By James Kwak
Helene Cooper of the New York Times wrote a “news analysis” story saying that the challenge for President Obama is this:
“Is he willing to try to administer the disagreeable medicine that could help the economy mend over the long term, even if that means damaging his chances for re-election?”
The problem, she goes on to say in the next paragraph, is that the economy is in bad shape:
“The Federal Reserve’s finding on Tuesday that there is little prospect for rapid economic growth over the next two years was the latest in a summer of bad economic news.”
On the one hand, last week’s Volcker-fest signaled that the Obama administration wants to get tough on Wall Street. Given that they almost certainly don’t have the votes in the Senate (and probably not the House, either), this may have been a purely political calculation, and it remains to be seen how much substance lies behind the marketing. But even so it was probably smart politics, since it forces Republicans to either go along (which ain’t gonna happen) or come out in favor of hedge funds and proprietary trading.
On the other hand, what the —-? The New York Times reports that Obama is planning to call for a three-year freeze on non-security discretionary spending, which means everything except Medicare, Medicaid, Social Security, the Defense Department, Homeland Security, and the VA–that is, everything except the vast majority of the budget. This at a time when the unemployment rate is at 10%.
It’s late January and Scott Brown will be the next senator from Massachusetts, which means it’s time for critical retrospectives on Obama’s first year in office. I’m not going to try my own, but simply point you to two I found worthwhile. One, not surprisingly, is by Ezra Klein, who says this is Obama’s problem:
“Obama’s presidency has tried to show, not tell. He’s not given speeches about how government can work. He’s not tried to change minds about the theoretical possibility of government working. He’s tried to make government work. Winning achievements, not arguments, has been at the center of the administration’s agenda.”
Klein realizes the irony, of course; a president who is doing what we say we want presidents to do–govern–is being stonewalled by a right wing intent on winning the next elections, and sniped at by a left wing for compromising too much and for not scoring enough political points. But, as Klein says, whether the fault is Obama’s, Congress’s, or ours, it’s not working.
Posted in Commentary
So Barack Obama has come around to the idea that big banks need to be made smaller and that smarter regulation (contingent capital, enhanced capital requirements for large banks, resolution authority, etc.) just won’t cut it. Today he proposed limits on market share (measured by a bank’s share of total bank liabilities in the United States) and a prohibition on internal hedge funds, private equity funds, and proprietary trading.
This is great. It means that the administration is moving in the right direction–breaking up big banks–and the president is putting his name behind it. For more on why these are good ideas, see Mike Konczal.
OK, now for the caveats.
Kevin Drum found a great quotation from FDR and what he thought of bankers, monopolists, and speculators. It’s so good he deserves to have you go there and read it.
Drum’s point is that while health care may have required conciliation and moderation, “When it comes to financial regulatory reform, Obama needs to let us know whose side he’s on.” So far Obama has played the peacemaker, the reasonable man in the middle, the man who bridges divides. “My administration is the only thing between you and the pitchforks,” he said last March; note that he brought up the pitchforks, but positioned himself as the center, holding back the crazies.
Barack Obama came to office as the conciliator, the bipartisanizer, the anti-Bush. But this is going too far.
The administration’s style has been to float policy proposals in public, listen to the responses (from other politicians, from the private sector, and from the blogs that Obama does not read), and adjust accordingly. When it comes to the financial regulation proposal that Tim Geithner is scheduled to deliver on Thursday, there may be little left after all the adjusting.
Rahm Emanuel reportedly has a doctrine: Never let a serious crisis go to waste. His point is a good one – vested interests usually block change across a wide range of important issues in the US, and a major financial/economic crisis provides an opportunity to bypass or breakthrough those interests in order to introduce meaningful and substantial change. Emanuel listed (from the 1:40 minute mark) five priority areas for change: health care (cost control and expansion of coverage), energy (independence and alternatives), taxes (fairness and simplicity), education (fundamental changes to effectively train the workforce), and financial regulation (transparency and accountability).
The financial crisis is abating – although the economic costs continue to mount and new problems may still appear (ask California or Ukraine). At least among the people I talk with on Capitol Hill, there is a very real sense that business is returning to usual; certainly, the lobbyists are out in force, they want what they always want, and it’s hard to see many of them as seriously weakened. How much progress have we made on any of Emanuel’s priority areas or, for that matter, along any other public policy dimension that was previously stuck? Continue reading
With our myriad banking problems, rapidly rising unemployment, looming political battles over the budget and much more on the pressing domestic agenda, is the G20 summit in London (dinner Wednesday and meeting Thursday) really worth all the time and effort that the President and his team have devoted to it? And, granted that President Obama has to attend this heads of government meeting for protocol reasons, is there much that this summit can realistically achieve – i.e., are there actions that will be taken as a result of the summit that would not otherwise have happened and that can really make a difference to the parlous state of our economy?
These are all reasonable questions. And the answer is simple: in terms of the obvious major issues of the day, this summit is unlikely to achieve much.
But every global economic recovery has to start somewhere and it probably has to begin small. And there are some slight glimmers of hope because (a) President Obama is taking a global leadership role, (b) he is doing this in a creative way that might seem surprising, but which should reduce the chance of a further global meltdown. Continue reading