President Obama is still getting it wrong. Nevertheless, we keep hearing that he is such a clever politician. Count me among those who believe that the Republicans are setting Obama up for failure and a loss to whatever goofball happens to win the GOP Presidential nomination in 2012 – solely because of a deteriorating economy. Obama had the chance to really save the economy and “right the ship”. When he had the opportunity to confront the greatest economic crisis since the Great Depression, President Obama violated Rahm Emanuel’s infamous doctrine, “You never want a serious crisis to go to waste”. The new President immediately made a point of squandering the opportunity to overcome that crisis. I voiced my frustration about this on October 7, 2010:
The trouble began immediately after President Obama assumed office. I wasn’t the only one pulling out my hair in February of 2009, when our new President decided to follow the advice of Larry Summers and “Turbo” Tim Geithner. That decision resulted in a breach of Obama’s now-infamous campaign promise of “no more trickle-down economics”. Obama decided to do more for the zombie banks of Wall Street and less for Main Street – by sparing the banks from temporary receivership (also referred to as “temporary nationalization”) while spending less on financial stimulus. Obama ignored the 50 economists surveyed by Bloomberg News, who warned that an $800 billion stimulus package would be inadequate. At the Calculated Risk website, Bill McBride lamented Obama’s strident posturing in an interview conducted by Terry Moran of ABC News, when the President actually laughed off the idea of implementing the so-called “Swedish solution” of putting those insolvent banks through temporary receivership.
In September of 2009, I discussed a fantastic report by Australian economist Steve Keen, who explained how the “money multiplier” myth, fed to Obama by the very people who caused the financial crisis, was the wrong paradigm to be starting from in attempting to save the economy. The Australian professor (Steve Keen) was right and Team Obama was wrong. In analyzing Australia’s approach to the financial crisis, economist Joseph Stiglitz made this observation on August 5, 2010:
Kevin Rudd, who was prime minister when the crisis struck, put in place one of the best-designed Keynesian stimulus packages of any country in the world. He realized that it was important to act early, with money that would be spent quickly, but that there was a risk that the crisis would not be over soon. So the first part of the stimulus was cash grants, followed by investments, which would take longer to put into place.
Rudd’s stimulus worked: Australia had the shortest and shallowest of recessions of the advanced industrial countries.
On October 6, 2010, Michael Heath of Bloomberg BusinessWeek provided the latest chapter in the story of how America did it wrong while Australia did it right:
Australian Employers Added 49,500 Workers in September
Australian employers in September added the most workers in eight months, driving the country’s currency toward a record and bolstering the case for the central bank to resume raising interest rates.
The number of people employed rose 49,500 from August, the seventh straight gain, the statistics bureau said in Sydney today. The figure was more than double the median estimate of a 20,000 increase in a Bloomberg News survey of 25 economists. The jobless rate held at 5.1 percent.
Meanwhile, America’s jobless rate has been hovering around 9 percent and the Federal Reserve found it necessary to print-up another $600 billion for a controversial second round of quantitative easing. If that $600 billion had been used for the 2009 economic stimulus (and if the stimulus program had been more infrastructure-oriented) we would probably have enjoyed a result closer to that experienced by Australia. Instead, President Obama chose to follow Japan’s strategy of perpetual bank bailouts (by way of the Fed’s “zero interest rate policy” or ZIRP and multiple rounds of quantitative easing), sending America’s economy into our own “lost decade”.
The only member of the Clinton administration who deserves Obama’s ear is being ignored. Bill Clinton’s Secretary of Labor, Robert Reich, has been repeatedly emphasizing that President Obama is making a huge mistake by attempting to follow the Clinton playbook:
Many of President Obama’s current aides worked for Clinton and vividly recall Clinton’s own midterm shellacking in 1994 and his re-election two years later – and they think the president should follow Clinton’s script. Obama should distance himself from congressional Democrats, embrace deficit reduction and seek guidance from big business. They assume that because triangulation worked for Clinton, it will work for Obama.
They’re wrong. Clinton’s shift to the right didn’t win him re-election in 1996. He was re-elected because of the strength of the economic recovery.
By the spring of 1995, the American economy already had bounced back, averaging 200,000 new jobs per month. By early 1996, it was roaring – creating 434,000 new jobs in February alone.
Obama’s 2011 reality has us losing nearly 400,000 jobs per month. Nevertheless, there is this misguided belief that the “wealth effect” caused by inflated stock prices and the current asset bubble will somehow make the Clinton strategy relevant. It won’t. Instead, President Obama will adopt a strategy of “austerity lite”, which will send America into a second recession dip and alienate voters just in time for the 2012 elections. Professor Reich recently warned of this:
House Majority Leader Eric Cantor recently stated the Republican view succinctly: “Less government spending equals more private sector jobs.”
In the past I’ve often wondered whether they’re knaves or fools. Now I’m sure. Republicans wouldn’t mind a double-dip recession between now and Election Day 2012.
They figure it’s the one sure way to unseat Obama. They know that when the economy is heading downward, voters always fire the boss. Call them knaves.
What about the Democrats? Most know how fragile the economy is but they’re afraid to say it because the White House wants to paint a more positive picture.
And most of them are afraid of calling for what must be done because it runs so counter to the dominant deficit-cutting theme in our nation’s capital that they fear being marginalized. So they’re reduced to mumbling “don’t cut so much.” Call them fools.
If inviting a double-dip recession weren’t dumb enough – how about a second financial crisis? Just add more systemic risk and presto! The banks won’t have any problems because the Fed and the Treasury will provide another round of bailouts. Edward Harrison of Credit Writedowns recently wrote an essay focused on Treasury Secretary Geithner’s belief that we need big banks to be even bigger.
Even if the Republicans nominate a Presidential candidate who espouses a strategy of simply relying on Jesus to extinguish fires at offshore oil rigs and nuclear reactors – Obama will still lose. May God help us!