Friday, September 16, 2011


I recommend two very interesting posts, one by Bruce Bartlett arguing that Barack Obama made a major mistake by shifting his energy to health care and away from the economy after the stimulus passed, and one by Kevn Drum disputing that it mattered. Drum:
I have to confess that this line of criticism has always perplexed me. What does it mean to "single-mindedly" keep his attention on the economy? I just don't understand how that translates into concrete action. I think Obama got briefed plenty to understand the trajectory of the economy (you really don't need eight hours a day to figure that out) and I have a hard time thinking that it's a good use of presidential time to insert himself into the details of the appropriation process. I also doubt that Obama really had much influence over Ben Bernanke.
I don't think moving on health care was a mistake -- without it, I think Obama would have been clobbered by liberals -- but I think Drum is wrong about this. Could Obama have influenced Bernanke? Sure -- either by not re-appointing him, or by appointing him only after getting assurances of what kind of policy Bernanke would pursue. He could have influence Bernanke by appointing people to fill the other Fed openings as soon as possible, and then pushing the Senate hard to confirm them. He could have made it clear that monetary policy leading to economic growth was a high priority of the WH, both publicly and privately. Now, other than appointing someone else instead of Bernanke none of those is guaranteed to work, but put them all together and there's a very good chance they have some effect (although note: my general impression is that liberal Fed watchers tend to be somewhat pessimistic about the Fed, and perhaps oversell the idea that the Fed is being run by inflation other words, I'm not entirely convinced that Obama hasn't pushed the Fed a long ways towards what liberals would want).

Beyond that, there's the failure in 2009 to move aggressively on state & local governments, and who knows how many things that could have been done administratively. No single one was a magic bullet, but I don't think that Drum believes that the administration used all it had on housing, for example. And I didn't get many responses to my questions for economists earlier this week, but I still believe that a fully engaged administration could have done at least something to help the Eurozone situation.

It's not that Obama needed to spend hours studying what was happening in the economy or what needed to be done; it's that all presidents need to be aggressive about making sure that executive branch departments and agencies are giving them all the plausible options before decisions are made, and then carrying out policies once they are passed into law or put in place via executive order or otherwise chosen. And they have to be monitored to find out if they're working or not, and what the people actually carrying them out are learning and how that should be incorporated into new policies. Now, I have no idea to what extent Obama was doing all of that or not on economic policy, but he certainly should have been.


  1. The Fed might be run by inflation hawks, but the real problem is that the Fed was entirely out of levers to pull really early on. The biggest and most useful lever is interest rates, and thanks to that Ayn Rand disciple, they were already on the floor when Bernanke came in.

    Greenspan deserves a TON of blame in all of this. Refused to do oversight of the parts of the housing market that was shifted to the Fed's purview. RUSHED rates down to end a fairly minor downturn, then never raised them off the floor (contributing to the housing bubble). So, when the whole house of cards came crashing down, the Fed was essentially impotent to do anything about it. While no one person is responsible for a majority of this mess, I'd say that the most blood is on Greenspan's hands.

  2. Matt- You're completely right about Greenspan -- his responsibility for the mess is widely acknowledged by economists, but hardly mentioned in public. Ironically, he probably gets more grief from Ron Paul and his fellow Ayn Rand disciples than anyone inside the DC bubble right now.

    Regarding Obama -- I think history will show his administration to be one more of continuity than of change. The only question now is -- How long can the "guns and butter" be sustained?

  3. I may have made this point previously, but I recall an interview with newly-minted President Obama in early 2009, discussing the markets as they plummeted toward what would be their March lows. As he attempted to instill confidence, newly-Presidential Obama pointed out that the low stock prices meant really attractive "Price to Earnings Ratios".

    I don't consider myself the most expert finance guy (though I enjoy playing one on blogs!), but its been many many years since I didn't know the convention that there is no preposition "to" in describing the PE ratio. From which I infer that Obama took the Oval Office having essentially no familiarity with global markets.

    Which, given the requirements of the Presidential election process, why would he? We've discussed before that a President doesn't need to be an expert on the myriad of things for which he's responsible, and I certainly agree, but he ought to know enough not to be dangerous.

    So when Jonathan says that a President doesn't need to spend hours studying finance, well, I agree, but one would hope that, given the scope of the role, he's devoted hours here and there over the years to understanding markets.

    Enough at least to know that PE ratio doesn't conventionally have a preposition in it.

  4. And actually, without being too harsh on Obama, I think the general lack of familiarity with the wide array of things for which a President is ultimately responsible makes a big contribution to the continuity Couves referenced above.

