April 21, 2009--Obamanomics

Barack Obama’s announcement yesterday that he would be asking his cabinet members to cut $100 million from their budgets was a political stunt that backfired.

As Wolf Blitzer pointed out on CNN, considering that next year’s budget deficit is projected to approach $4 trillion (most of that the residue of the Bush administration), this is the equivalent of reducing the sticker price on a $37,000 car by one dollar.

Obama acknowledged that this was a proverbial drop in the bucket. But he was wrong--in fact it’s more like a drop in the ocean. He should have rejected the idea altogether unless he was going to announce that he would be asking his cabinet secretaries to cut at least a few billion. The Republicans now don’t know how to attack him first—should they make fun of these “savings” or should they beat up on him for smiling at that villain from the Venezuelan axis of evil, Hugo Chavez. Obama lobbed both of these political softballs their way.

But in a speech earlier in the week, at Georgetown University, he outlined the fullest version yet of his economic vision. It’s a talk worth reading in its entirety because he comes out of the economic closet to make his case as to why capitalism needs to be nothing short of redefined.

For openers, though our economy for decades has been largely sustained by consumption, he wants to shift the focus away from that—putting aside how excessive spending erodes our culture and values—and more toward savings and investment. In his words:

We must lay a new foundation for growth and prosperity—a foundation that will move us from an era of borrow and spend to one where we save and invest, where we consume less at home and send more exports abroad.

New York Times Week in Review columnist Richard Stevenson wrote that this means the rest of the world would no longer be able to assume that the United States will continue “to snap up imported goods or run up large trade deficits.” This Obama approach would take us well beyond just weaning ourselves from dependency on foreign oil. We would also be weaning ourselves from dependency on the latest in flat-screen TVs, fads in children’s toys, computer games, and other ephemera.

In an attempt to save American capitalism by redefining it, Obama also wants to move the economy from its ruinous boom and bust cycles. And from the belief—which is more an ideology—that the Market can be depended upon to be fully self-correcting.

According to his economic advisors, again in the words of Stevenson, “The president’s approach is based on the belief that recent economic cycles were driven too much by financial engineering: reserved most of the fruits of good times for the wealthy [through tax policy]; relied excessively on foreign capital to finance domestic debt; and ultimately gave way to painful busts.” (Article linked below.)

And Obama admitted that he sees a permanent, though limited role for government in helping steer the economy. By no means the socialist that right-wingers who know little about actual socialism claim, he is nonetheless not shy about the role he envisions government needing to play.

For example, in addition to the necessity for periodic stimuli, he also unabashedly is a redistributionist. His tax policy does in fact redistribute income from the wealthiest five percent to the rest of us, primarily to the middle class. He recognizes that taxation by its nature is redistributionist. Unless each of us pays in exact proportion to the income of everyone else (i.e. everyone is taxed the same in percentage terms), money though taxes flows either upward (thus Reagan and George W. Bush were among the biggest redistributionists in history) or downward—Obama’s preference.

Lawrence Summers had it about right: “It’s a strategy directed at having a somewhat different and healthier expansion than we’ve had in the past [read, no more bubbles], driven by a sense that the expansion is likely to be more secure and its benefits more widely shared.”

In a sentence, Obama himself summed up his vision, “We cannot rebuild this economy on the same pile of sand.” We’ve seen what that yields.

Whether or not he is able to flex the political muscle and mobilize the public support necessary to bring this about—and the forces arrayed against such fundamental change are formidable, including within his own party—is obviously an open question. But at least we now know where he stands and what he is attempting to do. This in itself is refreshing.