What Would Gorbachev Say? On The US, China, And Saudi Arabia

President Obama is on his way to Saudi Arabia, and Secretary Geithner is done with his major initiative in China.  In part, this is just the US normalizing its relations with the rest of the world and rebuilding some basic diplomatic niceness.  But it’s also about reshaping – or not – the way the world’s economy works after the crisis.

From all appearances, President Obama will ask the Saudis to continue their efforts to stabilize the oil market, including by bringing new production on stream, and the Saudis will offer – to the best of the abilities – to play exactly this role within OPEC.  Of course Secretary Geithner just asked the Chinese to continue their efforts to stabilize the market for long Treasuries, including by investing their current account surplus in US secruties, and the Chinese have agreed – with some pretend grumbling – to play this role.

It looks like adding up to a big mistake – just ask Mikhail Gorbachev.

You don’t have to take a completely pro-Reagan view to agree that the US boxed the Soviet Union into overinvesting in an unproductive rent-seeking sector (the military-industrial complex), which wasted a huge amount of productive resources and undermined the economy’s broader innovative potential – as well as its ability to put basic consumer goods on the table.  Even worse, when Gorbachev did try reform, the system proved so brittle and the capture of policy so complete that the whole empire collapsed in debt, inflation, and catastrophic tunneling (in turn leading to a new wave of oligarchs, etc).

If we continue to depend on “cheap enough” oil, that’s dangerous enough in geopolitical terms.  But if we run our economy so we finance our oil imports by borrowing heavily from the outside world (not all from China; the Middle East and Japan are also big providers of net savings), we are asking for trouble.

The collapse of the dollar is not necessarily imminent, and the temporary use of deficit spending makes senes as a way to get through this deep recession.  But when exactly do we plan to wean ourselves off (a) the oil, and (b) the borrowing from abroad?  This doesn’t have to be done tomorrow, but it has to be done – unless it is somewhere written that the US will stay powerful and solvent forever.

We should be committing ourselves to energy prices (and carbon prices) that rise over time, hence creating an incentive for innovation in fuel efficiency (and lower emissions) throughout the economy.  The Saudi swing-producer role means that, if things go well, they keep pushing oil prices down below the pain point, thus limiting longer-term moves away from oil (and they are quite explicit about this as their goal).  The Chinese swing-investor role means that, at best, long-term interest rates will remain low enough for us to feel like we can keep borrowing (you can draw your own conclusions on their true goals).

Show me the policies-in-place that bring down our external payments deficit, and explain the commitments that will really make this happen. Or even start the conversation in these terms, domestically and with our various kinds of allies overseas.

Just don’t tell me that the financial sector will collapse if we make any moves in the right direction, e.g., cutting back on our current budget-breaking implicit subsidies to that enormous rent-seeking sector; we’re on our way to doubling our debt/GDP ratio, from around 40% to near 80%, directly because of the way this sector has behaved.  Remember the excessive power of particular sectors (and all their policymaking friends) consistently hampers sensible efforts to reform any economy. If that’s too vague for you, look at how and why Gorbachev failed – and all the awful consequences.

There are people who attribute the entire subprime debacle to irresponsible borrowers.  Personally, I would spread the blame more broadly, including lenders, the way the financial system has come to operate, and the way US and European governments looked the other way – or supported the prevailing ideology – as a megabubble developed.

But it is true that someone has to step up and take responsibility any time you see a potential debt bubble developing.  And for our current level of international indebtedness and where this is headed, who will now take responsibility?  Or, if that’s too complicated a question, let’s try a simpler version: who will tell the President?

By Simon Johnson

59 responses to “What Would Gorbachev Say? On The US, China, And Saudi Arabia

  1. Maybe… Lawrence Summers? No?

    Umm, Tim Geithner? You don’t think so?

    Huh. Chris Dodd seems sensible. Yeah, you’re right; he really doesn’t.

    Perhaps we can count on the humanity of bankers and energy executives…

    Oh.

  2. “who will tell the President?”

    Obama is drinking his own Kool-Aid. No one will tell Barack W. Obushma anything that threatens the PR, spinning of “Brand Obama”

  3. So what policies need to be enacted as soon as feasible to prevent this temptation into false comfort and foreign dependency? Balanced budget rules? High taxes on foreign energy imports / a domestic floor price on petroleum? Setting a GDP percentage cap on social security and health-care spending? If we are not to “waste a crisis”, perhaps we should identify the few austere actions we must take to return the nation to disciplined long-term solvency and independence.

  4. Our next set of crisis are interelated:
    * How to fund our enormous debt.
    • How to relieve the inflationary pressures built up by the Fed’s huge intervention into the markets.
    • How to prevent interest rates from soaring and damaging further our teetering economy.

    To quote John Rutledge: ” Interest rates are not determined by savings rates and are not determined by the demand for credit. As a logical matter, it is debt, not deficits, along with people’s demand to hold different types of assets, that determine interest rates.”

    Whether people want to hold dollars or acquire new dollar assets will determine whether the US can weather this next round of crisis building right now.

    In the past, people wanted to hold dollar assets because the US was the pre-eminent Global economic, political and military superpower. We were the beacon of hope politically and economically, and we backed it up with out military might.

    Now Obama and the Democrats want to take the US down several notches, economically, politically and militarily.
    We are told as the exalted One noted yesterday, that we need to make sacrifices, presumably to push us further down the road a single party, socialist, fascist state. Why would anyone want to acquire dollar assets now? What hope for profit is there for doing so? Why invest in America now?

    We need to get back to the measures that made the dollar strong to weather this crisis: massively cut taxes and regulation, devote the awesome might of our economy to explore, develop and find new energy sources, particularly oil and gas immediately, and we need to confront vigorously with a resolute will our worldwide military and terrorist enemies utilizing a strengthened, not diminished military.

    If we don’t, we are courting economic collapse and depression.

  5. There are news reports today that say that Americans have started to save more. If that trend continues for long, then that would mean that the deficit goes down and in turn China’s surplus goes down.
    When that happens they will be forced to think of ways of stimulating domestic demand to keep up with their growth rates.
    People’s habits and not diplomacy can bring about these changes.

  6. “The Chinese swing-investor role means that, at best, long-term interest rates will remain low enough for us to feel like we can keep borrowing (you can draw your own conclusions on their true goals)”

    Mr. Johnson,

    Could you eloborate on what you believe China’s real goals are? Thank you.

  7. You don’t have to take a completely pro-Reagan view to agree that the US boxed the Soviet Union into overinvesting in an unproductive rent-seeking sector (the military-industrial complex), which wasted a huge amount of productive resources and undermined the economy’s broader innovative potential

    Very possibly, but that had nothing to do with Reagan. Soviet military spending, although always very high compared to the size of the Soviet economy, didn’t actually increase significantly during Reagan’s presidency. Despite the added expense of the war in Afghanistan, it stayed roughly constant as a percentage of GDP.

    “Soviet military spending had leveled off in 1975 to a growth rate of 1.3 percent [per year], with spending for weapons procurements virtually flat. It remained that way for a decade. According to later CIA estimates, Soviet military spending rose in 1985 as a result of decisions taken earlier, and grew at a rate of 4.3 percent per year through 1987. Spending for procurements of offensive strategic weapons, however, increased by only 1.4 percent a year in that period. In 1988 Gorbachev began a round of budget cuts, bringing the defense budget back down to its 1980 level. In other words, while the U.S. military budget was growing at an average of 8 percent per year, the Soviets did not attempt to keep up, and their military spending did not rise even as might have been expected given the war they were fighting in Afghanistan.”

    http://econ161.berkeley.edu/Politics/fitzgerald.html

    Reagan didn’t spend the Soviets into collapse. That’s just a silly myth.

  8. Hi Simon – someone has to step up and take responsibility any time you see a potential debt bubble developing and tell Obama.

    sounds good in theory but who cares enough when financial engineering and consumer spending ( 70% of GDP but the Banks want more ) are the 2 key drivers for the debt laden ‘bubble’ US economy.

    The Beginning of the End of Business As We Know It

    http://bit.ly/CP48y

    “…What we are seeing is a collapse of *crony* Capitalism…which is very different from free market Capitalism.”

    Hard work doesn’t matter. Doing or being better doesn’t matter. What does? Connections, deep pockets, inside info, and — most perverse — a lack of ethics. The less ethics matter to you, the more you’ll bid, for example, to run the government’s books.

    It’s a shame that our President — who’s actually pretty bright — has turned out to be the economic equivalent of Dubya, at the time we needed economic competence the most.

