Saturday, April 17, 2010
Friday, April 16, 2010
Wednesday, April 14, 2010
Sunday, April 11, 2010
The New York Times
Southern Discomfort
IN 1956, nearly a century after Fort Sumter, Robert Penn Warren went on assignment for Life magazine, traveling throughout the South after the Supreme Court’s school desegregation decisions. Racism was thick, hope thin. Progress, Warren reported, was going to take a while — a long while. “History, like nature, knows no jumps,” he wrote, “except the jump backward, maybe.”
Last week, Virginia’s governor, Robert McDonnell, jumped backward when he issued a proclamation recognizing April as Confederate History Month. In it he celebrated those “who fought for their homes and communities and Commonwealth” and wrote of the importance of understanding “the sacrifices of the Confederate leaders, soldiers and citizens during the period of the Civil War.”
The governor originally chose not to mention slavery in the proclamation, saying he “focused on the ones I thought were most significant for Virginia.” It seems to follow that, at least for Mr. McDonnell, the plight of Virginia’s slaves does not rank among the most significant aspects of the war.
Advertently or not, Mr. McDonnell is working in a long and dispiriting tradition. Efforts to rehabilitate the Southern rebellion frequently come at moments of racial and social stress, and it is revealing that Virginia’s neo-Confederates are refighting the Civil War in 2010. Whitewashing the war is one way for the right — alienated, anxious and angry about the president, health care reform and all manner of threats, mostly imaginary — to express its unease with the Age of Obama, disguising hate as heritage.
If neo-Confederates are interested in history, let’s talk history. Since Lee surrendered at Appomattox, Confederate symbols have tended to be more about white resistance to black advances than about commemoration. In the 1880s and 1890s, after fighting Reconstruction with terrorism and after the Supreme Court struck down the 1875 Civil Rights Act, states began to legalize segregation. For white supremacists, iconography of the “Lost Cause” was central to their fight; Mississippi even grafted the Confederate battle emblem onto its state flag.
But after the Supreme Court allowed segregation in Plessy v. Ferguson in 1896, Jim Crow was basically secure. There was less need to rally the troops, and Confederate imagery became associated with the most extreme of the extreme: the Ku Klux Klan.
In the aftermath of World War II, however, the rebel flag and other Confederate symbolism resurfaced as the civil rights movement spread. In 1948, supporters of Strom Thurmond’s pro-segregation Dixiecrat ticket waved the battle flag at campaign stops.
Then came the school-integration rulings of the 1950s. Georgia changed its flag to include the battle emblem in 1956, and South Carolina hoisted the colors over its Capitol in 1962 as part of its centennial celebrations of the war.
As the sesquicentennial of Fort Sumter approaches in 2011, the enduring problem for neo-Confederates endures: anyone who seeks an Edenic Southern past in which the war was principally about states’ rights and not slavery is searching in vain, for the Confederacy and slavery are inextricably and forever linked.
That has not, however, stopped Lost Causers who supported Mr. McDonnell’s proclamation from trying to recast the war in more respectable terms. They would like what Lincoln called our “fiery trial” to be seen in a political, not a moral, light. If the slaves are erased from the picture, then what took place between Sumter and Appomattox is not about the fate of human chattel, or a battle between good and evil. It is, instead, more of an ancestral skirmish in the Reagan revolution, a contest between big and small government.
We cannot allow the story of the emancipation of a people and the expiation of America’s original sin to become fodder for conservative politicians playing to their right-wing base. That, to say the very least, is a jump backward we do not need.
Last week, Virginia’s governor, Robert McDonnell, jumped backward when he issued a proclamation recognizing April as Confederate History Month. In it he celebrated those “who fought for their homes and communities and Commonwealth” and wrote of the importance of understanding “the sacrifices of the Confederate leaders, soldiers and citizens during the period of the Civil War.”
The governor originally chose not to mention slavery in the proclamation, saying he “focused on the ones I thought were most significant for Virginia.” It seems to follow that, at least for Mr. McDonnell, the plight of Virginia’s slaves does not rank among the most significant aspects of the war.
