Obama’s Economic Policies Cut Unusual Path

By Alan Stewart Carl | Related entries in Barack, Economy, geithner

Today, political columnist E. J. Dionne lays out the central conundrum to Barack Obama’s economic policies:

Describing what Obama is up to leads quickly to sentences freighted with contradictions. He wants to regulate the market more tightly in order to save it. He thinks big government is required now if we are to return to a less-restricted economic system later. You might say that he is using collectivist means to capitalist ends.

Obama, I think, understands the importance and superiority of the free market system, but he consistently gravitates towards solutions which rely on the powers of big government. Part of that is because you use the tools you have. As president, Obama has the hammers of state at his disposal. But I also think he is preconditioned by his liberal ideology to believe all problems have a government solution. He is thus left balancing his instincts with his intellect, and that has confounded many of us on the sidelines.

Dionne goes on in his column to write specifically about Treasury Secretary Geithner’s plans to save the banks, noting that the administration is wielding a lot of federal power but is still placing a lot of confidence in the free market by not nationalizing the banks like some liberal economists believe is necessary (Paul Krugman being the most vocal):

[T]he core question of whether the banks are insolvent is maddeningly difficult to resolve. If Geithner is correct, he will move us to recovery with less disruption. If he’s wrong, he will waste a lot of taxpayer money before eventually reaching the Krugman solution.

…

That’s the Obama enigma: boldness wrapped in caution rooted in an ambivalent relationship to the status quo. This is why Obama will, by turns, challenge not only his entrenched adversaries but also his natural allies.

If Obama fails, the right will say he reached too far to the left will say he didn’t reach far enough. Even though I think Obama has been cavalier on the deficit and too intransigent on cutting back his pet projects, I do appreciate that his administration has made an effort keep the free market viable, rather than running roughshod over it.

That’s why Obama’s “firing” of the CEO of GM was not socialism. Socialism would be the government seizure of GM. Like with the banks, what Obama is engaged in is statist-directed free market recovery. Sounds like an oxymoron. But I believe that’s what Obama is trying to achieve, even though I’m not sure it’ll work. As such, Obama is likely continue to confound me and others with each new response to the economic crisis. Whether or not that’s a bad thing depends entirely on whether or not the plans work.


This entry was posted on Thursday, April 2nd, 2009 and is filed under Barack, Economy, geithner. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

4 Responses to “Obama’s Economic Policies Cut Unusual Path”

  1. kranky kritter Says:

    I agree with you that neither wing’s spin rises above ideological cant. Obama has to use the tools he has in his toolbox, and nothing he does will please either wing.

    What concerns me about the banking situation is the future concussions yet to come. We will certainly see the decline of additional holding involving banks and related financial entities. We’ll see them as the value of commercial real estate decline substantially over the next year. Further, we will see more “time bombs” go off in the form of the bursting bubbles of 2 newer types of mortgage loans whose origination peaks occurred during the very last stages of the real estate bubble. (these 2 types of loans are loans w/o income verification, and negative amortization loans with built in balloon payments). Exacerbating this is the fact that they were written when RE values were highest. This mean more rounds of defaults and more insolvent banks.

    This calls into extremely serious question the tactic of government recapitalization of banks to keep them private and defend the banks investors, largely institutional. I find it an extremely compelling argument that going forward the government will have little choice but to make the stock and bondholders of these banks shoulder the burden of these losses. This is true even though many of those investors are pension funds and other institutional investors. I’ll cherefully admit that when we reach the bottom of the hill, this debate may amount to little more than figuring out the way in which taxpayers will get left holding the bag. Left hand or right?

    The government (IOW taxpayers) will be left on the hook for these losses wherever gov’t pension guarantees exist. Nationalizing the banks, even if temporary, may not be optional within the next year. IMO, the most important things the government will have to do is

    1) come up with a workable way to rapidly facilitate renegotations of underwater loans

    and 2) be the makers of the credit market to whatever extent banks can’t or won’t.

    Whether #2 is achieved by”nationalizing” banks or by become the giant first national bank of “here’s a loan 4U” doesn’t matter.

    If anyone wants to know more about these notions, I can’t take much credit for them, by and large. See this long and challenging but very useful article at Hussman funds. I highly recommend printing it out and taking the half hour or more necessary to try to digest it. I don’t say it’s gospel, I say it’s useful.

  2. BenG Says:

    Alan,

    Good summing-up of what’s been difficult to verbalize. It seems that Obama actually pivots right in the middle of saying something – you can watch him think aloud. There was talk about his thoughtfulness and grasp of the situation again at the G-20 meeting from people who don’t even agree with this administrations’ policies. He is the antithesis of the previous president, and for me, and evidently the rest of the world, that is a good thing.

    As for his policies in dealing with the inherited problems in the economy and foreign diplomacy, and….etc, etc, we need to give it time and stop focusing so much on the idiology of the opposition. What’s the definition of a fool? Keep doing the same things over and over again and expect different results!

  3. TerenceC Says:

    It’s clear that lack of oversight and proper regulation caused most of the economic catastrophe we are now in. I have always believed that Capitalism is good as long as it’s properly regulated. Unregulated Capitalism can be one of the most destructive forces known to the human race. With the amount of power and money the lead capitalists have there is no other force available as a bull work against their greed other than government. I believe that to be the initial premise for what the Obama administration wants to accomplish.

  4. Booker Rising Says:

    ObamaÂ’s Economic Policies Cut Unusual Path…

    Alan Stewart Carl, a moderate blogger, opines: “Obama, I think, understands the importance and superiority of the free market system, but he consistently gravitates towards solutions which rely on the powers of big government. Part of that is because….

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