"When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals.
We shall be able to rid ourselves of many of the pseudo-moral principles which have hag-ridden us for two hundred years, by which we have exalted some of the most distasteful of human qualities into the position of the highest virtues"

( JM Keynes, "Economic Possibilities for our Granchildren" 1930 )

Monday, November 1, 2010

The No Change President

The victory of the Democratic Party in 2008 seemed to be the beginning of a new era for America and the World. Forget the color skin of the President, it was all about the refreshing message of “Hope” and “Change” that inspired so many people to act and dream.

Two years later , Democrats will probably loose (tomorrow) their majority in the House and some seats in the Senate. If this was not enough, recent approval ratings polls tell us that President Obama is not very popular, or better put,less popular than before and other sources point to an emerging and growing tendency among Democrats to look for another candidate for the 2012 Presidential elections. What happened in the interim? Where the winds of Hope and Change have gone?

I am not an expert in American politics, but from the very first days of the actual Administration it became clear (for me) that Obama will probably end as a one term President. The first warning signs were his top nominations, most of them part of the reigning establishment ( and naturally committed to the past he pretended to change) :Secretary of Defense? Bush´s Gates ;Secretary of Treasure? NY Fed President ( and City´s Chairman protegee); Head of Economic Council? A controversial Economy professor with deep ties with the hedge funding industry. Even when he had the chance to change the Fed Chairman, he reappointed Bernanke for a second term . So who was supposed to lead the change? His wife? Experience cannot and should not be an explanation since sometimes experience can be from the bad type...

However, the most important deviation from the “change” was and still is his economic policy. Some commentators (including Nobel Laureates), said from the very beginning that the fiscal stimulus packages were too small and inadequate for the colossal task of reducing unemployment they were designed for. They are all partially... but deeply wrong: it is not the size of the package that matters but the philosophy behind it that deserves the deepest critiqu .

This Blog have been saying for at least two years that the economic crisis is the result of insufficient demand , the natural outcome of three decades of stagnating wages and massive wealth accumulation among too few hands . Both phenomena are two sides of the same coin that depresses consumption and encourages the formation of debt ( for more details, read previous posts). The conclusion of such an analysis is that stimulus is just a tool that should be followed by a massive redistribution of wealth and incomes in order to guarantee sustainable economic growth.

Therefore Obama sinned twice : First, by promoting a small stimulus in the name of bipartisanship and moderation . Second by not adopting a genuine redistributive policy. And if you needed another confirmation for the genuine interests behind the actual policies, just look on SP 500 last quarter earning figures ( banks included ) or the massive masking of banks´ losses to understand who are the main benefactors of the “Change” President. The results are evident: unemployment is still high, foreclosures are increasing and the general mood is that America and the world should be ready for a “New Normal” of low growth, high unemployment and most important, no hope. So, if American citizens feel disappointed and some of them join the “Tea Parties” movement as a way-out for their outrage you should not be surprised.

Some would claim Obama has a progressive agenda and the evidence is the success to pass the historical healthcare law despite a fierce opposition. Well, that is an important though limited achievement, and if placed in a wider perspective it is almost nothing. Just have a look on FDR achievements some 80 years ago, under more difficult circumstances and understand the poor score of Change Obama. After all we are talking about the most powerful man on Earth, so political constraints are just one part of the power equation he must deal with . And he got the tools.

The comparison to FDR is tempting, so let me quote a few phrases from his inauguration speech:

“Practices of the unscrupulous moneychangers stand indicted in the court of public opinion, rejected by the hearts and minds of men.True they have tried, but their efforts have been cast in the pattern of an outworn tradition. Faced by failure of credit they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence. They know only the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish. The moneychangers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths”.

Obama soft talk ,and more important soft actions ,does not even resemble the moral integrity and firmness of FDR. However, Obama got still time, not too much but still enough to save his legacy and his country. He should open history books and read FDR actions and words, if not as a policy guide but as an inspiring story of boldness and determination. The calculations should be self evident : Since his opponents have no intention to compromise, any moderate policy is useless .In other words, the launching of a bold and decisive progressive agenda is costless from a political perspective . Such a policy might not only give him a second term but an honorable place in the American history, on my opinion the only open alternative to pull out the economy from its dire straits. Reminder , FDR was not elected for one term , but for four.....

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