The wheels are already coming off Obama's Trojan horse revolution. Will he, like Jimmy Carter, be seen as a one-term disaster?by Bartle Bull / April 26, 2009 / Leave a comment
Barack Obama was always going to disappoint. When you promise almost everything to almost everybody—I’ll stop the fighting in Iraq but I’ll also keep going after al Qaeda there; I’ll make the economy grow more but I’ll spread the wealth around, and so on—you will inevitably let many people down. Human beings, even those who read fluently from teleprompters, simply cannot walk on water.
But few expected the wheels to come off the new administration so quickly. Just weeks into its existence, the Obama White House is in trouble. The US stock market has lost a quarter of its value since Obama’s election. While a Rasmussen poll in early March had his approval rating at 56 per cent, his net approval (the number of people who strongly approve of what he’s doing subtracted from the number who strongly disapprove) had contracted from 28 per cent the day after his inauguration to around 6 per cent for March—worse than Bush at the same time in his first term. The administration is in a fully fledged staffing crisis: having lost a record ten high-profile picks, it has scores of senior executive jobs unfilled—including every single treasury position below the department’s top job. The head of Britain’s civil service, Gus O’Donnell, has complained about the trouble he’s had finding key administration personnel ahead of the G20 conference in April. “There is nobody there,” he said. “You cannot believe how difficult it is.” Treasury secretary Timothy Geithner looks terrified before executives and television cameras alike. Five months after the election he has yet to deliver a plan for the banking system, much less restructure a single financial asset.
Even the sympathetic press is starting to speak of an “incompetence” crisis. Abroad, North Korea, Russia, China and Iran have all turned up the heat, as have Hamas and Chavez. At home, Obama’s Trojan horse agenda—using the economic crisis as an excuse to advance radical social change in areas unrelated to returning growth to the economy—threatens to pull his government into ideological quicksand when all the public really want are jobs. Centrist Democrats are deeply concerned about what Obama’s poor start means for the long-term, moderate Democratic majority whose possibility was glimpsed in the Clinton years.
A president with historic ambitions was never going to be content with tackling a mere recession. Thus in his televised address before both houses of congress in February he delivered a special history lesson: “Our economy did not fall into decline overnight. Nor did all our problems begin when the housing market collapsed or the stock market sank.” The current recession and housing and financial problems have deeper causes, he said. What are these underlying maladies that so badly need the shaman’s touch? The president named four: energy, healthcare, education and debt. The “day of reckoning” for ignoring these issues—and for exacerbating this failure with excessive borrowing—has arrived, he said.
Americans who concentrated on the president’s words rather than on their characteristically sonorous delivery found the diagnosis baffling. Education, energy and healthcare policy in the US, as almost anywhere, all need help. But are America’s flaws in these areas really the causes of the housing bust and the paralysed banking system? What about the cyclical contractions that follow all economic booms? What about a decade and more of absurdly cheap money? How about all that Fannie and Freddie-fuelled lending to inappropriate borrowers? What happened to lax oversight? What about greed, that comforting straw man? No, according to Obama, we are losing our jobs and being kicked out of our excessively mortgaged houses because America lacks universal healthcare, federally sponsored nursery school, university for all, and a progressive emissions-oriented energy policy.
Two days after the congressional speech the president submitted a 150-page outline of his budget, which at $3.6 trillion already represents the largest and most ambitious expansion of the US state since Lyndon Johnson’s Great Society. It is likely to become even bigger as it clears a spending-crazed congress managed from the left by Nancy Pelosi and Harry Reid. And despite promises to the contrary, it calls for a deficit that—at 12.7 per cent of GDP—is four times greater than any of the huge deficits under George W Bush.
Driven by mammoth commitments to Obama’s three social priority areas, his budget proposes to take the federal government’s spending from 21 per cent of the economy in 2008 to 28 per cent in 2009. Added to spending at state and local level, this would take the total government share of the US economy to about 45 per cent, roughly the same level as in Britain. Obama’s budget outline presents the additional $634bn for healthcare as a down payment on the full cost of universal healthcare, which he estimates to be double the sum that he is providing; the rest of the money, he says, congress must find. Publicly Obama does not want to admit that state healthcare is his aim, but his system is designed to price the current private insurance-dominated market out of business. He would pay much of the extra cost by cutting tax breaks for charitable giving and mortgage borrowing. (Yes, the same mortgage borrowing that is at the heart of the housing and banking crises.)
Education in the US is a matter for the individual states, not the federal government. The constitution is clear on this, but Washington, especially under the Bush regime, has inexorably encroached. And now Obama has made an unprecedented grab on behalf of central government, calling for universal standards in schools, for Washington-sponsored higher learning for every single American and for a federal role in education that starts, in his words, “at birth” and continues “from the cradle up through a career.” The numbers for this are not yet public, but they will be huge.