    Business as we knew it is fast coming to an end. Here’s what the Obamaconomy looks like. The government champions funds. Funds champion corporations. Corporations champion markets and industries. No one champions people (because they don’t count).

  9. With all due respect, you are conflating long run requirements with immediate policy decisions.

    Gorbachev did not fail. He may not have intended to bring down the Soviet Union, but in the end both Russia and the United States are better off because of it, despite the short-term dislocations (e.g. oligarchs).

    What you suggest in focusing on curing US debts is similarly the right thing to do in the long run, but it has potentially destabilizing consequences at present. To focus on debt now is like focusing on market reform in the USSR; history might judge us well for it, but it could bring down the empire….

    As long as the financial system remains unstable, deflation remains a threat, and growth is suppressed in the United States, the policy focus should not be about the long run. We will have to find a way to pay off the debts being incurred in the name of crisis avoidance now, but not just yet. Wait until we have full-fledged saplings rather than green shoots!

  10. A little pragmatism maybe? The problem? Too many stupid people. What do you call a President who picks the same people (Bernanke, Geithner & Summers)who were responsible to prevent this financial crisis from happening but were too stupid to fix it? Stupid. And that was their job. That’s what they were paid to do. But they failed because they are too stupid.

    And how about the stupid bankers who took billions of other people money & made stupid investments with it? And then took millions & billions of other people’s money as bonuses to reward themselves for making the stupid investments? Why haven’t stupid Bernanke, Geithner & Summers got rid of the stupid bankers? Because they’re too stupid.

    So now the President & the stupid people in Congress expect these same stupid people to fix our economy? A stupid person does not become smart by giving him or her a new job or by taking some pill. If you’re born stupid you die stupid.

    Until we get rid of these stupid people we will continue to have a weak & deteriorating economy. What is a weak economy? One that consumes more than it produces. And we continue to expand our consumption & reduce our production.

    Everything else is mostly meaningless esoteric crap.

  11. Brendan–

    Probably not the replacements of the people you mention, but quite possibly the replacements of those replacements. Yeah, I’d guess along about the time the third set of experts makes its appearance.

    You have to take into consideration the small group dynamics of any coherent power elite (which pretty much defines a presidential administration). Also, the broader political dynamics (both between government and target constituencies and in the country at large). Finally, the path of the general economy (i.e., assuming residential and commercial real estate continue on their present trajectories the final failure of all those TARP whales will require some official notice).

    It all takes time to play out.

  12. Coffee Boy

    This is a question I’ve been wrestling with for a long time, and perhaps this esteemed community can help me answer: is it possible to structure a government where rising debt levels are NOT inevitable, despite personnel turnover every 2 years?

    I still can’t figure out how a government filled with politicians with short-term incentives will ever get the werewithal to cut deficits and cut debt. Obama is in the middle of a deep recession, and his incentive is to get us out of it. Whether or not Keynes is healthy in the long term, its pretty widely regarded that it will do the trick in the short term.

    What about Obama’s successor in 4 or 8 years? We can look to our friends in the UK for that one. Brown came to office as the Chancellor of the Exchequer pronouncing an era of fiscal responsibility. But the financial bubble gave him so much money to spend that the his liberal party decided that it was imprudent and immoral to NOT spend that money flushing out the education and health sectors. Without efficiency that comes with balanced budgets, government spending rose dramatically during the boom years, only to be left massively underfunded when finance crashed.

    I can’t think of a single scenario in which a government, or even a single politician, has incentives which are aligned with cutting deficits and cutting debt. A wiser man than me put it bluntly and by saying that when a crisis comes around, governments are expected to do SOMETHING, even if the best course of action is to do nothing. No one gives a politician any credit for sitting back and waiting a crisis out, despite there being plenty of examples where that would have been the prudent thing to do.

    So how do we do it? Constitutionally obligating governments to run a balanced budget seems a bit harsh, and doesn’t allow much flexibility in crisis times when a bit of deficit spending would be useful. But because of the transient nature of governments, the ones who live through the lean years aren’t the same ones who are in power when the coffers are flush with money. So what do we do?

  13. What we appear to be doing is asking absolutely everyone for help in “our shared interests”. A new game of musical chairs. But in total there will be more put in than can be returned.

    The questions are who will end up being screwed, when will they realize it, and what can they really do about it? The Chinese see it.

  14. Eric Dewey, Portland, Oregon

    The downfall of liberal democracy may prove to be the drive for re-election. Will the US electorate vote to retain the Democrats in power if the Democrats truthfully tell them that standards of living will take a hit?

    The historical dataset suggests that, in the absence of a complete economic breakdown a la the Depression, voters will generally not support a party whose policies cause lifestyles to be negatively impacted.

    The question is whether this President, with his outstanding gifts of communicating, can prove once again to be the exception to the rule.

  15. Constitutionally obligating governments to run a balanced budget seems a bit harsh, and doesn’t allow much flexibility in crisis times when a bit of deficit spending would be useful.

    True, but it is the only way.

    Imagine if I could pass on my personal debts to my children and grandchildren. Think of how much money I could borrow! Think of the lazy life I could lead!

    Of course, no civilized society permits hereditary debts. Except collectively, that is, via government deficits.

    The temptation to spend other people’s money is just too great, especially when they have not even been born yet. Outlawing it completely is the only way. Are the costs of that too high? I wonder.

  16. “The collapse of the dollar is not necessarily imminent, and the temporary use of deficit spending makes senes as a way to get through this deep recession. But when exactly do we plan to wean ourselves off (a) the oil, and (b) the borrowing from abroad? This doesn’t have to be done tomorrow, but it has to be done – unless it is somewhere written that the US will stay powerful and solvent forever.”

    The US will not stay powerful forever; today our current society and government maintains what stability it has left through our military power. Perhaps military power is one of those famous “lagging indicators”? As to the solvency, we are not solvent. Can anyone truly argue otherwise?

  17. Dr. Frankie

    Who will tell the President?
    Let’s try this again: Who will tell the President AND Congress? Because no matter how committed the President would be to the agenda you suggest, we can rest assured that the greenbacks would flow like there is no tomorrow into Congress to PREVENT any of those changes from happening.

    As an example, let’s just look at health care. Despite much stronger advocacy than ever for at least, a governement-run option that would compete with the private sector,(maybe to keep them honest) if not a single payer option, Congress keeps telling us that it is NOT politically feasible.

    Why? Just follow the money. Take a look at all the contributions that Sen Baucus has pocketed in the last 5 years and contrast that with the very hostile constituents reactions he recently got. Despite strong voters’ support for an alternative to private insurance only, the Senator insists.

    So, just imagine what it would be for energy, where the “urgency” is not directly felt in an acute way by the people.

  18. This is lots of tired GOP dogma, that the country has finally gotten wise to. It’s deregulation that caused the financial crisis we’re in. It’s trying to run the world, through an overextended military that is draining us. It’s not “Obama and the Democrats who want to take the US down several notches” – the conservative policies of the last 25 years did that just fine by themselves. Obama et al. is trying to clean up from that mess.

    I don’t agree with everything “the exalted One” is doing – I wish he had a better economic team – but repeating the mistakes of the last 25 years, which got us into this mess – is not the way forward.

  19. I second the question about China. It seems to me that for the moment their economy is still hostage to ours through their dependence on exports to our consumers. But with the decrease in US consuming power obvious, the Chinese are working hard to shift their economy to a different basis. Whether they are successful before their own internal political tensions overwhelm them is a question on an equivalently fundamental level to whether the US can wean ourselves off of our debt culture before our own system collapses. But how are these pressures combining to influence Chinese behavior toward the US in the near to intermediate future?

  20. I’m with Nemo in response to this comment. Although it seems “harsh”, mandating a balanced budget seems the only way to get out of the built-in incentives to run deficits. From that starting point, I’ve been trying to figure out how you can allow for the exceptions that would be necessary if the government feels an existential threat to the country (war being the prime example). The trouble is that we all know that politicians are already fond of “creating” wars when necessary. What’s to stop them from declaring the necessary war in the future to allow their spending and graft to continue? Even so, I think we need to create the mandate, thereby putting the politicians on the hot seat to justify their “exceptions” as they appear.

  21. Pingback: Obama Is Making A Big Mistake In Saudi Arabia - The Plank

  22. The strength of democracy is the intelligence of the many. This closely related to the notion that the many feel the application of intelligence will make a difference to their lives.