Advertently or not, Mr. McDonnell is working in a long and dispiriting tradition. Efforts to rehabilitate the Southern rebellion frequently come at moments of racial and social stress, and it is revealing that Virginia’s neo-Confederates are refighting the Civil War in 2010. Whitewashing the war is one way for the right — alienated, anxious and angry about the president, health care reform and all manner of threats, mostly imaginary — to express its unease with the Age of Obama, disguising hate as heritage.
If neo-Confederates are interested in history, let’s talk history. Since Lee surrendered at Appomattox, Confederate symbols have tended to be more about white resistance to black advances than about commemoration. In the 1880s and 1890s, after fighting Reconstruction with terrorism and after the Supreme Court struck down the 1875 Civil Rights Act, states began to legalize segregation. For white supremacists, iconography of the “Lost Cause” was central to their fight; Mississippi even grafted the Confederate battle emblem onto its state flag.
But after the Supreme Court allowed segregation in Plessy v. Ferguson in 1896, Jim Crow was basically secure. There was less need to rally the troops, and Confederate imagery became associated with the most extreme of the extreme: the Ku Klux Klan.
In the aftermath of World War II, however, the rebel flag and other Confederate symbolism resurfaced as the civil rights movement spread. In 1948, supporters of Strom Thurmond’s pro-segregation Dixiecrat ticket waved the battle flag at campaign stops.
Then came the school-integration rulings of the 1950s. Georgia changed its flag to include the battle emblem in 1956, and South Carolina hoisted the colors over its Capitol in 1962 as part of its centennial celebrations of the war.
As the sesquicentennial of Fort Sumter approaches in 2011, the enduring problem for neo-Confederates endures: anyone who seeks an Edenic Southern past in which the war was principally about states’ rights and not slavery is searching in vain, for the Confederacy and slavery are inextricably and forever linked.
That has not, however, stopped Lost Causers who supported Mr. McDonnell’s proclamation from trying to recast the war in more respectable terms. They would like what Lincoln called our “fiery trial” to be seen in a political, not a moral, light. If the slaves are erased from the picture, then what took place between Sumter and Appomattox is not about the fate of human chattel, or a battle between good and evil. It is, instead, more of an ancestral skirmish in the Reagan revolution, a contest between big and small government.
We cannot allow the story of the emancipation of a people and the expiation of America’s original sin to become fodder for conservative politicians playing to their right-wing base. That, to say the very least, is a jump backward we do not need.
Friday, April 09, 2010
Who’s Up for Building Bridges?
I’m no expert on American politics, but I do know something about holes. And watching the way the Republican Party is reacting to the passage of health care, it seems to me the G.O.P. is violating the first rule of holes: “When you’re in one, stop digging.”
Yes, I know, the polls show that the G.O.P. is not being hurt by its “just-say-no” strategy. But there is no groundswell moving its way either. Republicans will have to come up with more than “just-say-no-to-everything-except-lower-taxes-and-more-drilling” to field a credible 2012 presidential candidate. Here’s why:
If you step back far enough, you could argue that George W. Bush brought the Reagan Revolution — with its emphasis on tax cuts, deregulation and government-as-the-problem-not-the-solution — to its logical conclusion and then some. But with a soaring deficit and a banking crisis caused by an excess of deregulation, Reaganism has met its limit. Meanwhile, President Obama’s passage of health care reform has brought the New Deal-Franklin Roosevelt Revolution to its logical conclusion. There will be no more major entitlements for Americans. The bond market will make sure of that.
In other words, both major parties have now completed their primary 20th- century missions, first laid down by their iconic standard-bearers. The real question is which party is going to build America’s bridge to the 21st century — one that will strengthen our ability to compete in the global economy, while practicing much more fiscal discipline.
Obama is at least trying to push an agenda for pursuing the American dream in these new circumstances. I don’t agree with every policy — I’d like to see a lot more emphasis on innovation and small business start-ups — but he’s clearly trying. I do not get that impression from the Republicans, and especially those being led around by the Tea Partiers.