    There's gotta be a whole lot of inertia in DC. A President has a lot of ostensible authority to overturn it, but he is in way over his head on an expertise basis. So when the Machine tells a President change is dangerous, they are either a) lying to protect their turf, or b) telling the truth.

    How would a Presidential novice know the difference? And not knowing, which side would he err on?

  5. Yup, yup. Personally I’d like some of the whole focus crowd to elaborate a bit. What new policies could be imposed? What legislation? How would these be passed or implemented? Should he give more speeches? Jobs tours? Repeal the Endangered Species Act (which seems the chamber of commerces’ biggest policy contribution)? Threaten Ben Nelson or Joe Liberman to get his policies through? Please explain. The most elaborate thing I’ve ever read has been the argument championed by Paul Krugman that can be summed up as “he should have expended more political capital to get a bigger stimulus” which I guess is fair enough. But how? More speeches? Threaten Ben Nelson or Arlene Spector? Would a titanic battle produce a much larger stimulus or simply 50 billion more (a lot of money yes but not much compared to the gap in aggregate demand) or might it have derailed the whole thing, like Bill Clinton’s own infrastructure stimulus in 93’? What exactly could he have done, in simple practical terms.

    @ CHS “I play one on blogs” that’s amazing! (I might have to steal that and start saying everywhere from other blogs to everyday conversation) Also I have no idea what a “bond” is.

  6. @CSH: but "price-to-earnings" isn't an incorrect term, is it? (Wikipedia uses it.). Maybe dropping the "to" is common lingo, but I don't know how much I'd infer from Obama's more formal usage.

  7. Gecko, you make a good point. PE does technically stand for Price-to-Earnings ratio, so its by no means incorrect to refer to it that way. Its just that no one ever does it, certainly not on CNBC, as Obama was.

    FWIW, I wasn't questioning Obama's intelligence, merely his experience. I caught an interview with him recently - not sure where - and he threw a "PE ratio" in with a bunch of other market-promoting metrics like an old hand, which after this much immersion, he no doubt is.

    We just ought to think about hiring old hands for a job like the Presidency, you know, on day 1 if at all possible.

  8. CSH, do I understand correctly that the essence of your criticism is that Obama used the proper term?

    As for the Fed--apart from the question of what can be done to move it to action--there is the question of what you are going to accomplish if you do move it. Lack of money is not the economy's problem. Lack of effective demand is the problem. Banks and corporations aren't using their already abundant financial reserves to hire or invest (except for some investment in labor-saving technologies to further put off hiring) because no one is buying. So the government should be actively buying. This is also the problem with the new jobs package. It uses tax incentives to encourage hiring among those who are not about to hire owing to a lack of customers. I can only figure that Obama knew it would never become law anyway so he offered a package designed to highlight that the Republicans are refusing to support their own proposals. (Albeit they would have proposed permanent tax cuts rather than temporary ones on the pretense that taxes rather than demand are stalling recovery.) Presumably, the only reliable way out of the political stalemate is for one side or the other to win decisively in 2012, but that assumes another year and a half of paralysis and deterioration. It's all as depressing as it is circular.

  9. Job creation cratered after Pelosi rammed that final ObamaCare vote through. Are the 2 related? They'd have to be, at least partially. Obama says give tax breaks to create jobs, while also taxing job creation via ObamaCare. The policies are not consistent. Anything Obama did in terms of health care should have been wrapped around economic growth, to the exclusion of any other lefty dogma. That was his mistake, he did not focus on the economy like a laser beam.

    Yes, Greenspan should be in jail for what he did.

    Good time for us to watch Keynes vs. Hayek throwing down, rapping their way through Round 2:

    And if you missed it, here was Round 1:

  10. Anonymous: Those videos are great! Krugman recently said that an alien invasion would end our recession -- something tells me he'll make an appearance in Round 3.

  11. Couves, yeah those videos are hilarious, and very well put together. I could watch them over and over, they're that good. Check out the Bernanke look alike in Round 2, sitting behind and nodding his head to Keynes' rap, then rushing up to congratulate him afterwards, along with all the others including the media and pols, while poor Hayek is sorta ignored, and Keynes gives him a sorta glanceback look like "What are you gonna do, I'm just a rock star". I love it!

  12. I feel bad for Keynes. While the video accurately represents the arguments of his followers, I don't think he'd be saying the same things were he alive today.

    In any case, those videos will probably introduce many people to Hayek's ideas for the first time, which is a very good thing.


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