Regarding energy, it is expected that Obama will raise $600bn by selling tradable rights to emit carbon. This is in essence a large additional tax on all private sector activity —$800 per annum in new taxes for every American. The president also plans to spend $15bn a year picking winners in the alternative energy field, despite every indication that no advances on any known front can generate anything like an economically compelling alternative to fossil fuels. Steven Chu, the new energy secretary, has called energy prices in America “anomalously low.” The new carbon tax is designed to make the traditional energy economy so expensive that the alternatives become viable.
Even if you like Obama’s liberal direction, this is the exact opposite of a policy designed to deal with the crisis at hand, which is very simply that Americans need jobs. Overall he intends to increase the size of the federal government by a third, financed with an additional trillion dollars of deficit spending. He wants to increase the role of the state in the US economy to levels not seen since 1945.
Obama’s call for federal spending to fall to a still high 22 per cent of GDP by 2011 is illusory. The entitlement nature of most of the programmes, including $1 trillion on healthcare; the risibly rosy 4 per cent GDP growth projections for those distant years; the aggrandising nature of Washington itself; and the statist inclinations revealed in the current spending plans, render such projections hopelessly dishonest. Particularly egregious—in size and disingenuousness—is the $1.6 trillion “saving” until 2019 that Obama claims for not continuing Bush’s surge in Iraq. 2019? The surge ended in 2008 and Bush signed an agreement with the Iraqi government calling for combat troop withdrawal by 2010.
The president’s hasty and undebated $800bn “stimulus” bill, 1,073 pages long and passed with only a few hours for review as both parties admitted that not a single congressman or senator had even tried to read it, was the largest single spending measure in the history of the US government. At 5.8 per cent of GDP, it was three times larger than any European package. It has little to do with fixing today’s economy, and everything to do with a big state social agenda: 80 per cent of the bill’s spending comes after this year, by which time even Obama’s office is predicting healthy 3 per cent GDP growth. Over ten years, the total cost of the expanded welfare spending will amount to $127,000 for every income tax-paying household, according to estimates from the Heritage Foundation. Joe the Plumber is one person Obama did not lie to during the campaign: this administration is spreading the wealth around. It is no wonder that, despite two weeks of courting Republican congressmen, Obama was unable to attract a single one of them to his “stiulus,” rendering his campaign promises of bipartisanship hollow.
Since the budget was announced, the annualised rate of economic contraction for the last quarter of 2008 has been revised from 3.8 per cent to 6.2 per cent: this year’s unprecedented trillion dollar deficit is thus likely to be closer to two trillion dollars. With two salivating houses of congress, and the president’s proud personal commitment to aggressive Keynesian spending, these deficits will stretch deep into the future until a Gingrich or Reagan swings the pendulum back.
President Obama’s plan, then, represents a radical realignment of America’s political economy. His challenge today is to sell this big debt, big government revolution to a public that thought—or rather hoped—that it was electing a post-partisan centrist. To make his programme acceptable to what remains a majority centre-right nation, Obama makes aggressive use of comparisons with the great depression. The comparison is false.
Today’s recession is in severity and duration (only three or four quarters of negative growth) a normal economic contraction by historical standards. With economic growth predicted by all sides to be returning in the second half of this year, the US economy is doing substantially better than it did in the 1981-82 recession, when unemployment, currently 8.1 per cent, reached 10.8 per cent. The 1990-91 and 2001 recessions were unusually brief and mild. The slowdown, 15 months old in March and with the end visibly in sight, will be slightly longer than the 16-month downturns of 1975-76 and 1980-81, similar in terms of GDP contraction (GDP actually rose in 2008, despite the bad final quarter), and substantially less severe than both where it really matters: unemployment.
So despite the president’s constant invocations, today’s situation does not remotely compare to the great depression. Automobile production fell 90 per cent in 1932 compared to 25 per cent in 2008 (with no foreign competition in the 1930s), over 10,000 banks failed in 1931-32 compared to a few score in 2008-09 (and 3,000 in 1987-88), and unemployment exceeded 25 per cent in 1932. The only way America will find itself anywhere near a great depression today is if the president’s assault on business and investment and his rush towards national insolvency continue long enough to make his auguries come true.
