The opposition to President Barack Obama suggest that his is a failed presidency because the United States is in the midst of the weakest economic recovery following a recession in the post-World War II period. The reality is that the Obama presidency is challenged because he is carrying the water for the failures of all his predecessors.
We have normally recovered from recessions through the mechanisms of “fine tuning.” Specifically, Keynesian demand management and monetary policy tools have been utilized to stimulate economic recoveries. These cyclical policy tools have proved unsatisfactory in dealing with the 2008-09 financial crisis linked recession; it is not difficult to understand why.
Keynesian economic policy argues that the government becomes the buyer of last resort in a recession. By the government financing “shovel ready projects” and providing an economic safety net to the unemployed, the economy is lifted out of recession. But this time, there was little follow through to the Obama stimulus plan. Part of the reason that the plan failed is that Keynesian policy has been practiced poorly by his predecessors. Keynes hypothesized that the government should run deficits during recession and surpluses during recoveries. Those surpluses would act to contain the recovery from becoming a boom with inflationary consequences and would keep government debt from becoming excessive. Because we did not tolerate surpluses during recoveries our federal government debt position is excessive; provoking screams for austerity and neutralizing the effects of demand management. His predecessors share responsibility for not applying the total Keynes concept.
Monetary policy works through two mechanisms: the Federal Reserve lowers interest rates making housing and consumer durables cheaper to finance thereby increasing demand in these sectors and a wealth effect — Wall Street can finance their inventories of debt and equity securities more cheaply and the investment dealers expand their inventories with the result that security price’s rise. The wealth effect occurred this time but large businesses did not respond to the easy financial conditions. Monetary policy became welfare for the rich with no employment trickle down.
Part of the reason that monetary policy failed is that the Greenspan-Bernanke Federal Reserves have created sequential bubbles: NASDAQ stocks followed by the housing-subprime mortgage bubbles. These bubbles left a wake of excessive debt as legacies. That private sector debt overhang has impaired the effectiveness of current low interest rates to induce recovery and sustain prosperity.
Alan Greenspan was on the “Larry Kudlow Show” (CNBC) recently and dissected the sub-normal recovery. According to Greenspan, 92 percent of the economy is performing well but the housing and commercial real estate sectors remain in a funk. The reason for that funk is that government is crowding out the private sector. A more humble Federal Reserve chairman might have said that “I blew a bubble and I have remorse for doing so.” But Greenspan, having no humble bone whatsoever, and the ultimate politician himself, will be a political activist to shrink the government and its safety net. If monetary policy under his watch had been conducted appropriately, no debt overhang would exist and current monetary policy would function well.
Monetary policy and fiscal policy are cyclical tools that previously lifted us to recovery but that are currently failing to produce results. But there is secular reason for today’s poor performance. A little history will serve us well here. After WW I, the world tried to restructure under the gold exchange standard. London was the center of the financial world prior to the war and wanted to be the center thereafter. The politicians in the United Kingdom went back on the gold standard at an exchange rate that was beneficial to their financiers but impaired their manufacturers. The UK was in depression post-WWI as the United States experienced the “Roaring 20s.” Today’s politicians have chosen to support finance and sacrifice manufacturing so that multinational corporations can participate in the growth of China. Both the U.S. and Europe have allowed unfair competition, currency linked, for this reason.
So here we have it. Obama can be defended on two cyclical policy grounds and one secular. But does he deserve to be defended? Was there an option available to Barack Obama? Obama stated this month that he had failed to tell the story of the Great Recession. Presumably that story would have an ending of shared sacrifice. Had he accepted the Simpson-Bowles plan he would have opened the dialogue to deal with all the remnants and legacies of his predecessors, but he failed to support their plan or to introduce a modified version as his own and for this we should hold him accountable.
We have an election in the fall in which reasonable men and women have no dog in the hunt. Compromise and shared sacrifice and how we accomplish that in an equitable fashion should be the order of the day and yet reasonable people have no champion.
America is begging for a patriot to step forward. Perhaps a split political ticket; Bill Bradley (D) and Jon Huntsman (R), for example, would be an acceptable compromise, but the reality is that an election in November will determine whether America leans left or right. We deserve better than what is being offered by either political party.
Contact Glensky, a former Wall Street financial manager who now lives in North Myrtle Beach, at firstname.lastname@example.org.