Obama-ism posits that we are now in a hypercompetitive global economy, where the country that thrives will be the one that brings together the most educated, creative and diverse work force with the best infrastructure — bandwidth, ports, airports, high-speed rail and good governance. And we’re in a world with a warming climate that is growing from 6.8 billion people to 9.2 billion by 2050, so demand for clean energy is going to go through the roof. Therefore, E.T. — energy technology — is going to be the next great global industry.
So, government matters. It needs to be incentivizing businesses to build their next factory in this country — at a time when every other nation is throwing incentives their way; it needs to be recruiting highly skilled immigrants; it needs to be setting the highest national education standards and funding basic research; it needs to be laying down the right energy regulations that will stimulate more clean-tech companies.
And — something neither Democrats nor Republicans have stepped up to yet — we will need to pay for all this by simultaneously raising some taxes, cutting others and by taking away some services to pay for needed new investments in infrastructure and education. We can’t get away anymore with a G.O.P. that wants to cut taxes but never specifies which services it plans to give up, or a Democratic party that wants to add services by taxing only the rich.
“Health care was the final act of the New Deal,” argues Edward Goldberg, who teaches global business at Baruch College and is writing a book on globalization and U.S. politics. “The 21st-century will require a mix of cutting, investing and innovation and entrepreneurialism beyond anything we have dreamed of.” To simply say that government is not the answer, he adds, “when we are essentially fighting four wars — Iraq, Afghanistan, the Great Recession and the retooling of the American economy” — is ludicrous. Smart government needs to be the leader or silent partner in all of these projects.
One reason the G.O.P. has failed to spawn an agenda for the 21st century is that globalization has fragmented the party. Its Wall Street/multinational corporate wing understands we need immigration, free trade, clean-tech and government support for better infrastructure and the scientific research that is the wellspring of innovation. The Tea Party wing opposes virtually all those things. All that unites the two wings is their common desire for lower taxes — period.
Globalization has also weakened the Democrats’ blue-collar/union base, but the Democrats have absorbed a new constituency created by globalization — what Goldberg calls the “ ‘Newocracy’ — which combines the multinational corporate manager, the technology entrepreneur and engineer, and the aspirational members of the meritocracy.”
These “Newocrats” previously would have leaned Republican, but now many lean toward Obama. They don’t agree with everything he’s proposing, but they sense that he is working on that bridge to the 21st century, while today’s G.O.P./Tea Party is just not in the game. Today, we have no real opposition party with its own pathway to the 21st century. We just have opposition.
Yes, I know, the polls show that the G.O.P. is not being hurt by its “just-say-no” strategy. But there is no groundswell moving its way either. Republicans will have to come up with more than “just-say-no-to-everything-except-lower-taxes-and-more-drilling” to field a credible 2012 presidential candidate. Here’s why:
If you step back far enough, you could argue that George W. Bush brought the Reagan Revolution — with its emphasis on tax cuts, deregulation and government-as-the-problem-not-the-solution — to its logical conclusion and then some. But with a soaring deficit and a banking crisis caused by an excess of deregulation, Reaganism has met its limit. Meanwhile, President Obama’s passage of health care reform has brought the New Deal-Franklin Roosevelt Revolution to its logical conclusion. There will be no more major entitlements for Americans. The bond market will make sure of that.
In other words, both major parties have now completed their primary 20th- century missions, first laid down by their iconic standard-bearers. The real question is which party is going to build America’s bridge to the 21st century — one that will strengthen our ability to compete in the global economy, while practicing much more fiscal discipline.
Obama is at least trying to push an agenda for pursuing the American dream in these new circumstances. I don’t agree with every policy — I’d like to see a lot more emphasis on innovation and small business start-ups — but he’s clearly trying. I do not get that impression from the Republicans, and especially those being led around by the Tea Partiers.