The American economy might not be as bad as Obama says it is, or as bad as it would have been without his history-making debt binge, but it is indeed in pain. He certainly should be doing something about it; that is what he was elected to do. Instead, however, he is using it as an opportunity to advance what is (by US standards) a massively ambitious and ideological agenda. From the New York Times on the left to the Wall Street Journal on the right, Obama’s budget has been called the biggest change in US politics since the Reagan revolution of the 1980s. Bill Clinton’s signature piece of economic policy was a contraction of the welfare state, making him an heir to Reagan much as Blair was to Thatcher. Obama’s revolution completely overturns the Clinton settlement, both on the micro level by specifically reversing Clinton’s epochal welfare reforms, and on the macro level by rejecting outright the fiscal discipline and growth-oriented private sector philosophy of the last Democratic White House.
Obama did signal some of these huge policy initiatives during the 2008 campaign. But he promised so many contradictory and impossible things—green energy and fiscal responsibility, for example—that it would be hard to find a position in mainstream politics that was not covered by his words in one speech or another. But the greatest moment of candour to emerge from this administration to date came when chief of staff Rahm Emanuel, Obama’s chief handler within the Chicago political machine that groomed this brilliant political phenomenon, said, “You never want a serious crisis to go to waste. This crisis provides the opportunity for us to do things that you could not do before.” Hillary Clinton, the other great power in the administration, made the same point in Brussels recently: “Never waste a good crisis… Don’t waste it when it can have a very positive impact on climate change and energy security.”
This is breathtaking stuff. Obama’s top people are publicly (if inadvertently) confessing to precisely the sort of cabalistic secret agenda that was most loathed about the Bush administration. Imagine the apoplexy of Obama’s political base if Dick Cheney had called 9/11 a “good crisis” because it provided cover for a long-intended invasion of Iraq.
The administration’s Trojan horse agenda—using a standard, near-finished recession as an excuse for radical social interventions and a fundamental expansion of the state—hurts the economy and markets in a crucial area: trust. Combined with the prospect of high inflation and high taxes, this means that money is put on ice.
Obama’s alarmist rhetoric is very different from the tone of his economic hero, Franklin Roosevelt (FDR). Washington’s challenges today are small compared to those faced by FDR. The nature of the American state has changed; in 2008, after huge fiscal expansion under Bush, the federal government accounted for 20 per cent of the economy. In 1930 it was 3 per cent. And unlike Roosevelt, Obama has had the benefit of 80 years of history, and knows something that FDR could not have known. With the Keynesian multiplier (the effect on economic growth of $1 of government spending) proven over time to be well below $1, the spectacular borrowing required to pay for his spending places a huge burden on our children, making the debt binge unethical as well as unaffordable.
Obama has promised to try to tax his way out of the spending hole he is creating with increased levies on those making more than $250,000 a year. This cannot work. Quite apart from the damage to investment and small businesses of such disincentives, Obama-style soak-the-rich taxes simply don’t raise enough money to pay for Obama-style spending. According to Brian Riedl at the Heritage Foundation, under the president’s plans those paying no income tax will reach 50 per cent—the infamous “tax tipping point” at which democracy becomes a mechanism for the majority to live off the property and work of various minorities. Unable to plug the hole with taxes, Uncle Sam will be forced to print money on a scale not seen since Jimmy Carter.
Obama invokes Reagan almost as often as he invokes FDR, but if we want an appropriate comparison for the situation America faces to today, it is not the great depression or the Reagan revolution but rather the Carter malaise: appalling weakness and gloom both at home and abroad. Obama, returning to the mindset of the brief (1931-39) New Deal experiment that was itself an anomaly in the 240 years of the republic, is reversing the philosophical direction of the American state. This is the opposite of what moderate Americans thought they were getting when they voted for him.
A post-partisan centrist: it was the lie of the century. It did not matter that Obama’s opponent, John McCain, was one of the most bipartisan national leaders of the last 20 years or that Obama was the single most partisan Democrat in the US senate. It did not matter that upon declaring his run for the presidency after only 142 days in Washington, Obama was only months removed from a career in the infamously corrupt Chicago Democratic political machine. Through aspiration or guilt, the backstory of this grandson of a Kenyan goatherd flattered many Americans, who, presented with a visibly aged and handicapped alternative in McCain, knew exactly what Joe Biden had meant when he called Obama “the first mainstream African-American who is articulate and bright and clean and a nice-looking guy.” Messianic scenarios are deeply symbiotic. They are based on a compact with the believer. Obama’s believer compact went like this: “You wash away my historic sins and I’ll wash away yours.”
Now the real Obama has stood up. The moderate and sustainable version of the Democratic party personified by Presidents Kennedy and Clinton, based on personal responsibility and low tax, high growth economics, is under the bus with Reverend Wright, Obama’s 20-year religious mentor. Ideology is back. Coming from the most radical presidential candidate in the history of either party, this is no surprise. But to practical Democrats in a politically moderate country that is still based on a philosophy of robust individual freedom, this revolutionary expansion of the federal government is very worrying. Obama’s seizure of so much money and so much decision making in such basic areas of everyday life implies too much debt, too much inefficiency and too much control for a corrupt and distant political class. This is not the change that we sought.
