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Failed Leadership

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July 8, 2010

Exactly one year ago (on July 7, 2009) I pointed out that it would eventually become necessary for President Obama to propose a second economic stimulus package because he didn’t get it right the first time.  As far back as January of 2009, the President was ignoring all of the warnings from economists such as Nobel Laureate Joseph Stiglitz, who forewarned that the proposed $850 billion economic recovery package would be inadequate.  Mr. Obama also ignored the Bloomberg News report of February 12, 2009 concerning its survey of 50 economists, which described Obama’s stimulus plan as “insufficient”.  Last year, the public and the Congress had the will – not to mention the sense of urgency – to approve a robust stimulus initiative.  As we now approach mid-term elections, the politicians whom Barry Ritholtz describes as “deficit chicken hawks” – elected officials with a newfound concern about budget deficits – are resisting any further stimulus efforts.  Worse yet, as Ryan Grim reported for the Huffington Post, President Obama is now ignoring his economic advisors and listening, instead, to his political advisors, who are urging him to avoid any further economic rescue initiatives.

Ryan Grim’s article revealed that there has been a misunderstanding of the polling data that has kept politicians running scared on the debt issue.  A recent poll revealed that responses to polling questions concerning sovereign debt are frequently interpreted by the respondents as limited to the issue of China’s increasing role as our primary creditor:

The Democrats gathered on Thursday morning to dig into the national poll, which was paid for by the Alliance for American Manufacturing and done by Democrat Mark Mellman and Republican Whit Ayers.

It hints at an answer to why people are so passionate when asked by pollsters about the deficit:  It’s about jobs, China and American decline.  If the job situation improves, worries about the deficit will dissipate.  Asking whether Congress should address the deficit or the jobless crisis, therefore, is the wrong question.

*   *   *

About 45 percent of respondents said the biggest problem is that “we are too deep in debt to China,” the highest-ranking concern, while 58 percent said the U.S. is no longer the strongest economy, with China being the overwhelming alternative identified by people.

As I pointed out on May 27, even Larry Summers gets it now – providing the following advice that Obama is ignoring because our President is motivated more by fear than by a will to lead:

In areas where the government has a significant opportunity for impact, it would be pennywise and pound foolish not to take advantage of our capacity to encourage near-term job creation.

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Consider the package currently under consideration in Congress to extend unemployment and health benefits to those out of work and support to states to avoid budget cuts as a case in point.

It would be an act of fiscal shortsightedness to break from the longstanding practice of extending these provisions at a moment when sustained economic recovery is so crucial to our medium-term fiscal prospects.

Since our President prefers to be a follower rather than a leader, I suggest that he follow the sound advice of The Washington Post’s Matt Miller:

I come before you, in other words, a deficit hawk to the core.  But it is the height of economic folly — and socially dangerous, in my view — to elevate deficit reduction as a goal today over boosting jobs and growth.  Especially when there are ways to goose the economy while at the same time legislating changes that move us toward fiscal sanity once we’re past this stagnation.

Mr. Miller presented a fantastic plan, which he described as “a radically centrist ‘Jobs Now, Deficits Soon’ package”.  He concluded the piece with this painfully realistic assessment:

The fact that nothing like this will happen, therefore, is both depressing and instructive.  Republicans are content to glide toward November slamming Democrats without offering answers of their own.  Democrats who now know the first stimulus was too puny feel they’ll be clobbered for trying more in the Tea Party era.

The leadership void brought to us by the Obama Presidency was the subject of yet another great essay by Paul Farrell of MarketWatch.  He supported his premise — that President Obama has capitulated to Wall Street’s “Conspiracy of Weasels” — with the perspectives of twelve different commentators.

The damage has already been done.  Any hope that our President will experience a sudden conversion to authentic populism is pure fantasy.  There will be no more federal efforts to resuscitate the job market, to facilitate the availability of credit to small businesses or to extend benefits to the unemployed.  The federal government’s only concern is to preserve the well-being of those five sacred Wall Street banks because if any single one failed – such an event would threaten our entire financial system.  Nothing else matters.