    If the many are not motivated anymore, because they are ruled by lords, their intelligence falters. The many become meek and dumb, like sheep. This is of course fine for the oligarchy: the shepherd finds easier to rule sheep, than a flock of other shepherds. This is what happened in the Greco-Roman world, when the excitement of running republics was replaced by the anesthesia of the games of the circus (which became ever more obsessive as the empire sank in ever deeper fascism).

    So a democracy is little compatible with lords, or more exactly not compatible with a sustained worsening of the Gini Index (if the Gini worsens, people get demotivated; although Great Britain was nominally ruled by lords, for the last three centuries, it was a republic in disguise, with a continually improving Gini Index, ever since its conquest by the Dutch).

    As a contributor pointed out above, and I pointed out in the past, it’s essentially a problem of stupidity. To name the guy who set up the fire to the house (Summers) as chief manager of the house (which is what eco-nomist means) is either very stupid, or very corrupt, or both. The day after being elected, Obama showed his interpretation of the equality clause of the republic by going to work at a hedge fund. Plutocrats of the world, unite!

    Not that the stupidity is restricted to republicans and democratic chiefs. A few days ago, Robert Reich in his blog was extolling the necessity for the USA to embark in the “post manufacturing economy”. Post manufacturing means, as all monkeys know: sticks and stones (as Einstein pointed out). Sorry I am so optimistic to suppose that there would still be bushes around to make sticks with…

    China’s policy is simple: soothe the American addicts with little pieces of paper, while capturing the manufacturing, technological and scientific high ground. Already in some scientific domains (crucial non linear crystals), China is not just number one, but all alone, far ahead. What are Americans addict to/ The easy mental life, like the degenerates of the late Greco-Roman empires (the decay of the empire into stupidity took around five centuries, because Rome had dominated so much, but the USA does not dominate, it just thinks it does because the presidents brings his wife out for the evening at the cost of several times the average family income, on the taxpayers’ dime (thus proving the country is very rich, the time honored reason to be mesmerized by potentates).

    Obama needs to make a quick strategic retreat around America’s best assets (nuclear technology being one of them). And invest in those massively.

    All enemies of the USA are happy to see him fighting instead the world’s best war religion (while claiming he does not, so he does not know what he is doing!), while being in an extremely bad moral posture to start with. Why has the USA messed up with Muslim fundamentalists since 1945? This is the question the rogue CIA employee (bin Laden) answered his way on 9/11, but it was long time coming, and the USA has been obliging their own ex employee ever since, fighting the war bin Laden suggested where bin Laden suggested to fight it, and on a time scale bin Laden wanted: long, and… stupid.

    Now Obama says he loves Star Trek. Well, good. Star Trek is what the USA needs. As luck has it, I know extremely well someone who knew Obama extremely well when he was in school, and Obama was not taking the science classes, and not applying himself enough, to the point his friend shunned him… That very close friend of Obama was a Start Trek fanatic, wanted to become an astronaut, and took all the science classes, including advanced placement classes at Punahou. So now Obama claims he sees the light of science, but how genuine is that?

    All we see is that he saw the light of Summers. The light of the fire devouring the empire in corruption.

    Patrice Ayme

    http://patriceayme.wordpress.com/

  23. but repeating the mistakes of the last 25 years, which got us into this mess – is not the way forward

    You better tell Obushma that, he don’t see it.

  24. “We should be committing ourselves [...]”

    We’re going to have to reform the Senate to do this. Time to get started.

  25. bungalowbill

    “who will tell the President?”

    You have to give the guy some credit. He probably already knows all that. He’s one of the most intelligent presidents the US have had.

    However understanding the problem is one thing, having the balls to take on the moneyed class is another. Obama is a middle-of-the-road kind of guy. Not a revolutionary.

    FDR was said to be of mediocre intellect. But he was bold enough to take on his own class. Maybe only a patrician can confront his own class. The other Roosevelt did pretty well too.

  26. If you doubt Obama will take on the financial industry, then you can take for granted he will not tackle US military spending or expanding Iraq-Afghanistan-Pakistan occupations and interventions either.

    The US has let its domestic infrastructure deteriorate for three decades. It has made sunk cost investements in suburbia and highways, and has failed to stay competitive in last mile fiber, improved broadband and other infrastructure. It has forced increasingly ruinous cost for education on increasingly larger shares of middle class and low income families, reducing the pool of talent, aptitude and initiative from which to draw productive labor. Neglect, misallocation and failed investments have yet to paid for.

    Gorbachev might have come to late, the window of opportunity already closed. But Obama shows no indication that he is able, prepared, and willing to address the issue at all. He can reasonably expect to sustain the unsustainable until the 2012 election is decided, and that does indeed seem to be the dominant objective.

    Apres moi, le deluge.

  27. Drawing up a scorecard of winners and losers from the financial crisis and resulting global economic downturn is relatively easy if we concentrate on straightforward economic effects, and if we think of them in the short term. Political ramifications, especially over the longer term, are more difficult to calculate. What of the United States- and China, the looming great power?
    Assessing the effects of the financial crisis and economic downturn on China’s weight in world affairs relative to the United States should begin by laying out
    some of the essential facts. They can be listed simply.
    • China’s rate of growth has slowed, yet is surpassing that of the US by an even greater margin today than before the crisis hit. All forecasts are that this gap will be maintained for the foreseeable future given the dim outlook for the American economy.
    • China holds $2 trillion of hard currency reserves, roughly 70% in dollars. The United States depends on inflows of capital from China, Japan and the oil rich Gulf states to cover our yawning trade and budget deficits.
    • China has enormous sovereign wealth resources that it is using to underwrite long term contracts with suppliers of natural resources around the world and to buy into critical technology based industries.
    • Senior Chinese officials recently have stated publicly that they are concerned by its large, continuing investments in US financial paper given: low interest rates, the US’ parlous financial state, and China’s vulnerability to a drop in the dollar’s exchange rate.
    • The same officials have proposed a gradual move to wean the world’s economy off the dollar and to replace it with a world currency modeled on the IMF managed Special Drawing Rights (SDRs)
    • The privileges that the United States has enjoyed from the dollar’s status as an international reserve and transaction currency are going to be progressively reduced. That means: domestic policy will have to more attentive to constraining international monetary conditions, i.e. higher interest rates, fiscal discipline, and a reduction in the money available to apply to foreign policy objectives – military and civilian.

    IMPLICATIONS ECONOMY
    1, The United States will have to choose between observing the strictures placed on other countries who find themselves in financial straits or run the risk of a further deterioration of the dollar’s value and growing difficulty in financing its twin deficits.
    2. The United States will lose influence in the IMF and, to a lesser extent, in the World Bank. As a greater share of their capital is provided by China and other Asian countries, Washington will lose its veto in the IMF as its relative share of contribution based voting rights goes down. Its indirect influence over decisions by both bodies with decline as the world’s dependence on the dollar and American financial oversight globally drops sharply. Too, it will suffer a further decline from the discrediting of the American version of market fundamentalist capitalism. Campaigns to pressure others to follow the American model and to open their economic to American financial interests have lost credibility.
    3. International financial management will have to become truly multilateral as the United States, with some of its European partners in train, is no longer in a position to call the shots.
    4. Working out the terms of that multilateral management, and making the requisite organizational adjustments, will be the prime test of whether the United States and China can work together to each other’s mutual benefit and in the interest of global economic stability.
    5. Mutual economic dependency is the overriding reality – whatever the exact balance. China has it within its power to bring the American economy to its knees overnight by using its financial firepower on world markets. However, by doing so it would do grievous damage to its own economy. It would be akin to Samson bringing down the temple on himself. In other worlds, a condition of Mutual Assured Destruction exists with similar stabilizing consequences.

    POLICY IMPLICATIONS
    1 American strategy should aim at adapting to China’s growing politico-economic strength rather than containing it. While competition for resources and markets will be a feature of the relationship, emphasis should be place on reaching agreement on the rules of the game – formal and informal.
    2 The United States should anticipate a larger voice for China, and other substantial contributors, to expanded IMF loan facilities, by: (1) engaging them more directly in Fund’s governance, in the necessary review of lending practices, and in the organization’s enhanced oversight functions; and (2) rethinking the doctrinal foundation of present policies who ineffectiveness and unfairness have been highlighted by the current crisis.
    3 Be prepared to join in an orderly process for loosely managing a smaller role for the dollar in global economic transactions.
    4 Offer sympathetic support for the building of East Asian regional monetary area so as to be in a position to ensure its compatibility with global institutions.
    5 Above all, it is imperative to put the United States’ economic house in order. That entails: imposing strict regulatory controls financial institutions and the innovative practice that are the source of the current crisis; qualify the premise that the opening of financial markets in other countries on American terms serves the nation’s national interest; take steps to reverse the hollowing out of the manufacturing sector; move toward a marked reduction of the trade deficit before global markets and foreign governments do so by forcing the adoption of austerity policies; curb bloated budget deficits and the attendant dependence on foreign purchase of Treasury debt.
    6 Prepare Americans, psychologically as well as politically and economy, for the loss of supremacy and its privileges. This is a condition for effective implementation of the above noted policy recommendations.

