Check It Out for Thursday, March 19th
John R. MacArthur at Harpers writes that Obama is far from a radical reformer.
"An early skeptic about the left-handed phenom from Chicago, I’ve never had any illusions about Obama’s commitment to left-wing “change.” Yet that’s exactly what pundits across the political spectrum say Obama is putting forth.
"Of course, we heard it all before in the Clinton administrations—“Ah know you voted for chaiinge”—but the change Clinton had in mind was realigning the Democratic Party to the right of center, where he could raise more money for his political campaigns.
"Now Obama, a product of the non-ideological Daley machine and advised largely by Clinton retreads, has presented what ought to be described as a cautious, centrist budget, albeit one with a huge deficit. Sure, it’s a lot of money, but given the severity of the recession, it’s hardly excessive. Indeed, such unradical liberals as Paul Krugman have criticized Obama’s pre-budget stimulus package as not being nearly aggressive enough.
"...you might think that a crypto-socialist had taken up residence in the White House. But such a reading of Obama is absurd.
"First, the “soak-the-rich” aspect of the proposed tax changes is vastly overstated. Obama wants to reduce the deduction that top earners take on their charitable giving, but he timidly declines to raise the highest marginal-income-tax rate immediately, preferring to let the Bush tax cuts expire in 2011. Not until 2012 would the President’s rich Wall Street and corporate-executive campaign donors be forced to pay 39.6 percent on part of their income—hardly confiscatory when one recalls that the top marginal rate remained above 90 percent through both Eisenhower administrations and part of Kennedy’s. Similarly, the top rate on capital gains was as high as 36.5 percent during the Nixon/Ford era; Obama aims to raise it to just 20 percent from the current 15.
"Fiddling with the tax code (not reforming it) is supposed to help pay for better health care.. Already, Obama’s health plan doesn’t cover everyone, but it does ensure that insurance companies and HMOs will continue reaping profits off illness and bad luck...
"Even so, left and right persist in the fantasy that the president is a Mr. Smith Goes to Washington character prepared to “take on” the powers that be. It’s one thing to rationalize the vast sums that Obama raised for his campaign from commercial and investment banks (“Well, you have to get elected,” etc.). But rationalizing the laissez-faire beliefs of Lawrence Summers and Timothy Geithner—exhibited most notably in their scandalous opposition to derivatives regulation in the Clinton administration—borders on the idiotic.
"On budget matters, so far, Obama’s economic “brain trust” is brain-dead. Comparisons with FDR are spurious, given that the administration so far won’t even discuss restoring some form of Glass-Steagall, the New Deal law that separated investment banks and commercial banks. Meanwhile, Obama seems to have forgotten his proposed “reform” of NAFTA or of our cheap-labor investment agreement with China (so-called Permanent Normal Trading Relations). And he’s certainly not calling for higher tariffs to protect American industry and wages, or for bank nationalizations.
"Obama, a moderate with far too much respect for the globalized financial class, is surely the unleft, unradical president. Which makes you wonder why left and right find common cause in saying otherwise."
James K. Galbreath in a lengthy article in the Washington Monthly says no return to normal for the economy, and questions whether does the Obama's economic team have what it takes to make a difference: the boldness and insight of a 21st century New Deal.
"Barack Obama's presidency began in hope and goodwill, but its test will be its success or failure on the economics. Did the president and his team correctly diagnose the problem? Did they act with sufficient imagination and force? And did they prevail against the political obstacles-and not only that, but also against the procedures and the habits of thought to which official Washington is addicted?
"The president has an economic program. But there is, so far, no clear statement of the thinking behind that program, and there may not be one, until the first report of the new Council of Economic Advisers appears next year. We therefore resort to what we know about the economists: the chair of the National Economic Council, Lawrence Summers; the CEA chair, Christina Romer; the budget director, Peter Orszag; and their titular head, Treasury Secretary Timothy Geithner. This is plainly a capable, close-knit group, acting with energy and commitment. Deficiencies of their program cannot, therefore, be blamed on incompetence. Rather, if deficiencies exist, they probably result from their shared background and creed-in short, from the limitations of their ideas.
"The deepest belief of the modern economist is that the economy is a self-stabilizing system. This means that, even if nothing is done, normal rates of employment and production will someday return.....
"...The difference between conservatives and liberals is over whether policy can usefully speed things up. Conservatives say no, liberals say yes, and on this point Obama's economists lean left. Hence the priority they gave, in their first days, to the stimulus package.
"But did they get the scale right? Was the plan big enough? Policies are based on models; in a slump, plans for spending depend on a forecast of how deep and long the slump would otherwise be. The program will only be correctly sized if the forecast is accurate. And the forecast depends on the underlying belief. If recovery is not built into the genes of the system, then the forecast will be too optimistic, and the stimulus based on it will be too small.