Obama-ism posits that we are now in a hypercompetitive global economy, where the country that thrives will be the one that brings together the most educated, creative and diverse work force with the best infrastructure — bandwidth, ports, airports, high-speed rail and good governance. And we’re in a world with a warming climate that is growing from 6.8 billion people to 9.2 billion by 2050, so demand for clean energy is going to go through the roof. Therefore, E.T. — energy technology — is going to be the next great global industry.
So, government matters. It needs to be incentivizing businesses to build their next factory in this country — at a time when every other nation is throwing incentives their way; it needs to be recruiting highly skilled immigrants; it needs to be setting the highest national education standards and funding basic research; it needs to be laying down the right energy regulations that will stimulate more clean-tech companies.
And — something neither Democrats nor Republicans have stepped up to yet — we will need to pay for all this by simultaneously raising some taxes, cutting others and by taking away some services to pay for needed new investments in infrastructure and education. We can’t get away anymore with a G.O.P. that wants to cut taxes but never specifies which services it plans to give up, or a Democratic party that wants to add services by taxing only the rich.
“Health care was the final act of the New Deal,” argues Edward Goldberg, who teaches global business at Baruch College and is writing a book on globalization and U.S. politics. “The 21st-century will require a mix of cutting, investing and innovation and entrepreneurialism beyond anything we have dreamed of.” To simply say that government is not the answer, he adds, “when we are essentially fighting four wars — Iraq, Afghanistan, the Great Recession and the retooling of the American economy” — is ludicrous. Smart government needs to be the leader or silent partner in all of these projects.
One reason the G.O.P. has failed to spawn an agenda for the 21st century is that globalization has fragmented the party. Its Wall Street/multinational corporate wing understands we need immigration, free trade, clean-tech and government support for better infrastructure and the scientific research that is the wellspring of innovation. The Tea Party wing opposes virtually all those things. All that unites the two wings is their common desire for lower taxes — period.
Globalization has also weakened the Democrats’ blue-collar/union base, but the Democrats have absorbed a new constituency created by globalization — what Goldberg calls the “ ‘Newocracy’ — which combines the multinational corporate manager, the technology entrepreneur and engineer, and the aspirational members of the meritocracy.”
These “Newocrats” previously would have leaned Republican, but now many lean toward Obama. They don’t agree with everything he’s proposing, but they sense that he is working on that bridge to the 21st century, while today’s G.O.P./Tea Party is just not in the game. Today, we have no real opposition party with its own pathway to the 21st century. We just have opposition.
BusinessWeek
Obamanomics April 8, 2010, 5:00PM EST
Why the Obama Plan Is Working
Polls say the economy is heading in the wrong direction. Markets say it's back on track. This time, the markets are right
By Mike Dorning
It's never easy to separate politics from policy, and the past 18 months have only increased the degree of difficulty. The U.S. has been through a historic financial crisis followed by a historic election and a series of historic federal gambles—from bailing out AIG and GM to passing a $787 billion stimulus and a $940 billion health-care reform bill. All that risk has made policy more complicated and politics more fraught ("You lie," "Babykiller").
A Bloomberg national poll in March found that Americans, by an almost 2-to-1 margin, believe the economy has gotten worse rather than better during the past year. The Market begs to differ. While President Obama's overall job approval rating has fallen to a new low of 44%, according to a CBS News Poll, down five points from late March, the judgment of the financial indexes has turned resoundingly positive. The Standard & Poor's 500-stock index is up more than 74% from its recessionary low in March 2009. Corporate bonds have been rallying for a year. Commodity prices have surged. International currency markets have been bullish on the dollar for months, raising it by almost 10% since Nov. 25 against a basket of six major currencies. Housing prices have stabilized. Mortgage rates are low. "We've had a phenomenal run in asset classes across the board," says Dan Greenhaus, chief economic strategist for Miller Tabak + Co., an institutional trading firm in New York. "If Obama was a Republican, we would hear a never-ending drumbeat of news stories about markets voting in favor of the President."