    POLITICAL IMPLICATIONS

    1. China’s ‘soft power’ is rising, America’s is declining. That refers above all to economic influence. In turn, that enhances the attraction of China as a model for others –especially in Asia and the NIC and LDC countries generally.
    2. China will be able to use diverse economic instruments to win favor around the world just as the United States has done for 60 years.
    3. Financial constraints in the United States will make it more and more difficult to sustain current levels of military expenditure. The burden of costly campaigns in places like Iraq and Afghanistan will become onerous. This condition may induce the United States to reconsider the inordinate prominence that it gives to military force to achieve its objectives abroad. The sort of fundamental strategic rethink that demands will be painful and strongly resisted.
    4. The greatest, and in many ways the most telling effect will be on American self-esteem. Americans believe them destined by Providence or History to lead the world into a more enlightened state. Our exceptionality explains and requires that we be number one in all fields of endeavor that count. It demands as well that the rest of the world recognize this exceptionality and the prerogatives attendant upon it. As the United States slips economically, politically and in its worldwide image, the country will be hard pressed to reconcile those realities with it s exalted sense of self.

    5. China matches in the United States in the depth of its belief in its own exceptionality. Historically, China as Heaven’s Middle Kingdom was felt to stand at the apex of earthly attainments. There is a basic difference between the two countries’ self image, however. The United States’ sense of exceptionality and uniqueness is closely tied to its sense of mission as model and agent of world progress. Others are presumed to emulate the United States in aspiring to its achievements. The Chinese by contrast have no sense of mission. After all, to their way of thinking, no other people is capable of matching them. This may be a good thing in that there is no inevitable clash between two proselytizing nations.

    Michael Brenner

  28. Barack Obama is not as great an enigma as he appears. Here is my take on him – first written last October. I believe that most of what he’s done since january, amply confirms it.

    BARACK OBAMA

    Obama’s arrival on the scene affords us the perfect opportunity to test our ideas about the interplay between narcissistic behavior and contemporary political culture. His sudden rise to the White House on the wave of a personality cult, along with his ordination as ‘The Man of Destiny,’ behooves us to take a searching look at what makes him tick, how he conducts himself, and celebrity/virtual politics in our time.

    Some things are obvious to the even casual observer. Obama has an outsized ego, is audaciously ambitious and shows signs of a superiority complex. They compose a self image with which he is entirely comfortable. That is revealed in his social ease and remarkable self assurance. Some of his manner is exceptional, some redolent of public figures past, some features suggest shopworn items dressed in fancy new packaging. My impression is that an appreciable portion of Obama’s public persona lends credence to the thesis that there are narcissistic elements rooted in our political culture. They condition, they tempt, they permit behaviors antithetical to a mature polity. Obama, though, is not a narcissistic personality.

    So, who is he? What makes him singular?

    There is nothing of the exotic about him, contrary to the popular discourse, except for a childhood background that he assiduously has relegated to an outgrown past. A Kenyan father and the Jakarta sojourn in childhood have left few visible marks on his character or attitudes. More fruitful for understanding who he is and what he is about is the portrait of a highly ambitious politician with the self-assurance that stems from a stellar Ivy League record, a wife to match and early electoral successes. His ‘blackness’ is not part of his core identity. The only apparent residue of his experience as a black is strong penchant for ironing out all ascriptive differences in his field of vision, e.g. ‘partisanship.’

    Obama’s autobiography is easily misread. He did not visit his father’s family in Kenya in search of his roots. There are no signs that he sought to integrate Africa into his persona.
    Similarly, he has maintained few ties to Indonesia and takes little interest in the country, except for a close relationship with his half-sister long resident in the United States. His aim seems to have been to unburden himself of those experiences. A nominal process of self-discovery can lead to awareness and composition or to consecration of a self devoid of much inner content. In truth, he is not a cosmopolitan person. His travels overseas have been limited, before or since entering the Senate. Since his Jakarta days, he has not lived abroad. His knowledge of foreign affairs is correspondingly limited despite having chaired the Foreign Relations Subcommittee on Europe. Superior intelligence along with legal training makes him a ‘quick study’ who can readily absorb the main points of a situation without much knowledge or understanding in depth. Facile speaking skills and social ease are complementary traits that help create an impression of urbane worldliness.

    What of his chosen vocation as a black man immersed in the public life of Chicago? Clearly, that was a calculated choice he made in his early twenties after graduating from Columbia. At that time, he was ending a long affair with a young white woman from a very wealthy family – something that may or may not be of any consequence. He reiterated that choice after Harvard Law School. ‘Choice’ seems the right word since there is reason to think that it did not emerge from some strong inner impulse. Obviously, we do not know what went on in the inner recesses of his being. We do know that this is a man who is highly self-conscious, self-disciplined and who acts deliberately. The Reverend Wright revelations do offer a few clues. Loyalty to the man who ‘brought him to Christ’ probably is the least significant. Wright’s church was a natural fit for someone immersed in community affairs who wanted to be at once ‘black,’ broadly progressive and non-sectarian. Tolerance for Wright’s egregious polemics is explicable if we suppose that Obama did not take them seriously. That attitude conforms to his generally moderate to conservative views. It also bespeaks someone who feels ‘above’ or ‘beyond’ histrionics and passionate activism.

    Obama is conservative, in the traditional sense of the term. One can visualize him having set down roots in a comfortable suburb and launching his career from there. It is not inconceivable that he would present himself as a moderate Republican, an Illinois John Chaffee. (Were he now in the Senate, there even could be some Republicans talking of him as the 2012 successor to a failed John McCain. A bright new ‘white hope’ for the party). We should bear in mind that the strongest influences on him during his formative years were a mother and maternal grandparents who were sliced white bread Kansans.

    Obama’s ambition is not inspired by any cause or purpose. The themes he enunciates are ones of national unity – as a desirable end in itself as well as a precondition to meeting collective challenges. None in this category stand out in his writings or speeches. He declaims that partisanship is destructive; it serves no good purpose. This is the face of seven very successful years of ruthless partisanship unreciprocated by his own party. He is by conviction a conciliator. It is not clear whether he is so by temperament, too. He prefers to avoid a fight; he surely does not pick fights. While he hews to the central lines of the Democratic mainstream, Obama is not a philosophical progressive or a populist. Witness his cautious, join the consensus attitude toward the financial meltdown. He first pronounced that the entire disaster stems from a few mischievous souls “gaming the system.” He missed the obvious: the game was the system. He now takes his strategic economic advice from Robert Rubin, the godfather of casino finance along with Alan Greenspan, whose CITI Corp lost $45 billion before he bailed out.

    Little if anything in the roiled public life of America seems to anger him or even irk him. At a time of multiple crises – constitutional, economic, and in the nation’s foreign dealings – he keeps his emotional distance. It is hard to imagine him getting worked up about any of the developments in American society or attacks on the body politic that so deeply dismay some others

    In all respects, Obama is very much a man of his times. Weak or absent convictions, dispassion even about grievous wrongs, incapacity for moral outrage, quiet acceptance of the precept to put self first – if not quite the measure of all things, a natural egoism – all the hallmarks of contemporary American society. A man who amasses $10 million at a relatively young age after a late start and married to a woman with no inherited wealth whatsoever is a man who looks after himself. He has none of the idealism that exemplified his mother’s life, and for which she paid a steep price in comfort and security.

    Obama’s disparagement of the 1960s social movements that shaped his mother is revealing. It confirms the absence of serious interest in his own lineage. It hints at an introspection, such as it is, that has the instrumental needs of the present as its magnetic pole. It exemplifies a strongly ahistorical approach to the current world he occupies. Obama’s public remarks that the whole 1960s experience was a ‘psycho-drama’ is astonishing. He is what he is, where he is, as a direct result of the 1960s. The same holds for his wife and children. Indeed, he simply would not be were it not for the ideals and attitudes that became full-blown in the 1960s.