Thus the big question in Democratic circles today: “What does Hillary do about this?” Her supporters still feel that the election was stolen from her. With capital on strike, states rebelling against the president’s dependency agenda, the treasury secretary probably soon to be replaced, many top jobs still unfilled, the liberal press anxious and poll numbers plummeting, Hillary Clinton’s departure could sink an administration that already feels like a listing ship, leaving her a clear path to the Democratic nomination for 2012.
Her relationship with the president, inherently unstable personally, erodes every day that he takes his swinging axe to the remarkable bipartisan achievements of the Clinton presidency, especially welfare reform and fiscal discipline. While the biggest shocks of this presidency to date have been at home, in the foreign sphere Hillary’s job as secretary of state is made more difficult by a distracted and inexperienced president.
Serious people do not like being associated with a White House that, eight weeks after the inauguration and four months after the election, in a time of genuine economic distress, did not have one single nominee for the various treasury jobs, much less a single actual appointee sitting behind a single desk. Paul Volcker, the head of Obama’s economic advisory council, recently called the situation at treasury “shameful.” This staffing fiasco is repeated across defence, state and many other departments. Nothing like it has ever been seen in Washington.
Also severely impinging on Hillary’s credibility and ability to do her job is the cession of a huge part of her responsibilities to Richard Holbrooke, who is seen on all sides in Washington as an empire-building elephant whom no secretary of state wants in his or her backyard. If Holbrooke succeeds with the poisoned chalice of “AfPak,” Obama gives him Clinton’s job; but if Holbrooke fails, she fails. She is too big a force in America to be bullied into the box she’s in.
And the president’s sour relationship with a military with which Hillary enjoys mutual respect is well known. Obama repeatedly denied that General Petraeus’s surge was working while it was proceeding, and continued to do so long after it had succeeded. The president’s cynical warmongering in Afghanistan to compensate for his perceived softness on Iraq is alarming many people. Meanwhile, at a time of gigantic new federal spending in every other arena, the military is being promised the largest spending cuts since the late 1940s.
Obama’s constant signals of weakness abroad—from the embarrassing hope that adversaries like Putin and Ayatollah Khamenei will change behaviour as a result of friendly overtures, to big reductions in defence spending, to schizophrenia over Palestine—are already inviting a frightening range of challenges and rebuffs around the globe. Chinese vessels never used to bully the US Navy as they did the USNS Impeccable in March. North Korea had never before ripped up its agreement with the south or offered the calculated challenge as publicly pre-announcing the date of an illegal ballistic missile test. Not since Jimmy Carter has the world seen Russia laugh at Washington as it did over the recent request to swap eastern European missile defence for co-operation in Iran, or the cheap ($2.1bn) Russian buyout of America’s base in Kyrghizstan (forcing vital Nato supplies for Afghanistan overland through Russia and Iran, and giving Putin and the mullahs huge leverage). And even worse than the tragic Vietnam that Obama is digging in Afghanistan is the fact that, in two years, Iran will probably have a nuclear weapon. This would be one of the greatest foreign policy disasters in American history. Obama has time to do something about it but will not.
The Republican party is in such disarray that it is letting Obama’s crisis go to waste. The 37-year-old Louisiana governor Bobby Jindal, a rising Republican star, delivered a wooden speech in response to the president’s congressional address. The new head of the Republican national committee, Michael Steele, recently had a public spat with conservative talk radio titan Rush Limbaugh. Sarah Palin and Mike Huckabee are dividing the working class and religious right between them and Mitt Romney is staying quiet for now. A few congressmen, senators and governors have begun to make hay out of the natural antipathy of their constituents towards huge increases in welfare, debt, and state interference, but none has so far managed to stand out from the crowd. General Petraeus, perhaps the brightest star on the Republican horizon, is speaking in Iowa, the first stop in the party nomination process, later this spring. In the long term, an Obama administration might be rescued by a Newt Gingrich figure bringing growth-oriented economic policies back to Washington from the right. In such an event, many Democratic senators and congressmen would be voted out of office. For the moment, though, the president’s real threat is from within his own increasingly restive party.
Obama’s dismantling of President Clinton’s economic legacy is injurious. For moderate Democrats who recognise the national mainstream as the party’s best hope of a long-term majority, it is highly dangerous to be associated with such an ideological presidency. It is even worse when the ideology is the one least likely to work. Weakness and inexperience abroad is already causing a dangerous escalation in tensions. At home, the president’s policies represent a history-making, debt-fuelled arrogation of vast territories of private life and the economy. More war and less growth is bad leadership and bad politics.
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