Little more than a year ago, financial markets were in turmoil, major auto companies were on the verge of collapse and economists such as Paul Krugman were worried about the U.S. slumbering through a Japan-like Lost Decade. While no one would claim that all the pain is past or the danger gone, the economy is growing again, jumping to a 5.6% annualized growth rate in the fourth quarter of 2009 as businesses finally restocked their inventories. The consensus view now calls for 3% growth this year, significantly higher than the 2.1 % estimate for 2010 that economists surveyed by Bloomberg News saw coming when Obama first moved into the Oval Office. The U.S. manufacturing sector has expanded for eight straight months, the Business Roundtable's measure of CEO optimism reached its highest level since early 2006, and in March the economy added 162,000 jobs—more than it had during any month in the past three years. "There is more business confidence out there," says Boeing (BA) CEO Jim McNerney. "This Administration deserves significant credit."
It is worth stepping back to consider, in cool-headed policy terms, how all of this came to be—and whether the Obama team's approach amounts to a set of successful emergency measures or a new economic philosophy: Obamanomics.
For most of the past two decades, the reigning economic approach in Democratic circles has been Rubinomics, a set of priorities fashioned in the 1990s by Bill Clinton's Treasury Secretary, Robert E. Rubin, the former co-chairman of Goldman Sachs (GS). Broadly, Rubinomics was a three-legged stool consisting of restrained government spending, lower budget deficits, and open trade, which were meant in combination to reassure financial markets, keep capital flowing, and thus put the country on a path to prosperity.
On the surface, Obamanomics couldn't be more different. The Administration racked up record deficits as it pursued a $787 billion fiscal stimulus on top of the $700 billion bailout fund for banks and carmakers. Obama has done close to nothing to expand free trade. And while Clinton pleased the markets with a moderate, probusiness image, Obama has riled Wall Street with occasional bursts of populist rhetoric, such as his slamming of "fat cat bankers" on 60 Minutes last December.
The rallying markets haven't been bothered by these differences, largely because of their context. Martin Baily, who was a chairman of the Council of Economic Advisers during the Clinton Administration, says he suspects Rubin and the rest of the Clinton economic team would have made similar decisions—on bailouts, fiscal stimulus, and deficit spending—had they faced a crisis of similar magnitude. "I think we would have gone the same way," he says. The Obama team, he continues, navigated the financial crisis while never losing sight of the importance of private enterprise and private markets (a point Obama stressed in his Feb. 9 interview with Bloomberg BusinessWeek). "A lot of people on the left were urging them to nationalize banks. Instead they injected capital, and now they're pulling capital out. That looks more like Rubinomics than a set of socialist or left-wing economic policies." The Obama economic team looks a lot like Rubin's, too; three of its most prominent members—Treasury Secretary Tim Geithner, National Economic Council Chairman Larry Summers, and White House budget director Peter Orszag—are Rubin protégés.
While the Administration's call for a consumer financial protection agency has aroused opposition from banks, Obama's regulatory reform plan largely leaves the financial industry's structure intact and ignores proposals to break up large financial institutions, unlike the reforms pursued after the Crash of 1929. Amid an uproar over bonuses at government-assisted banks, Obama for the most part chose to respect private employment contracts.
In short, Obama's instincts during the crisis were exceedingly Rubin-esque. Even the $787 billion stimulus package, while large by historical standards, didn't reach the scale called for by many liberal economists, including the chairman of his own Council of Economic Advisers, Christina Romer, who initially advocated spending more than $1 trillion. Today, Romer doesn't shy away from comparisons to the last Democratic Administration, but she also makes no grand claims about a new economic philosophy. What unites Rubinomics and Obamanomics, she says, "is the focus on results, the pragmatism of what's right for the economy. We each took the policy that was appropriate at the time."