    One of his political models is Ronald Reagan. Yet, if Mr. Reagan’s counsel had been followed, the Obama family would be drinking their Cokes in the back seat of the family car when on the road in the south. This is historical amnesia with avengeance.

    Some Salient Traits

    ITEM 1

    Obama readily orphans policy proposals that previously he vaunted as matters of conviction and commitment. This recurring phenomenon exceeds the norm of politicians for whom the breaking of promises is part of the trade. In Obama’s case, this pattern was noticeable in the period between the primaries and the nomination, between electoral victory and inauguration, and since he settled into the Oval Office. Once is a happenstance, twice is a coincidence, three times means that we had better take a close look at what is going on.
    During the few months of summer 2008, Obama swiftly cut loose from a number of positions that had framed his candidacy: inter alia, non renewal of the Foreign Surveillance Intelligence Statute (FSIS); withdrawal from Iraq; supporting legislation to facilitate trade union organizing. There was no compelling electoral reason to do so since these positions conformed to majority opinion in the country. Other explanations suggest themselves: an instinct to assuage the right of the political spectrum in the hope of achieving a much ballyhooed bipartisanship consensus (on him, on his policies) and/or he is at heart an establishment conservative disposed to identify with the powers that be. As we discuss below, there is much evidence to support the latter. The regrets expressed to his followers were curt. They carried the message: “don’t think you have a claim on me, I’m the one who gets it right.” That attitude became a feature of his ‘conversation’ with the movement that gave him the White House.

    The pattern of abandonment was more pronounced during the fall campaign. He exulted in an interview with FOX News that “the surge has succeeded beyond our wildest expectations” – lauding General Petraeus and signing on to a fictive interpretation of developments in Iraq. At the same time, he amended his heralded commitment to withdraw American combat troops. (See below for his later, confirming decisions). He amended his declaration of a readiness to enter into negotiations with Iran “without’ conditions” to include several conditions.

    When the financial crisis hit, he stressed the importance of amending the bankruptcy laws to allow heavily indebted mortgage holders to have their terms adjusted in bankruptcy court. Yet, as the debate on the TARP bank bailout plan came to a vote in Congress, he lobbied against including the bankruptcy reform. The exact same legerdemain marked his attitude toward its inclusion in the Geithner bailout non-plan – Plan I, and then again toward the provision’s inclusion in the Stimulus Package a week later. By then the plan had been pushed back to some indeterminable date – some hundreds of thousands of foreclosures later.

    The transition phase saw more of the same. In early January, it was the turn of heralded rescinding of the Bush tax cuts to the super rich to be jettisoned. That idea had been the centerpiece of hundreds of campaign speeches. Yet it was discarded in a casual manner. In a major press conference on the plunging economy, he off-handedly remarked that it was better simply to let it die out at the end of its legal in 2011 rather than risk the contention that its outright withdrawal would provoke. When queried by a reporter on the matter, he went off into a riff taken word for word from his stock campaign speech on inequality in America. Those tax cuts, in the end, were not rescinded – just allowed to die at the cost of about $200 billion to the strapped Treasury between 2009 and 2011. The matter went uncommented upon by the media.

    Similar episodes appeared serially. Within one ten day stretch in mid March, Obama pivoted 180% on three notable issues: the taxing of ‘gold-plated’ health insurance policies received from institutional employees by fortunate middle class salaried workers; the transfer of financial responsibility for treatment of Iraq/Afghanistan war veterans’ injuries to their private family insurers from the federal government; and the appropriateness of strenuous administration efforts to block the notorious AIG bonuses. In each, a position was advanced publicly by senior officials before the President personally beat a hasty retreat while feigning ignorance of the matter. Of course, all presidents engage in trial balloons and try to distance themselves from those that are shot down. However, this pattern stands out for its frequency, the importance of the issues, and the president’s cavalier attitude toward both their promotion and their being jettisoned.

    Certain aspects of these oddities stand out, traits that have repeated themselves. One is an unapologetic readiness to shift ground radically. A second is disdain for ‘Obamites’ and the media alike. A third is the instinct to align his thinking to the conventional wisdom as represented by persons who embody the status quo. The reversals on help for potential mortgage defaulters and retracting the tax largesse to the upper brackets were harbingers of bigger surprises to come. The tip off on what ‘fresh thinking’ and ‘new departures’ would mean concretely came with Obama’s elevation of Bobby Rubin to the position of consigliore. Rubin was the incarnation of the financial crisis – philosophical and operational in government as well as banking. The placing of Rubin protégés to almost all key jobs ensured that the financial rescue strategy would bear a close family resemblance to the fatally flawed Paulson-Bernanke TARP scheme. Indeed, it did – generating the same ignominious reaction.
    All important appointees were Rubin protégés. They included Larry Summers his designated Chairman of the Economic Advisory Council whose prescription a year earlier for mounting popular discontent about American plutocracy was a promise for the IRS to do more tax appraisals of the rich. No acknowledgement to Marie Antoinette. He was the partner to Treasury Secretary Tim Geithner, a Goldman, Sachs alumnus who, as President of the New York Federal Reserve, brought the CEO of Goldman into the small circle of officials who made the decision to let Lehman Brothers go under – and then arranged for the $180 billion bailout of AIG that allowed $92 billion to be passed Goldman ($12 billion) and other favored banks. Geithner, too, was the person who forced Senator Dodd to remove provisions of the stimulus bill that would have restricted bonuses. All these actions were taken in secrecy with evident approval from President Obama.

    The most stunning of Obama’s about-turns was his precipitate embrace of the Bush practice of claiming overriding national security privileges to short circuit trials where plaintiffs sought justice for abuse at American detention facilities. This was a practice an angry candidate Obama had vowed to end. President Obama instructed his newly minted Attorney General, Eric Holder, to follow the trail blazed by Alberto Gonzales in demanding the case be shelved so as to protect vital secrets. We know what those secrets are from other legal proceedings outside the United States and leaked records: inter alia incarceration in black sites run by the CIA where the motto was ‘everything goes,’ prisoners rendition from foreign countries based on dubious tips, subcontracting of torture to Morocco, Egypt, Jordan and Syria where the interrogators really knew their business and gladly let American agents stand in as participant observers. Even the presiding judge was flummoxed. Soon thereafter, the Justice Department, acting in a similar vein, makes a court declaration that captives held at Begram airbase in Afghanistan had no legal rights as ‘enemy combatants.’

    By March, Obama had reversed himself on other salient ‘terrorist’ issues. He affirmed his own interpretation of the Bush dictate that as president he had the right to attach Presidential declarations to signed legislation and would not execute those he judged to be unconstitutional. In addition, he negated a legislative provision designed to protect whistle-blowers in claiming the power to decide what Executive Branch information could be passed on to Congress.

    Obama has shown that he also is capable of the outright lie. This is more revealing than his turn-on-a-dime policy shifts. Speaking at Camp LeJeune on February 27, he announced that he had taken the much anticipated action “to choose a timeline that will remove our combat brigades over the next 18 months.” That was untrue. A number of Brigade Combat Teams (BCTs) totaling upward of 37.000 soldiers would remain in Iraq after that date. They simply will be relabeled by the Pentagon as ‘advisory and assistance brigades.’ They will retain the same equipment and military capability. This deceit was devised by General Petraeus and Secretary Gates to reconcile Obama’s public pledges with what they saw as military needs in Iraq. It, At the same time, it aimed to circumvent terms of the SOFA (Status Of Forces Agreement) signed with the Baghdad government. There is no doubt that the president was well aware of this dissimulation. Indeed, the matter was first discussed in detail during the transition on December 15.

    Overt lying at the top of the Obama administration has marked the public relations surrounding the financial bailout, too. Treasury Secretary Timothy Geithner has been the immediate culprit. The most glaring examples concern the use of the $180 billion given to AIG. Geithner’s testimony that he learned of the egregious bonuses to executives in the division that sunk the company only March 10, 2009 has been belied by ample evidence on the record that he, as President of the Federal Reserve bank of New York and the principal author of the bailout agreement, personally engaged the issue as early as the previous September. More serious was Geithner’s testimony before the House Banking Committee on March 24 that he had neither known that Goldman, Sachs was a counterparty to credit-default swaps with AIG that stood to gain from the generous agreement he negotiated in September nor made Goldman, Sachs a party to the talks. Both claims were fabrications. Records show that Geithner had invited Goldman CEO Lloyd C. Blankfein to join the small group of decision makers that hammered out the terms of the accord, the only non-government person so honored. Goldman, as noted, was given $12.3 billion through the AIG conduit – after itself lying in public statements that it had no significant exposure. It is hard to imagine that Obama, who reportedly was meeting with Geithner and Summers for at least an hour each day, was unaware of this mendacity given the ultra-sensitivity of these highly flammable AIG issues.