"In addition, some of the biggest banks are bust, almost for certain. Having abandoned prudent risk management in a climate of regulatory negligence and complicity under Bush, these banks participated gleefully in a poisonous game of abusive mortgage originations followed by rounds of pass-the-bad-penny-to-the-greater-fool. But they could not pass them all. And when in August 2007 the music stopped, banks discovered that the markets for their toxic-mortgage-backed securities had collapsed, and found themselves insolvent. Only a dogged political refusal to admit this has since kept the banks from being taken into receivership by the Federal Deposit Insurance Corporation-something the FDIC has the power to do, and has done as recently as last year with IndyMac in California.
"Geithner's banking plan would prolong the state of denial. It involves government guarantees of the bad assets, keeping current management in place and attempting to attract new private capital...
"The oddest thing about the Geithner program is its failure to act as though the financial crisis is a true crisis-an integrated, long-term economic threat-rather than merely a couple of related but temporary problems, one in banking and the other in jobs. In banking, the dominant metaphor is of plumbing: there is a blockage to be cleared.. Take a plunger to the toxic assets, it is said, and credit conditions will return to normal. This, then, will make the recession essentially normal, validating the stimulus package. Solve these two problems, and the crisis will end. That's the thinking.
"But the plumbing metaphor is misleading. Credit is not a flow. It is not something that can be forced downstream by clearing a pipe...
"The credit flow metaphor implies that people came flocking to the new-car showrooms last November and were turned away because there were no loans to be had. This is not true-what happened was that people stopped coming in. And they stopped coming in because, suddenly, they felt poor.
"In short, if we are in a true collapse of finance, our models will not serve. It is then appropriate to reach back, past the postwar years, to the experience of the Great Depression. And this can only be done by qualitative and historical analysis. Our modern numerical models just don't capture the key feature of that crisis-which is, precisely, the collapse of the financial system.
"If the banking system is crippled, then to be effective the public sector must do much, much more. How much more? By how much can spending be raised in a real depression? And does this remedy work? Recent months have seen much debate over the economic effects of the New Deal, and much repetition of the commonplace that the effort was too small to end the Great Depression, something achieved, it is said, only by World War II. A new paper by the economist Marshall Auerback has usefully corrected this record. Auerback plainly illustrates by how much Roosevelt's ambition exceeded anything yet seen in this crisis:
"In other words, Roosevelt employed Americans on a vast scale, bringing the unemployment rates down to levels that were tolerable, even before the war-from 25 percent in 1933 to below 10 percent in 1936, if you count those employed by the government as employed, which they surely were..[Roosevelt's] government hired about 60 per cent of the unemployed in public works and conservation projects that planted a billion trees, saved the whooping crane, modernized rural America, and built such diverse projects as the Cathedral of Learning in Pittsburgh, the Montana state capitol, much of the Chicago lakefront, New York's Lincoln Tunnel and Triborough Bridge complex, the Tennessee Valley Authority and the aircraft carriers Enterprise and Yorktown. It also built or renovated 2,500 hospitals, 45,000 schools, 13,000 parks and playgrounds, 7,800 bridges, 700,000 miles of roads, and a thousand airfields. And it employed 50,000 teachers, rebuilt the country's entire rural school system, and hired 3,000 writers, musicians, sculptors and painters, including Willem de Kooning and Jackson Pollock.
"What did not recover, under Roosevelt, was the private banking system. Borrowing and lending-mortgages and home construction-contributed far less to the growth of output in the 1930s and '40s than they had in the 1920s or would come to do after the war. If they had savings at all, people stayed in Treasuries, and despite huge deficits interest rates for federal debt remained near zero. The liquidity trap wasn't overcome until the war ended.
"It was the war, and only the war, that restored (or, more accurately, created for the first time) the financial wealth of the American middle class...
"A paradox of the long view is that the time to embrace it is right now. We need to start down that path before disastrous policy errors, including fatal banker bailouts and cuts in Social Security and Medicare, are put into effect.. It is therefore especially important that thought and learning move quickly. Does the Geithner team, forged and trained in normal times, have the range and the flexibility required? If not, everything finally will depend, as it did with Roosevelt, on the imagination and character of President Obama."
Robert Borosage at Campaign for America's Future focuses on the hypocritical opposition: the Blue Dog Democrats.
"The timidity of conventional wisdom—particularly in dealing with the Wall Street banksters—has delayed the necessary restructuring of the insolvent banks. As the AIG bonus scandal suggests, the president's economic team may well be shooting itself in the knee.
"But the most treacherous opposition comes from within the Democratic Party itself, from so-called "moderate" and conservative Democrats—the Blue Dogs in the House and their cousins in the Senate—who are working to block the changes that we need. House Blue Dogs threaten constantly to join with Republicans to cut vital investments and limit basic reforms. New Dems ingloriously worked for banks in weakening the ability of judges to adjust mortgages in bankruptcy.
