

Perhaps the most damaging consequence of the legislative box is that it left Mr. Obama, who still regards himself as an outsider and a reformer, looking like a Congressional insider — which is about the last thing voters, and independent voters in particular, wanted him to be.

Mr. Podesta argues that part of the President’s significant appeal to voters, especially independents, in 2008 — “a big part of the secret sauce of getting him elected” — was his promise to transcend perennial partisanship and change the way Washington works. "Let's put the animosities behind us. Let's not have old arguments. Let's not have tired ideological arguments," implored candidate Obama.

Then, as now, such was a hopelessly naïve stance. To engage in rational discussion and empirical debate requires rational actors who live in a fact-based universe. Much, but not all, of the GOP lives in a world based on a failed faith in free markets with tax cuts über alles for the über-wealthy. Their worldview largely is largely surmised with the empty platitudes of limited government and that the private sector knows best. How does one engage in a debate with Iowa's Steve King or Minnesota's Michele Bachmann both of whom believe the President to be a shade to the left of Karl Marx?

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Gay Tea Partiers

Frankly, it would take too long to debunk why a regressive flat structure is not in society's best interest but that is one of the points these two gay Tea Partiers are missing. It's rather disconcerting that so many Americans continue to buy into the creed of libertarian style individualism over the collective good as these two young men do. They do, on the other hand, argue quite eloquently why the government should not be in the business of regulating marriage. Still the suggestion that we should abolish the income tax is hard to phantom. That would lead to a most inegalitarian society that would threaten the very existence of American democracy. 

It is also amazing to me that conservatives think the world around them comes cheap. They love to complain about taxes but they don't seem to realize to that taxes also pay for things like electric lighting and roads.

From the Wall Street Journal:

Paved roads, historical emblems of American achievement, are being torn up across rural America and replaced with gravel or other rough surfaces as counties struggle with tight budgets and dwindling state and federal revenue. State money for local roads was cut in many places amid budget shortfalls.

In Michigan, at least 38 of the 83 counties have converted some asphalt roads to gravel in recent years. Last year, South Dakota turned at least 100 miles of asphalt road surfaces to gravel. Counties in Alabama and Pennsylvania have begun downgrading asphalt roads to cheaper chip-and-seal road, also known as "poor man's pavement." Some counties in Ohio are simply letting roads erode to gravel.

The moves have angered some residents because of the choking dust and windshield-cracking stones that gravel roads can kick up, not to mention the jarring "washboard" effect of driving on rutted gravel.

But higher taxes for road maintenance are equally unpopular. In June, Stutsman County residents rejected a measure that would have generated more money for roads by increasing property and sales taxes.

"I'd rather my kids drive on a gravel road than stick them with a big tax bill," said Bob Baumann, as he sipped a bottle of Coors Light at the Sportsman's Bar Café and Gas in Spiritwood.

Rebuilding an asphalt road today is particularly expensive because the price of asphalt cement, a petroleum-based material mixed with rocks to make asphalt, has more than doubled over the past 10 years. Gravel becomes a cheaper option once an asphalt road has been neglected for so long that major rehabilitation is necessary.

"A lot of these roads have just deteriorated to the point that they have no other choice than to turn them back to gravel," says Larry Galehouse, director of the National Center for Pavement Preservation at Michigan State University. Still, "we're leaving an awful legacy for future generations."

It was a progressive income tax - the highest tax bracket during the Eisenhower Administration was 91 percent - that built the Interstate Highway System, the largest and most extensive infrastructure ever built, but it is a Reaganite ideology that is undoing the progress we have built so much so that we are forced to turn our asphalt roads back to gravel.

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