    Here, again, this misbehavior received meager attention in the media and never got what Washingtonians call ‘political traction.’
    What do these episodes tell us beyond the fact that Obama has begun lying to the public on cardinal issues early in his administration? Three things. One, his conduct confirms the proposition that he is at heart a politician socialized into the prevailing political culture. Two, that culture is ill-disposed to shine a light on overt deception by the highest officeholders in the land and/or lacks the necessary memory – even short term –to do so. Finally, our leaders, who have had their character formed by a severely defective culture, are emboldened to play fast and loose with the truth in their awareness of how easy it is to pull the wool over the eyes of the media and the public alike.

    Obama’s exalted sense of self is displayed in other notable ways. His remarkable decision to hold his nomination party in Denver’s sports stadium before 70,000 star struck followers was the act of someone who aspired to the grandiose. So it was with the Mother of All Inaugurations. This at a time of national penury, paid for by the very financial institutions that had laid low the American economy. Some of this self indulgence would be less baffling were Obama the symbolic leader of some great cause or movement. Yet there is little content to his orations. Certainly, they do not enunciate an articulated philosophy or a novel way of approaching the nation’s grievous challenges at home or abroad. Obama is that strangest of public figures – a Messiah without a mission or a message.

    If Obama indeed has a superiority complex, in some behaviorally meaningful sense, than it may well be associated with special treatment that he has received since his youth. Bright, engaging and vaguely exotic he likely was popular with his peers and singled out by teachers as well as other adults. The fragmentary evidence that we have suggests that this favored treatment greatly outweighed negative discrimination. It seems a pattern that continued throughout his adult life from Harvard University to Chicago to the beginnings of his political career to the White House. Of course, he lost many votes in the presidential election because of his color. Now, the widespread celebration of his presidency’s advent has surrounded him with a glowing aura. He already is generating laudatory press coverage while stilling criticism from all corners except the dyspeptic radical right. Such an experience naturally would bolster a strong ego and reinforce a natural self-confidence. The evidence adduced above indicates that those traits may well have congealed into a personality that presumes superiority.

    From that lofty point of self-esteem, it is the distance between himself and everyone else that is paramount. That reality transcends all differentiations among the others – including their party affiliation or ideological attachment. It is qualified only by the instinctive respect for establishment leaders that he absorbed with his upbringing.

    The observable combination of superiority feelings and a tendency to distance himself from the hurly-burly around him receives confirmation, and some illumination, from his career teaching at the University of Chicago Law School. By his colleagues’ recounting, he seldom engaged in the free-wheeling discussions of legal issues or political affairs. His interjections, when they were forthcoming, left unclear what his views were. He rarely pronounced a firm position. Equally noteworthy, he did not include colleagues among his social circle. What insights can we glean from this unconventional pattern?

    A few interpretations suggest themselves. Most obvious, it is a behavioral pattern that conforms closely to the Obama revealed as candidate, transition figure, and president. Above the fray¸ detached, reluctant to pick sides or stake out a firm position, and not drawn to high powered thinkers as companions. It adds credence to the proposition that a superiority complex is an integral element in his personality. It is not of the variety that seeks occasion to display itself in intellectual exchanges. Rather, it is a permission slip for choosing when, how and with whom he engages the world – and always on his own terms. Any implicit challenge to that right immediately evokes irritation, a datum that is a point in confirmation of this hypothesis.

    There is yet another peculiar trait that supported this hypothesis of a superiority complex that thrives in our current political climate. Obama has cultivated a trademark elevated, above the fray image. An idealized bipartisanship is its emblem. All the stranger then that he should at times go out of his way to insult his supporters. Two incidents stand out. One is the aforementioned mass e-mail message addressed to those who were upset by sudden abandonment of his strongly worded commitment to oppose the FISI legislation before Congress that put the imprimatur on the Bush administration’s worst abuses of it surveillance power. In it, he referred to ‘my left wing friends.’ These ‘friends’ were the people who had given him the nomination. Were they ‘left-wing’ because they believed in a constitutionally grounded system of laws – along with many Republicans and the Barack Obama of a few weeks back? Or had they earned the epithet of being ‘left-wing’ because they had the temerity to confront him on an egregious default on a serious matter of principle? As a matter of record, the term ‘right wing’ has never issued from the lips of Obama.
    The second incident involved the private dinner arranged with a covey of ultra-conservative journalist. Held at the home of George Will, the invitees included Bill Kristol (who had smeared Obama as a ‘socialist’ unfit to hold the highest office in the land). This bunch, who accurately could be called ‘right wing,’ supposedly were convened so that the President elect could exchange thoughts with the other side of the political divide, as if they were unknown quantities. The next day, he met with a small group of liberal (not left-wing) counterparts for a brief afternoon coffee. Why go out of one’s way to insult your backers and, supposedly, allies? The most troubling possible answer is that there is something in Obama’s make-up that demands driving home the point that he is superior to them – in status, power, and intellect. Moreover, that gives him the privilege to do whatever he likes and they had better get accustomed to it. What is the core personality that generates that need?

    Obama exhibits other narcissist like traits that are now endemic in American public life. Religiosity is one. At the height of the economic crisis, he averred that ultimately it was our faith in God that could do more to alleviate our condition than the government. One of his first initiatives was to create a Faith Council composed of clerics from diverse religions. Its charge would be to provide a religious perspective on matters of public policy. That initiative was complemented by an updating of George Bush’s faith based program whereby church related organizations will receive public money to provide social services. There would be no enforceable restriction on the program’s engaging in proselytizing or hiring based on belief. His unfocused but supposedly strong religious faith fits the pattern. In his campaign, Obama pledged that “this council will be a critical part of my administration.” Without a shadow of doubt, that was one promise he kept.

    Once resident in the White House, Barack Obama created a ‘team’ of spiritual counselors as replacement for the unforgettable Reverend Jeremiah Wright in Chicago. It is composed of five men of the cloth of varying complexion and located at all points of the compass. Obama communicates with them frequently by telephone or email, and occasionally in person on matters of public policy as well as more individual concerns. We do not know when the contact is on a rotational basis or an issue specific division-of-labor that prompts him to seek clerical counsel. Obama’s clutching onto religious symbolism is also manifest in a related innovation: opening all public rallies with invocations that have been commissioned and vetted by the White House. This is a first in presidential practice, something that not even the born-again George Bush indulged.

    Then there is Obama’s being attracted to the rich and prominent, especially financiers. Consider the stark discrepancy between his attitude toward Wall Street figures and the heads of automotive companies. Toward the latter he has been unsparing in disparagement of their competence as well as severe in the conditions he imposed on them to qualify for government assistance. Toward the former, it is kid gloves treatment – one short week of purely rhetorical criticism at the time of the AIG bonus scandal notwithstanding. The CEOs of General Motors and Chrysler may very have been poor managers. Yet unlike their counterparts in the financial world they were neither dishonest nor ready to play fast and loose with country’s economic foundations for the sake of their own glory and riches.
    Admittedly, there may be differences in kind as to the systemic implication of allowing the banks ‘too big to fail’ in fact to fail as opposed to the automotive sector. Leaving aside the serious implications of gutting a mainstay of the dwindling manufacturing sector, that difference does not correspond to the glaring differences in treatment of two sets of leaders – in mode of address as well as policy. He savaged one, was ever respectful to the other – including cordial invitations to talk things over in the White House. When one adds to this reality Obama’s comfort in placing custody of the nation’s financial future in the hands, and minds, of Wall Street insiders, it is legitimate to raise a couple of awkward questions.

    Is this a man who identifies with one rather than another because of their status in the society and their life style? To put it bluntly, is this a man whose wardrobe of $1,000 suits creates an affinity with the custom tailored money people? He surely was uninhibited about hiring celebrity designer Michael Smith to oversee a planned $100,000 White House redecoration. Smith is the person whose recent clients include John Thain, former CEO of now defunct Merrill Lynch, who paid him $800,000 on the company’s account for redoing his office at the moment Merrill was going belly up. The episode is notorious for the choice of a $5,000 waste paper basket and a $87,000 area rug. Are there shades of Nicolas Sarkozy in this weakness for the chic?