The similarities go deeper. Like Clinton, Obama has tried to reduce income inequality. Clinton's 1993 deficit-reduction plan raised income tax rates for high-income families to 39.6%; Obama plans to return the top rate to the Clinton-era level. He also raised Medicare taxes for individuals earning over $200,000 to finance his health plan. Clinton aided the working poor with the Earned Income Tax Credit; Obama is doing the same with insurance subsidies in his health plan. A national health plan was an aspiration of both Presidents. Baily argues that the Obama approach is "at least in principle closer to Rubinomics than was the Clinton plan. [Obama's team] is trying to use market incentives to raise the quality and lower the cost, and that looks like Rubinomics."
Any comparison must take into account the vastly different circumstances each Administration confronted. Clinton entered office as the end of the Cold War generated a peace dividend, then rode the tech boom—and the tax-revenue-generating stock options that came with the runup in tech stock prices— to a balanced budget. Obama inherited two wars and the scariest financial crisis since the Great Depression. Clinton's deference to the bond market was necessary because long-term interest rates were high—above 7% on 30-year Treasury bonds—when he took office. Interest rates have been the least of Obama's concerns, with yields below 3% when he took office and the Fed effectively keeping short-term rates at zero.
Despite a budget deficit that is projected at $1.5 trillion this year, Obama wants to move the country toward the kind of fiscal balance it enjoyed fleetingly in the Clinton era, though his budget plans falls short of that. He recognizes that the federal debt load is unsupportable. Alan Greenspan—the tacit ally of Clinton and Rubin in the 1990s—warned last month that a recent uptick in yields on 10-year Treasury notes might signal a surge in long-term interest rates driven by investor anxiety over the budget shortfall.
Economic stabilization has not been Obama's handiwork alone. In the months before he took office, President George W. Bush and Treasury Secretary Hank Paulson halted a market free fall with the bank bailout. Obama's stimulus complemented the Federal Reserve's aggressive monetary easing. To build a floor for housing prices, the Fed intervened to support mortgage markets and the White House pledged unlimited financial backing for mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE), and rolled out tax credits for home buyers and mortgage modification programs to stave off foreclosures. It's the entire package that has made the difference.
"When you take it all together, the response was massive, unprecedented, and ultimately successful," says Mark Zandi, chief economist at Moody's Economy.com (MCO). Even Obama critics like Phil Swagel, assistant Treasury secretary for economic policy under George W. Bush, acknowledge that White House policies have been successful. "They could have done a better job" by spending more of the stimulus on corporate tax cuts to boost hiring and investment, says Swagel, now an economics professor at Georgetown University's McDonough School of Business. "But their economic policies, including the stimulus, have helped move the economy in the right direction."
While jobs have been slow to return, the country has experienced "an incredible productivity boom" that strengthens the economy for an expansion, says Greenhaus of Miller Tabak. Labor productivity, or worker output per hour, grew at a 6.9% annual pace in the fourth quarter, capping the biggest one-year gain since 2002. Over the long run, productivity growth is what raises living standards. Corporate profits also have been rising, up 8% in the fourth quarter, putting businesses on a sounder financial foundation to invest and hire as customers return.
The public, alas, does not see the signs of life that economists do, as the downbeat views in the Bloomberg poll demonstrate. And as long as job security remains a concern, it's easy to understand why psychology may trump data. Among those who own stocks, bonds, or mutual funds, only 3 out of 10 say the value of their portfolio has risen since a year ago, according to the poll—a near-impossibility given the size and breadth of the market gains.
The early stages of an economic rebound do not bring political safe haven for Presidents. (Just ask George H.W. Bush, who won a war against Iraq only to lose reelection a year after the 1990-91 recession ended.) Obama, however, may now have reached a pivot point with the economy finally beginning to add jobs. "He can make great strides in short order," says Steven Jarding, a former Democratic campaign strategist who is now a lecturer at Harvard's Kennedy School of Government. "Any indicator he can build on is a good thing. He'll be able to focus all his energy and attention to say, 'Here's what happened this year in the economy.'"
With seven months to go before midterm elections, and more than two years before Obama reaches his own reelection day, there's still time for the President's policies to swing to his political advantage. Again, follow the money: Consumer spending has been rising for five straight months. That may not last, but it suggests Obama is already on the right track with voters' wallets. If the Clinton Administration is a trustworthy precedent—and job growth continues—their hearts and minds could follow.
