Whatever one may think about President Barack Obama’s politics, one thing is certain. He is a man of action. Following in the tradition of Franklin Delano Roosevelt, Obama has an agenda to pursue and the determination to relentlessly push for its implementation. At their inaugurations, both men faced dire economic circumstances not of their making. Both put trust in the ability of government to fix things, and both men willingly experimented with financial fixes, trading prudence for performance. Both spent money the country doesn’t have, and Roosevelt raised taxes as will Obama. FDR enjoyed the confidence of the majority of Americans, as does Obama.
The several points of similarity between Roosevelt’s and Obama’s first terms, however, mask profound underlying differences. FDR’s America was not deeply in debt. The United States was on the gold standard throughout Roosevelt’s tenure. Roosevelt did not have to deal with decades-old entitlement programs poised to bankrupt the nation. Even adjusted for inflation, Roosevelt’s spending amounted to a pittance compared to Barack’s grandiose plans. The realities facing Barack Obama are far more formidable than those of the 1930s.
The world that made possible Roosevelt’s implementation of the New Deal no longer exists, a fact Obama may not understand. Obama will place a mountain of debt on top of a mountain of debt, something FDR did not do. The comparatively strong dollar, good credit, and American self-reliance of Roosevelt’s time have been replaced by economic vulnerability of the most severe sort. Consider these comments by Morgan Stanley’s Richard Berner, written this week:
“America’s long-awaited fiscal train wreck is now underway. Depending on policy actions taken now and over the next few years, federal deficits will likely average as much as 6% of GDP through 2019, contributing to a jump in debt held by the public to as high as 82% of GDP by then – a doubling over the next decade. Worse, barring aggressive policy actions, deficits and debt will rise even more sharply thereafter as entitlement spending accelerates relative to GDP. Keeping entitlement promises would require unsustainable borrowing, taxes or both, severely testing the credibility of our policies and hurting our long-term ability to finance investment and sustain growth. And soaring debt will force up real interest rates, reducing capital and productivity and boosting debt service. Not only will those factors steadily lower our standard of living, but they will imperil economic and financial stability.”
What’s a President to do? Only time will tell, but it’s highly unlikely Barack Obama will abandon his agenda regardless of deficits, debt, or possible financial anarchy. Here’s why. Barack Obama is unlike any American President since Ronald Reagan. Like Reagan, and particularly unlike Bill Clinton, Obama has cores values he will not violate. Clinton’s core value was popularity and winning elections. He advocated policies as long as they helped him politically. When nationalized healthcare and gays in the military proved politically hazardous Bill dropped them like hot potatoes. While publicly denouncing the “Contract With America,” Clinton adopted most of its proposals, governing from the right-of-center for most of his eight years. This Obama will not do. Steadfast adherence to core beliefs may be his Achilles heel.
Obama sees America as a flawed society too long dominated by moneyed interests. Above all, President Obama believes in wealth redistribution and government’s responsibility to that end, a goal he will pursue through government-run healthcare, “free” college tuition and expansions of government assistance programs across the board, all paid for by cap and trade fees, a value added tax and otherwise soaking the rich. Obama’s recent denunciation of deficit spending was a harbinger of things to come. More money will soon be flowing to Washington and back out to fund Obama’s priorities.
The war in Afghanistan, gays in the military, the closing of Gitmo, promises not to raise taxes on anyone making less than $250,000 a year — these and more may all fall by the wayside during Obama’s time in office. But, he will not give up on taxing and spending in order to level the playing field by returning money to its rightful owners. In this Obama is the irresistible force. He will pursue the fixing of America no matter the economic or political realities.
On the other hand, the immovable object is America’s desperate economic condition. As debt mounts, interest rates climb and the dollar weakens, even Democrats are beginning to balk at trillion dollar deficits. “Democrats who control the levers of power in Washington are divided over whether to push for more deficit spending to end the recession,” reported Bloomberg just today. Let’s hope so. It’s always encouraging to hear Democrats sound nearly reasonable.
Barack Obama’s unshakable faith in government intervention and his abiding desire to redistribute wealth is about to run headlong into the unfathomable tangle of America’s finances. His stubbornness may be his undoing, or the country’s.
Posted by Jerry Pomeroy in Economics, Obama Presidency