    A further question: is it reasonable, politically as much as in terms of equity, to shrug off AIG’s generosity in giving million dollar bonuses to 674 employees on grounds that these were inviolable contractual obligations while sternly dictating that $55,000 a year skilled autoworkers had to give back salary, health insurance and a slice of their retirement funds? Whether my behavioral interpretation is on the mark or not, this is abnormal conduct by any reasonable standard which begs for explication.

    I am fully aware that in posing a question of this sort I am treading on dangerous ground. It may seem that I am extrapolating on the basis of slender evidence, that I too readily am placing Obama’s behavior into a precast mold, that I perhaps am over-reaching to buttress my argument about the pervasive influences of a narcissist oriented polity. Maybe the explanation lies in something more elementary – campaign contributions come from Manhattan, not Detroit. So permit me to label this last point a hypothesis that, if correct, supports a larger thesis. Let time decide. Until it does, I feel no compelling reason not to offer it given the significance of the issue and its implications.

    One further admission. I disagree with Obama’s foreign and financial policies. It requires no great insight to intuit that. I believe them ‘wrong’ on multiple grounds. However, whether they are or not has no immediate relevance to the themes of this essay. Whatever correlations exist between our political culture and leaders, on the one hand, and policy outcomes on the other, they are just that – correlations. While I do affirm is that a narcissistic political culture has serious negative implications, I do not claim that it is the cause of all our policy misjudgments.

    One further noteworthy point. Obama has a singular style of public speaking. It varies hardly at all from one setting to another, from topic to topic. His speech lacks any modulation. It is forceful, rather loud, cast at the same pitch, lacks rhythmic shifts or inflection, is free of qualification or doubt, and earnest in tone. It is just like his campaign stump speeches. One is reminded of Queen Victoria’s complaint that “Mr. Gladstone addresses me as if I were a public meeting.” This pattern has three possible explanations. Mr. Obama has strong convictions about everything; he has strong convictions about nothing; or he is convinced of everything he says at the moment he says it – a la Tony Blair. Thus, the Obama who can firmly reject the idea of strict controls on the executives of bailed out banks one day, can be ‘outraged’ by their paying large bonuses a few days later, and critical of taxing the AIG giveaways the day after – without any gesture implying recognition of contradiction or change of thinking. The word ‘OUTRAGE” was printed on his ubiquitous teleprompter.

    Michael Brenner
    mbren@pitt.edu

  29. This raises a classic problem – the investment/savings equillibrium.

    People have a tendency to believe that saving money means we are setting aside for tomorrow. At an individual level this works, because money represents and obligation for society to repay an individual.

    At the collective level, however, money-denominated savings is meaningless. What matters is efficient investment. When savings and investment are not in equillibrium (and that equillibrium depends entirely on expectations for future consumption), the system falls apart.

    SJ’s observations about the international payment system (that countries might “feel good” about accumulating foreign currency reserves – e.g. savings – but that it’s a zero sum game; one nation’s savings is another’s debt) exactly parallels Keynes’ virtuous savings-trap.

    The trick is not to get government to spend less per se (or to get the private sector to spend more). The trick is to get _everyone_ to invest more in the future, even when those investments do not yield exorbitant monetary returns. Such investments may even be geared toward _reducing_ consumption. And as bad as govt. seems to be (when it does everything itself), the un-regulated market appears to be disastrously unable to think further ahead than about 18 months.

  30. These people are decidedly not stupid.

  31. The same political environment that encourages politicians to start wars will make a balanced budget amendment impossible.

    But in any case, stats guy is correct. The concern is not whether we are running a deficit or not. It’s whether we’re creating sustainable wealth with that deficit.

    If we’re spending money on unnecessary wars or yachts, our children will be right to be angry. But when we have a substantial output gap, deficit spending is a good thing.

    Cyclical economies seem to be here to stay. And so we need the ability to borrow as well as save.

    We really should be trying to figure out how to find the political will to get government to save when there is no need to spend.

  32. Does that mean that Bernenke, Geithner & Summers let this this financial crisis happen on purpose? Did they drive our economy into recession & attempt to wreck our country because they’re smart?

    Pseudo-intellectuals maybe but stupid pseudo-intellectuals.

    I’d be interested to know what they’ve done that hasn’t been stupid. Also, about the results they’ve achieved, like how many jobs they have created.

  33. @ Michael Brenner
    Barack Obama is not as great an enigma as he appears. Here is my take on him – first written last October.

    Wow an interesting take or perhaps treatise ;)

    You should post this on Daily Kos

  34. 5,000 words in a blog post comment?

  35. DesolationRow

    Simon,

    You may not know this but it’s American to run deficits. Cheney said deficits don’t matter and thus by extension, we as Americans are entitled to let other less worthy countries pay for our lifestyle. Why would the average American voter ever agree to anything less? Until it’s way too late that is…

  36. Thought provoking commentary.

    The more I read, the more I was reminded of Tiny..sorry TOny Blair, a man who only becomes comprehensible when you realise his motivation was nothing more extraordinary than the (seemingly infinite) elevation of…. Tony Blair.

    Both charismatic, both look good on TV ( essential, that bit), both witty, and both, finally, utterly vacuous.

    Still, can’t help but feel Obama was infinitely preferable to Mccain tho’…

  37. Maynard Handley

    “Obama’s arrival on the scene affords us the perfect opportunity to test our ideas about the interplay between narcissistic behavior” [5000 words omitted]

    Well if anyone should know about narcissistic behavior it would appear to be Mr Brenner, the reincarnation, apparently, of the late, lamented, Steven den Beste.

  38. Small deficits, in the $100-200 billion range do not matter. If the ratio of public debt to GDP is not significantly changed by the current deficit, other factors are far more important to the economy. In fact, there is a healthy appetite for new US bonds at average levels in a healthy economy.

    Now to run a deficit of nearly $2 Trillion or more, and to run Trillion dollar deficits for the foreseeable future; that matters!
    A lot.

    The long term market share of government spending of the GDP was increased by over 7% by the Stimulus Package. Tax revenues for a very long time have hovered around 19% of GDP, whether there were high taxes or low taxes. ( 16 -23% as the unsustainable highs( 23%) and the dire lows (16%).
    So realistically, there is no way to grow out of these deficits as happened under Reagan, Clinton and Bush II. The future budget deficits, because the average deficit before Obama was in the 2 3 % range, we’re looking at will be at around 10% ( before national health care) for as far as the eye can see. We will become beggars.

    This debtor beggar status will sooner or later crush our economy. All you fools who think a lowered US profile militarily, economically and politically is a welcome thing are complete idiots. Teddy Roosevelt wanted to carry a big stick, so he could talk softly and solve crisis diplomatically if possible. You guys, for some twisted reason, want to break all our economic and military clubs and sticks into little twigs, to do what? So our enemies can beat us like a Pineda? Diplomacy is pointless and completely ineffective, if it not backed by power and might.

    Benign superpowers don’t come along very often in history. To rely on the mercy of despots and dictators, is completely insane and suicidal.

    Zimbabwe, with all its murdering brutality, here we come!
    And for all those of you who support, this fashionable destruction of American Hegemony, you can tell your grandchildren, if you survive that long, that you helped bring back the dark ages. If you loathe America that much, why don’t you find your socialist paradise someplace else, and leave America to the ones who love her.

  39. Nemo: “Imagine if I could pass on my personal debts to my children and grandchildren. Think of how much money I could borrow! Think of the lazy life I could lead!

    “Of course, no civilized society permits hereditary debts. Except collectively, that is, via government deficits.”

    Unfortunately, hereditary debt bondage still exists in the civilized world. It is not a bed of roses for the borrower. See, for instance, http://www.mit.edu/people/etekle/Index/

  40. “Although it seems “harsh”, mandating a balanced budget seems the only way to get out of the built-in incentives to run deficits.”

    Balanced gov’t budgets are too inflexible. Don’t we want contracyclical policies? Allow, even mandate deficit spending during downturns, mandate surpluses or paying down deficits during upturns. It is not impossible. Bush II inherited a budget surplus, didn’t he?

  41. We need to be getting real about doing productive work that improves our balance of payments. This means making things other people need and want. We need to be thinking about teaching Americans how to make things with their hands. If Americans can spend all day blogging, it probably indicates that they have forgotten how to work.