Dorning is a reporter at Bloomberg News.
Why the Obama Plan Is Working
Polls say the economy is heading in the wrong direction. Markets say it's back on track. This time, the markets are right
By Mike Dorning
It's never easy to separate politics from policy, and the past 18 months have only increased the degree of difficulty. The U.S. has been through a historic financial crisis followed by a historic election and a series of historic federal gambles—from bailing out AIG and GM to passing a $787 billion stimulus and a $940 billion health-care reform bill. All that risk has made policy more complicated and politics more fraught ("You lie," "Babykiller").
A Bloomberg national poll in March found that Americans, by an almost 2-to-1 margin, believe the economy has gotten worse rather than better during the past year. The Market begs to differ. While President Obama's overall job approval rating has fallen to a new low of 44%, according to a CBS News Poll, down five points from late March, the judgment of the financial indexes has turned resoundingly positive. The Standard & Poor's 500-stock index is up more than 74% from its recessionary low in March 2009. Corporate bonds have been rallying for a year. Commodity prices have surged. International currency markets have been bullish on the dollar for months, raising it by almost 10% since Nov. 25 against a basket of six major currencies. Housing prices have stabilized. Mortgage rates are low. "We've had a phenomenal run in asset classes across the board," says Dan Greenhaus, chief economic strategist for Miller Tabak + Co., an institutional trading firm in New York. "If Obama was a Republican, we would hear a never-ending drumbeat of news stories about markets voting in favor of the President."
Little more than a year ago, financial markets were in turmoil, major auto companies were on the verge of collapse and economists such as Paul Krugman were worried about the U.S. slumbering through a Japan-like Lost Decade. While no one would claim that all the pain is past or the danger gone, the economy is growing again, jumping to a 5.6% annualized growth rate in the fourth quarter of 2009 as businesses finally restocked their inventories. The consensus view now calls for 3% growth this year, significantly higher than the 2.1 % estimate for 2010 that economists surveyed by Bloomberg News saw coming when Obama first moved into the Oval Office. The U.S. manufacturing sector has expanded for eight straight months, the Business Roundtable's measure of CEO optimism reached its highest level since early 2006, and in March the economy added 162,000 jobs—more than it had during any month in the past three years. "There is more business confidence out there," says Boeing (BA) CEO Jim McNerney. "This Administration deserves significant credit."
It is worth stepping back to consider, in cool-headed policy terms, how all of this came to be—and whether the Obama team's approach amounts to a set of successful emergency measures or a new economic philosophy: Obamanomics.
For most of the past two decades, the reigning economic approach in Democratic circles has been Rubinomics, a set of priorities fashioned in the 1990s by Bill Clinton's Treasury Secretary, Robert E. Rubin, the former co-chairman of Goldman Sachs (GS). Broadly, Rubinomics was a three-legged stool consisting of restrained government spending, lower budget deficits, and open trade, which were meant in combination to reassure financial markets, keep capital flowing, and thus put the country on a path to prosperity.
On the surface, Obamanomics couldn't be more different. The Administration racked up record deficits as it pursued a $787 billion fiscal stimulus on top of the $700 billion bailout fund for banks and carmakers. Obama has done close to nothing to expand free trade. And while Clinton pleased the markets with a moderate, probusiness image, Obama has riled Wall Street with occasional bursts of populist rhetoric, such as his slamming of "fat cat bankers" on 60 Minutes last December.
