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Thursday, November 27, 2008

Barack Obama: the Enigmatic Presidency

During the campaign, I predicted that the Obama Presidency would go one of two ways. Either he would follow through on all his campaign promises, which I saw as an unmitigated disaster, or many of his campaign promises were just hot air and we all had no idea how he would govern.

What this will cause is a shrinking business and personal capital investment at exactly the time when it is needed. That will lead to lesser jobs, and that will eventually lead a depression. In other words, we are likely to face, if Senator Obama follows through on his promises, to not only face stagflation but depression and inflation at the same time. In other words, we are about to face an economic apocalypse if he is elected and follows through on his promises. Either that, or he is simply lying about everything he will do for everyone and we are electing an untested first term Senator and none of us know what he will do.

More and more, it appears that the latter was right not the former. In other words, no one, including the President Elect himself, really knows what sorts of policies the President Elect will implement.

On Iraq, Barack Obama ran on a platform of setting a firm timeline for a sixteen month withdrawal. He said over and over that as soon as he got into office he would bring together the Joint Chiefs and give them a new directive that would follow a course of sixteen month withdrawal. Now, he has elected to keep in as Secretary of Defense Robert Gates who publicly criticized this policy.

On Iran, Barack Obama said over and over that it was his goal for unconditional negotiations within the first year. Now, he has apparently chosen Hillary Clinton as his Secretary of State. Clinton criticized this very policy as naive and irresponsible.

To head up the GWOT, he has chosen Janet Napolitano for Homeland Director and Eric Holder for Attorney General. Here is how Dick Morris characterized their role in the GWOT.

Instead he chose a governor with no knowledge of the subject whose obvious credential is her proximity to the border. The Department of Homeland Security is a polyglot agency which includes immigration enforcement (the old INS) among its many missions. It is also charged with fighting drugs (the old DEA), and battling terrorism. By appointing someone who knows nothing about terrorism but everything about immigration, Obama has signaled the lack of priority he will give to domestic efforts to keep us safe.

Imagine if President George W. Bush had named the governor of Arizona as his Homeland Security director when the post was created in the aftermath of 9/11! The nation would have howled in protest. But now that nobody is focused on terrorism (except the terrorists who still want to strike at us), Obama has felt free to bury the task of battling terrorism in the bureaucracy dedicated to policing the Mexican border.

Just as troubling is Obama’s appointment of Eric Holder as his Attorney General. While criticism of the nomination has focused, justifiably, on his sell-out of the public interest by recommending the pardon of fugitive Marc Rich, it is his approval of commutations for the FALN - the Puerto Rican terrorists - that should raise red flags. Before 9/11, when we were not hyper-sensitive to terrorism, Holder did Hillary Clinton’s bidding in approving the pardon of those who bombed Fraunces Tavern in New York City, killing four people and injuring fifty others. Facing a run for Senate in New York State, with its sizable Puerto Rican population, Hillary was anxious to deliver a signal of her empathy with the desires of New York’s Hispanics. Bill, eager to please, sought Justice Department approval for the commutations. Even though the prisoners themselves had not asked for commutation (two refused to accept it),
Holder approved the action and cleared the way for a pre-election gift to New York’s Puerto Rican community.

If these two appointments presage Obama’s approach to the war on terror, we are going to be in deep trouble, indeed. There is not a hawk in the bunch.

On the economy, he campaigned on the populist theme of providing for the poor and middle class while taking more from the wealthy and corporations in order to provide funding for his plethora of entitlement funding. Furthermore, he campaign on a protectionist theme of being weary of new free trade pacts and potentially renegotiating existing free trade pacts. Here is how Forbes describes Obama's economic team..

If you paid attention to the political rhetoric that President-elect Barack Obama engaged in during the Democratic primary, then you probably expected his economic team to be made up of left-wing ideologues. When Obama took a rare holiday from blaming all of America's problems on NAFTA and deregulation, he bashed Hillary
for her cozy relationship with that corporate symbol of evil incarnate: Wal-Mart.

But that rhetoric was, we now know, just that. How "sensible" is Obama's economic team? So sensible, that one can construct a pretty stirring defense of supply-side economics relying solely on their work.

For example, the incoming head of the National Economic Council, Larry Summers, is an academic giant who early in his career published numerous path-breaking articles that highlight the importance of tax policy in influencing economic behavior. He,
along with Fumio Hayashi, was the first to integrate corporate tax policy into what economists' call the "Q" model of investment. These early efforts subsequently led to an explosion of research documenting that corporate tax policy can have an enormous impact on business behavior.

He also pioneered the analysis of consumption taxes and helped kick-start the literature that to this day is the strongest case for fundamental tax reform. But the list goes on. Along with colleagues Andrew Abel, N. Gregory Mankiw and Richard Zeckhauser, he developed a technique for ascertaining whether an economy has too much or too little capital. Applying their technique to U.S. data, one finds quite decisively that we have too little capital, suggesting that capital income taxation is harmful to our long-run welfare.

Of course, a cabinet full of supply siders, free marketeers, and free traders would advise policies diametrically opposed to those he campaigned on. On top of this, Obama is now being very wishy washy as to whether or not he will implement the promised tax increases on the wealthy that he promised. The only thing that we know for sure is that President Elect Obama wants a muscular stimulus package as soon as he enters office and that he wants to continue the bailout and possibly extend it to the automakers. None of these things were any real part of his campaign platform. He's made vague allusions to his other promises: universal health care, regulatory reform, and employment reform. It's unclear whether or not these will all be tabled for the time being.

In other words, it looks more and more as though the Obama Presidency will be an enigma that will unfold as the Presidency unfolds. That isn't necessarily a problem. Rarely does a Presidency unfold according to any plan. Obama has two major constituencies. The first are those that are extremely ideological, and they saw Barack Obama as the conduit of a new progressive era. If I am now right, those folks will likely be very disappointed. They want out of Iraq now, negotiation not confrontation with Iran, and they hate the bailout. In fact, the bailout will get very little ideological agreement on the bailout. His ideological supporters are sure to be very disappointed very soon if his Presidency continues the way his transition has unfolded.

The second group of Obama supporters see him as some sort of a trans formative figure a la Colin Powell. To them, there is little ideological in their support of Obama. They would call the sort of pragmatism that we have seen so far as proof that they were right. They will likely follow Obama for a long time no matter what he does. They are the sort of folks that will defer to him and assume that no matter what he does, he's right. As such, this sort of pragmatism shouldn't affect his support from this niche of his base.

To me though, there is a great danger in the sort of pragmatism that Barack Obama is showing. At least when he was pitching a left wing populism, one could predict the outcome. Now, no one is really sure what he will do. The world is a dangerous place. Our economy is in a dangerous position, and there are a lot of evil despots and tyrants just licking their chops to test this novice. Meanwhile, we have just elected a first term Senator with a history of accomplishing ABSOLUTELY NOTHING and now we know absolutely nothing about what he is about to do. Let's hope Obama's most fervent followers are right and he really can walk on water. If they are wrong, an executive and political novice is about to make it up as he goes along in a world of terror, Putin, a recession, and a growing Culture and Class war.

1 comment:

Anonymous said...

Good, calm analysis, Mike.
Obama will betray many he has made promises to on the road to the white house. Who are they and what will they do?
Jim Johnson