  42. The U.S. is deficit spending because, in the event of crisis, there is no intention of paying the money back. Surely this is obvious. Recall the Nixon Shock in 1971 – did he tell the world before he ended gold exchange ? No.

    If the U.S. government has to they will simply forcibly devalue, or renege on payments. And if anyone complains they will be reminded that the U.S. Navy controls the seas.

    Don’t forget the ‘hidden fist’ – Washington hasn’t.

  43. im not superstitious enuf to believe in broadly balanced economics
    .
    only gays and black single mothers believe in that trash

  44. You mumbling man? Socialist paradise where? You weaken your arguement with such baseless baiting. Grow up and learn class.

    FWIW, the deficits are composed of hauling a GLOBAL police force(called the US military) and spending sick amounts on bailing out a financial system.

    Deal with that sir. Deal with it like the Republicans need to throw the supply siders out of the party.

  45. Move over Simon Johnson, Prof. Brenner is on your tail.
    That said, we should thank Prof. Brenner for his exposition and honesty.

  46. markets.aurelius

    There are many good, even great points, here. But there is one overwhelming theme I cannot get comfortable with: The implicit and explicit confrontation between the US and China, which assumes both seek global hegemonic power.

    Right now, at this particular point in history, we have two distinct evolutionary trends — the American model and the Chinese model — that appear to be converging to a common dimension within a couple of generations: Governments that are accountable to the governed, a process that’s been in train since at least the 11th and 12th centuries, which itself was an historical convergence of massive trends set in motion centuries before in Greece and Rome and Anglo-Saxon England. (Sounds a little like G.F. Hegel, I know … and I do think he was a bit of a nut with all that hero-worship … but he did see the flow of history correctly.)

    Keep in mind, both America and China — in their present incarnations — are the products of popular revolutions. This means the people living within the borders or both countries seized control of their destinies, albeit in violent fashion. So, at a very fundamental level, both governments evolved out of a massive re-ordering of the social contract.

    Following some horrific displays of murderous disregard for its citizens natural rights, China’s leadership now appears to be doing its best to accommodate a massive internal migration, in which millions of people who live there — seeking a better life for themselves, but mostly for their kids — are moving from rural to urban areas every year. How the successful formula for leading in China went from the cult of Mao, and his total control, to a Communist Party that, to all appearances, wants to retain power by providing basic physical necessities to as many of its citizens as possible, is a mystery. Maybe the overlords realized that, in a massively interconnected world, it was impossible to lie to the masses unless they were willing to shut down all interaction with the rest of the world like N. Korea apparently has done. But that would be too costly, and it would be unsustainable: Generations of Chinese intellectuals who were trained in the West returned home and set themselves to building a future that, at a very deep, almost genetic level, pre-supposed freedom of thought and inquiry as the starting point of any problem-solving effort.

    To accommodate the demand of its citizens for basic necessities, the government must build cities and supply jobs. Those jobs must create wealth, so that internal growth can occur. For the past several decades the only outlet for the increasing production of China as these policies became reality has been the US, Canada, and Europe.

    In the US, following the end of the Cold War (including the Vietnam War), a massive wave of consumer demand was unleashed, which could not be fully met by US productive capacity alone. Asian supply — Japan, then Korea, then China — all tee’d up to meet this demand, largely owing to a labor-cost advantage, but gradually becoming a technological advantage.

    So we’ve been, in a way, co-dependent. But that’s what economic intercourse is — it is mutual dependence on each other: Demand cannot be met without supply, and supply needs a sink or else it’s waste.

    What’s striking right now is the visible opening of China’s political and social spaces, which is occurring as the economy expands. And, even tho they’re not exactly America’s Founding Fathers, the Chinese leadership does appear to be directly the government toward being accountable to the governed. Look at how the government responds to natural disasters, e.g.

    This is not to say, as Simon notes in this post, that you won’t see destructive rent-seeking behaviour in China, just like we’ve seen here in the US thru countless large and small cycles.

    But in both countries it appears the trend is upward — toward more accountable government. Open societies are better able to correct past excess than dictatorships and oligarchies: the collective IQ far exceeds any individual’s or clique’s. China’s behaving as if it realizes this. America has always realized this.

    These types of societies have multiple self-corrective mechanisms, which can be subverted as we’ve seen. The hope for the future is those in power don’t want to risk another revolution, where everything has to be restarted at t = 0.

    But, then again, as Jefferson said, “Every generation needs a new revolution.”

  47. Yeah, these ‘stupid people’ have the money and the rest of us have the debt. I don’t think it was stupid at all from their point of view. It was extraordinarily calculating.

  48. Are we supposed to just think in less than 5,000 words? It’s not because writting is suddenly called “blogging” that it should be hostile to discursive reason.
    There is nothing wrong with having deep thoughts in more than 5,000 words. The issues raised by Michael Brenner are cogent. In the face of the incredible decisions taken in the last six months, they may be central to, well, survival, nothing less.

  49. Seems to me the President has made himself perfectly clear, as usual. He has said that the “investments,” which, in this period of crisis, it has been necessary to make to address the problems in the banking and automobile manufacturing sectors, are, from a budget perspective, dwarfed by the unfunded Medicare commitments. Solve that, he said, and the problems with debt to GDP ratios and all the rest go away. As for those who are throwing around the word “socialism” and decrying Obama’s style and his choice of advisors, would you have preferred Bush and Paulson in the last five months? Former Clinton Administration Secretary of Labor Robert Reich on his blog this week, comes to the conclusion that the bailout of the automakers serves no useful purpose, certainly not much benefit to labor, other than to cushion the blow of the loss of a iconic industry. The bailout of the banking system seems to me to have had a similar dynamic or rationale. Imagine for a moment what would have happened in the markets had Citigroup gone the way of Lehman all of a sudden. As a nation, we are not prepared to take the losses that are coming at us and policy seems to be aimed to “buying time,” indeed a lot of it, to absorb it and adjust. Meanwhile, China is not nearly ready to take on the global leadership role that seems to be its destiny, and it may be decades before that comes to pass. The Gulf States or the Japanese seem unlikely hegemonic powers. Over at the Financial Times the last few days, the word “normal” is suddenly rather frequent, as in return to normal and the new normal. None of this negates Simon Johnson’s well taken point that there is plenty that could be done to manage better our vulnerabilities relative to dependency on imported oil and imported capital. Personally, I don’t understand why we are not driving automobiles that run on domestically abundant and cheap natural gas. And I don’t understand why we are not seeing the US Treasury coming forth with some creative ways to attract the growing savings of US citizens, like perhaps some type of TIPS that protects against duration risk with rising rates as well as inflation.

  50. You need a balanced budget unless there’s a 2/3 vote to declare war.

  51. Peter Fox-Penner

    Regarding reducing oil dependence, I think your implied criticism of Obama is unfair. After fewer than 120 days in office, they’ve brokered a deal to increase fuel economy standards by previously unthinkable amounts. This is the strongest move to reduce oil dependence since the 1970s. Moreover, Obama has been promoting plug-in hybrids – some would say excessively – since his campaign. Honestly, no candidate or President has been as committed to this goal as Obama, based on the record to date.

    Best Wishes, Peter Fox-Penner

  52. Pingback: Obama’s Gorbachev Moment - Economix Blog - NYTimes.com

  53. Steve W from Ford

    So, looks like you are saying there will be another chance to profit by shorting the banks and the dollar coming along here in a year or two.

    The truly wonderful thing about the structure of the market is that you can make lots of money betting on it’s destruction and then flip around and make more as the pump is primed. Woohoo! And Nero only had a fiddle!

  54. My opinion is that the soviets committed several strategic blunders in their lifetime, listed below in chronological order:

    -Cuban Missile Crisis

    –Failure to turn Brazil into a commie dictatorship

    —Focusing on Nicaragua instead of Mexico (did not learn from their mistakes in Brazil)

    I think that the soviets collapsed in spite of Reagan.

    —-Afghanistan invasion

  55. Tippy Golden

    I think Simon is suggesting China and Saudi Arabia are willing to play along (lending and cheap oil) while the United States blithely drives (pun intended) towards an implosion of its global hegemony.

  56. Tippy Golden

    I could soften my language and say:

    … towards, so China and Saudi Arabia might wish, an implosion of American global hegemony

  57. retaguardiaclub

    Nobody. President Obama will realize, via Mackinder theories, that China and Saudi Arabia are not reliable

  58. Pingback: Do We Defeat the Deficit or Does It Defeat Us? « DELAWARE REPUBLICAN