NOT since 1933 had an American president taken the oath of office in an economic climate as grim as it was when Barack Obama put his left hand on the Bible in January 2009. The banking system was near collapse, two big car manufacturers were sliding towards bankruptcy; and employment, the housing market and output were spiralling down.
Hemmed in by political constraints, presidents typically have only the slightest influence over the American economy. Mr Obama, like Franklin Roosevelt in 1933 and Ronald Reagan in 1981, would be an exception. Not only would his decisions be crucial to the recovery, but he also had a chance to shape the economy that emerged. As one adviser said, the crisis should not be allowed to go to waste.
Did Mr Obama blow it? Nearly four years later, voters seem to think so: approval of his economic management is near rock-bottom, the single-biggest obstacle to his re-election. This, however, is not a fair judgment on Mr Obama’s record, which must consider not just the results but the decisions he took, the alternatives on offer and the obstacles in his way. Seen in that light, the report card is better. His handling of the crisis and recession were impressive. Unfortunately, his efforts to reshape the economy have often misfired. And America’s public finances are in a dire state.
Seven weeks before Mr Obama defeated John McCain in November 2008, Lehman Brothers collapsed. AIG was bailed out shortly afterwards. The rescues of Bank of America and Citigroup lay ahead. In the final quarter of 2008, GDP shrank at an annualised rate of 9%, the worst in nearly 50 years.
The elephant in the second term
… Mr Obama is likely to move closer to the centre if he wins a second term. His principal legislative goals—health care and financial reform—are achieved. The Republicans are almost certain to control at least one chamber of Congress, precluding big new spending plans, regardless of the state of the recovery.
That leaves the public finances. There is little to commend in Mr Obama on that front. True, he inherited the largest budget deficit in peacetime history, at 10% of GDP. But in 2009 he thought it would fall to 3% by the coming fiscal year. Instead, it will be 6%, if he gets his way. Back in 2009, he thought debt would peak at 70% of GDP in 2011. Now it is projected to reach 79% in 2014 assuming his optimistic growth forecast is correct.
This is not quite the indictment it seems: normal standards of fiscal rectitude have not applied in the past four years. When households, firms and state and local governments are cutting their debts, the federal government would have made the recession worse by doing the same.
Excerpts from an article by Chrystia Freeland in the Globe & Mail.
In choosing Paul Ryan as his running mate, Republican presidential contender Mitt Romney swapped his Massachusetts pragmatism for a proudly ideological commitment to limited government. The Democrats, by contrast, believe in the essential role government plays, and are willing to raise taxes, at least on the rich, to pay for it.
Thanks to smart machines and global trade, the well-paying, middle-class jobs that were the backbone of Western democracies are vanishing. The paradoxical driver of this middle-class squeeze is not some villainous force – it is, rather, the success of the world’s best companies, many of them American.
It took more than the spinning jenny or the steam engine to transform local, agrarian, family-based communities into national, urban, individualistic ones. New political and social institutions will be needed to midwife the latest shift into global and virtual communities. Inventing those institutions is difficult, and talking about them can be frightening, but that is the political conversation the Western world should be having.
Politicians must think the voting public is either stupid or gullible. Each election the opposition party promises to give the voters everything under the sun, and blame the current governing party for everything wrong.
Let’s look at budgets, whether here in Canada, the United States, or anywhere else.
Let’s look at voters as a lottery group, who each year elect a group to buy lottery tickets and manage the voters money.
Okay, so the people who manage a lottery group usually don’t get fat pensions, fat paychecks and fat perks, don’t often get arrested or thrown in jail, and don’t usually make promises they know they can’t keep. But other than that, let’s say for this instance only, the managers of a lottery group act somewhat like a group of elected politicians running a government in that they take your money and spend it then ask for more money because they lost it all.
If you are breathing then you probably have or soon will have a budget. A budget helps you plan, and explain, how and where your money comes from and how and where your money is spent.
If you spend more than you bring in, as many people do and almost all governments do, then you have a budget problem and you are in debt.
Governments are often comprised of people who have been elected through some voting process. This means that those who are elected want to be re-elected so they may continue to serve “the public good”, which in most governments means getting fat paychecks and pensions and doing things which all too often get them in the newspapers and sometimes in jail.
Let’s compare a country to a group of 100 lottery ticket holders which, like most lottery groups, seldom wins a lottery or wins enough to recover what they have spent over the months and years of buying lottery tickets.
Let’s call these lottery ticket holders “voters” and have them elect three people who’ll buy the lottery tickets for one year. This “elected” group will have the ultimate right to decide how the lottery ticket money is spent, but the “elected” group promises to do so wisely and with all the good intentions of any politician.
As is wont with lotteries, there are occasions where a particular lottery has a very large payout and the elected group decides to roll most of the bundle on that particular lottery. Let’s call one of these lotteries “war”, wherein you try to get seven oil wells in seven countries out of a total of 149 countries. Win the lottery and your group gets oil and gas for free for life.
Unfortunately, no one wins the lottery this time around, and so the lottery is run again. This time the group gets 3 oil wells in 3 countries and wins a chance to keep those oil wells if no one wins the same three oil wells in the same three countries during the next three lotteries. The group loses everything on the next “war” lottery.
But the elected official spent all the groups money on the “war” lottery and some other lotteries, and now has to go to the group and ask for more money just like a government does at times when it plans its budget.
So the lottery group gives the elected group more money to spend on lotteries, and what do you know, a new lottery comes up where you can win a car a year for life and all the gas you need and never ever have to pay a parking ticket or speeding ticket again. Let’s call this lottery the “transportation” lottery. They group loses on both the “transportation” lottery and the “war” lottery.
During the whole year the “elected” group buys lottery tickets every day and they never win once. The lottery group decides to throw the bums out and holds another election to choose a group to win the jackpot this time and to spend their money wisely.
The first thing the “elected” group does is ask the lottery members to cough up more money. The elected group argues it needs to buy additional lottery tickets in order to not only try and recover the original amount lost by the first “elected” group, but to spread the chance of winning across a wider field by buying more and different lottery tickets and putting some of the lottery money into something safer like bonds or in banks to earn interest or health insurance policies for the group.
But the lottery members object, claiming this is irresponsible budget management. The main objectors to this request for new funds are the same 3 people who were voted out because they spent too much and won nothing.
The three former “elected” lottery members stir up the other lottery members, using lies and denials and false accusations, and the lottery group decides not to use any funds for safe keeping or safe investments or health insurance.
The newly elected group, shackled by the lack of funds to provide a safety-net in the form of safer investments or health insurance for its members, is forced to do with less than their budget requires. The newly elected group is forced to cut back on the lotteries it can invest it and forced to forgo any alternative forms of investment.
The newly elected group of managers fails to do any better than the previous group, due to the former elected members bad management while in office and their behavior once pushed out of office, and the lottery group losses again.
The former management group, having proof now that the present group has failed to live up to its promises, gets the present group thrown out and themselves elected back in solely by reiterating over and over and over that the present group failed to deliver what it promised.
In the U.S. the Republicans and the “Tea Party” people seem to forget it was their group that created all the problems and failed to ever have a balanced budget in the last sixty years.
The hypocrisy with many politicians is that they create the problems then blame the opposition for the very same problems they themselves created.
It’s sort of like children answering a mother when asked who stole the cookie from the cookie jar. The guilty one often is first to point to the other child.