"But it is in the Senate where the opposition is most damaging. Consider:
"It was Ben Nelson, a conservative Democrat from Nebraska, who gave Republicans their legs in weakening the vital stimulus package. Joining with the Maine Republican senators, Nelson succeeded in reducing the size of the stimulus package and in cutting investment to support more tax cuts, particularly the egregious "fix" of the alternative minimum tax that goes to high-end earners and is least effective in generating jobs. Nelson not only turned on the president's plan, he made it much weaker.
"Now Evan Bayh, the Ken-doll handsome senator from Indiana, has joined with Tom Carper of Delaware and Blanche Lincoln to organize the equivalent of a Blue Dog group in the Senate. Bayh objects to early reports that described them as working to obstruct the president's reforms and water down his budget, arguing "we're not a counterweight to anybody. We're not here to obstruct anything. We're here to help get to 60 votes," referencing the threshold that's needed to overcome filibusters.
"The president isn't omniscient, so I for one don't expect Democrats to line up to support his every move. Certainly, he would be well served if opposition to his failed banking plan grows.
"But Bayh and his Blue Dog senators haven't exactly earned trust for their judgment. Bayh, for example, was a leading supporter of making war on Iraq. He joined with the noxious Joe Lieberman in casting the most votes against the president during the stimulus fight. He recently penned a truly bizarre editorial in The Wall Street Journal calling on the president to veto the final appropriations bill for this fiscal year.
"Thus far, these Senate wannabe Blue Dogs have done a lot of barking, while threatening to trip up the reforms we need. What they really need is a little discipline. We can't put them on a leash. But at the very least, we could tell them to behave. Why not let them know directly that we don't appreciate their standing in the way? It is time to start dogging the dogs.
"The Campaign for America's Future has decided to make this easy. Go to this list of the Blue Dogs in the House and the leaders of would-be Blue Dogs in the Senate. Pick one, and help instruct them by phone or email. It's time to dog the dogs."
Robert Reich cautions the Obama administration about its bumbling Wall Street bailouts:
"What’s particularly embarrassing for the current Administration is that it had promised to undertake the Wall Street bailout far more transparently and effectively than the way the Bush administration went about it. The Obama Administration had assured the public that, among other things, taxpayer money would no longer be used to backstop Wall Street bonuses. (It’s worth noting, in this regard, that the related plan put forward by the Obama Treasury to limit executive pay in Wall Street firms that received bailouts turned out to be riddled with holes.)
"None of this would be nearly as awful if the Wall Street bailout were working. But here we are six months after it began and it’s still the case that almost no loans are being made to Main Street. This week the Fed is launching its own program to get loans to consumers financed by private investors, in effect by-passing the big Wall Street banks.
"The Wall Street bailout is starting to look like the most expensive tax-supported fiasco in history. The problem for the Obama administration is that this bailout is near the very center of the President’s economic recovery program...
"Bottom line: Before it can clean up Wall Street or do much of anything else, the Administration has to clean up the way it's been trying to clean up Wall Street."
And from AsiaTimes a report on the US and Pakistan's tension filled relationship:
"From all accounts, the new Afghan war strategy of the Barack Obama administration is getting its final touches. The United States Chief of Staff, Admiral Mike Mullen, said, "We're just about done." From available indications, the key American objective is two-fold: optimally getting Pakistani help in the fight against terrorism and, secondly, reducing American expectations for military victory.
"However, contradictions are surfacing already. To be sure, the role of Pakistan becomes critical in the period ahead and the political uncertainty in Islamabad complicates matters. The robust American attempts in the recent days at persuading the obdurate protagonists in Pakistani politics to conciliate must be seen in this perspective. But opposition leader Nawaz Sharif's tumultuous assertion of his worthy place in the top echelons of national politics brings an altogether new alchemy into US-Pakistan equations. Suffice to say that uncharted territory lies ahead.
"Therefore, the latest reports emanating from Washington regarding the possibility of the US administration contemplating moving military operations in the tribal areas of Pakistan to its province of Balochistan will certainly inflame Pakistani opinion. The reports also speculated that the US might resort to ground operations in addition to the Predator drone attacks on the tribal areas. Sharif is highly unlikely to endorse any such escalation of the war by the US and he is riding a high wave of popular support. Nor is the faction of the Pakistani civilian government headed by Prime Minister Yousuf Raza Gilani - that is, even assuming that President Asif Ali Zardari might opt to remain a silent spectator.
"Without doubt, the Pakistani security establishment will have no truck with any such US policy that assumes the prerogative to violate Pakistan's territorial integrity. Needless to say, Pakistani public opinion, including the comprador class within its elite, will militate against any such US move. The reservoir of "anti-Americanism" is already overflowing in Pakistan.
"In sum, any expansion of the Afghan war into Pakistani territory will virtually derail whatever track the US administration might be contemplating on opening a political dialogue. Indeed, it seems more and more the case that the President Barack Obama administration lacks any clear-headed strategy in the war. This is also the growing regional perception, though only the Iranians may have openly articulated such a perspective at governmental level."
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