Prediction: Obama Won’t Pull It Off (January 1, 2009)

09May14

I was wrong once: I thought I had made a mistake, but it turned out I hadn’t. (I love that line.) Seriously, I couldn’t figure out why Hillary was being such a good sport for Obama. Their meeting in Dianne Feinstein’s living room seemed to change everything. Now we can guess why. Hillary didn’t mind being passed over for vice president because Obama told her that she would be his pick for secretary of state. Instead of being a mere back-bencher to Number One, she would be strutting her stuff across the world stage.

But I do seem to have been wrong about the part where I said Biden wasn’t such a shrewd choice for VP. Or at least wrong enough: Obama won the election, Biden does seem to have helped, he has avoided making many huge gaffes, and he still seems like a pretty good guy.

So I am predicting the economic outcome of Obama’s arrival in office, again taking a critical position, hoping again to be wrong — not like when I anticipated that Paulson’s bailout plan was clueless. Obama is a smart guy. So far, he has seemed to know exactly what he is doing.

My prediction, at any rate, is that this won’t last. The specific reason is that he’s taking a centrist approach to a revolutionary financial situation. He was apparently on board for Paulson’s bailout, which wasted not only money but also credibility (Paulson’s, at least, and also the government’s). Obama’s got smart economists backing him, but they generally seem centrist too.

Priming the pump isn’t going to do it this time. The consumer-driven economy is history. People have been sufficiently scared, by this point, that the money you give them — like the money Paulson gave the banks — is going to go into their savings accounts, or to pay some of their bills. Too many people have faced the possibility of simply and absolutely running out of money. They aren’t going to be buying a boatload of stuff from China anytime soon. Months from now, maybe. Possibly. But lots will have happened by then.

Putting lots of people to work on road repairs and other infrastructure projects is not a bad move. It builds confidence, to some extent, because it seems practical. Nobody can find fault with fixing a bridge that we all need. But it doesn’t build confidence in a different sense: it’s a stopgap. What happens when all the potholes are fixed? Whatever the answer is, it doesn’t counteract the very real sense of financial disaster that you get when you tour the mall and see all the stores that have closed. That was normalcy; this isn’t.

Trillions of dollars vanished when house prices went south. If you want that money back, you restore the house prices. I doubt there are enough people in the world with the cash to buy those foreclosed homes; but if there are, that would be one possibility: give them instant U.S. citizenship upon their cash purchase of a foreclosed U.S. home costing at least $150,000. Other than some gimmick like that, though, it’ll be long years before house prices return to their previous levels. High inflation could make it happen sooner, but in that case the dollars may no longer go far toward purchases from China.

Basically, the party is over. Planning for the U.S. economy at this point is a lot like financial planning for the foreclosed homeowner: salvage what you can, walk away, and learn quickly to find pleasure in rental housing. Overstay your welcome, and you and your stuff are going to get thrown out on the sidewalk.

In other words, it’s a new day. If the federal government wastes its ammo on shots in the dark, it may not have enough left for when a guy can finally see what he’s shooting at. The more we toss around loose talk about trillions for this and that, the more we provoke investors to doubt that the U.S. can ever afford to pay it all off. Someday, even the people who buy U.S. Treasury securities are going to put their money in gold or something else instead.

What would have a chance of succeeding at this point? That depends on how you define success. We aren’t yet ready for a definition that would truly fit the occasion. For instance, a year or two ago, Americans weren’t (and many still aren’t) ready for the idea that burning food as biofuel is obscene, in a world where people starve and even some Americans go hungry.

Right now, people aren’t ready for the ideas that American lifestyles were better when America’s population was smaller, or that automobiles and highways are wasteful of resources and destructive of the social fabric. It’s not a question of whether those statements are true or false; it’s that we haven’t even yet reached a point of being willing to take such unorthodox ideas seriously. People do want change; they’re just not ready for Change.

Unfortunately, I suspect FDR’s solutions won’t work this time. FDR had an increasingly wealthy America to backstop faith in his deficit spending. Obama is going to have to do things differently. My sense is that he needs to act on his liberal convictions and present a vision of a very different country, with particular emphasis on the concept that we will no longer abandon our own. Even in our current economic difficulties, it is just a bad idea to send the message that ordinary Americans may actually find themselves hungry and homeless in the event of financial disaster. That sort of thing creates panic, not confidence.

If Obama can take steps to quell the waves of fear that people now experience — if he can get himself out in front of the country, and can moreover get the country to come his way — then he’s got a chance to inspire enduring confidence rather than mere desperate hope in his abilities. But that isn’t where centrism will lead him, and centrism is where he’s been headed. That’s my bet.

(This item was previously posted in another blog.)

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