The rallying markets haven't been bothered by these differences, largely because of their context. Martin Baily, who was a chairman of the Council of Economic Advisers during the Clinton Administration, says he suspects Rubin and the rest of the Clinton economic team would have made similar decisions—on bailouts, fiscal stimulus, and deficit spending—had they faced a crisis of similar magnitude. "I think we would have gone the same way," he says. The Obama team, he continues, navigated the financial crisis while never losing sight of the importance of private enterprise and private markets (a point Obama stressed in his Feb. 9 interview with Bloomberg BusinessWeek). "A lot of people on the left were urging them to nationalize banks. Instead they injected capital, and now they're pulling capital out. That looks more like Rubinomics than a set of socialist or left-wing economic policies." The Obama economic team looks a lot like Rubin's, too; three of its most prominent members—Treasury Secretary Tim Geithner, National Economic Council Chairman Larry Summers, and White House budget director Peter Orszag—are Rubin protégés.
While the Administration's call for a consumer financial protection agency has aroused opposition from banks, Obama's regulatory reform plan largely leaves the financial industry's structure intact and ignores proposals to break up large financial institutions, unlike the reforms pursued after the Crash of 1929. Amid an uproar over bonuses at government-assisted banks, Obama for the most part chose to respect private employment contracts.
In short, Obama's instincts during the crisis were exceedingly Rubin-esque. Even the $787 billion stimulus package, while large by historical standards, didn't reach the scale called for by many liberal economists, including the chairman of his own Council of Economic Advisers, Christina Romer, who initially advocated spending more than $1 trillion. Today, Romer doesn't shy away from comparisons to the last Democratic Administration, but she also makes no grand claims about a new economic philosophy. What unites Rubinomics and Obamanomics, she says, "is the focus on results, the pragmatism of what's right for the economy. We each took the policy that was appropriate at the time."
The similarities go deeper. Like Clinton, Obama has tried to reduce income inequality. Clinton's 1993 deficit-reduction plan raised income tax rates for high-income families to 39.6%; Obama plans to return the top rate to the Clinton-era level. He also raised Medicare taxes for individuals earning over $200,000 to finance his health plan. Clinton aided the working poor with the Earned Income Tax Credit; Obama is doing the same with insurance subsidies in his health plan. A national health plan was an aspiration of both Presidents. Baily argues that the Obama approach is "at least in principle closer to Rubinomics than was the Clinton plan. [Obama's team] is trying to use market incentives to raise the quality and lower the cost, and that looks like Rubinomics."
Any comparison must take into account the vastly different circumstances each Administration confronted. Clinton entered office as the end of the Cold War generated a peace dividend, then rode the tech boom—and the tax-revenue-generating stock options that came with the runup in tech stock prices— to a balanced budget. Obama inherited two wars and the scariest financial crisis since the Great Depression. Clinton's deference to the bond market was necessary because long-term interest rates were high—above 7% on 30-year Treasury bonds—when he took office. Interest rates have been the least of Obama's concerns, with yields below 3% when he took office and the Fed effectively keeping short-term rates at zero.
Despite a budget deficit that is projected at $1.5 trillion this year, Obama wants to move the country toward the kind of fiscal balance it enjoyed fleetingly in the Clinton era, though his budget plans falls short of that. He recognizes that the federal debt load is unsupportable. Alan Greenspan—the tacit ally of Clinton and Rubin in the 1990s—warned last month that a recent uptick in yields on 10-year Treasury notes might signal a surge in long-term interest rates driven by investor anxiety over the budget shortfall.
Economic stabilization has not been Obama's handiwork alone. In the months before he took office, President George W. Bush and Treasury Secretary Hank Paulson halted a market free fall with the bank bailout. Obama's stimulus complemented the Federal Reserve's aggressive monetary easing. To build a floor for housing prices, the Fed intervened to support mortgage markets and the White House pledged unlimited financial backing for mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE), and rolled out tax credits for home buyers and mortgage modification programs to stave off foreclosures. It's the entire package that has made the difference.
"When you take it all together, the response was massive, unprecedented, and ultimately successful," says Mark Zandi, chief economist at Moody's Economy.com (MCO). Even Obama critics like Phil Swagel, assistant Treasury secretary for economic policy under George W. Bush, acknowledge that White House policies have been successful. "They could have done a better job" by spending more of the stimulus on corporate tax cuts to boost hiring and investment, says Swagel, now an economics professor at Georgetown University's McDonough School of Business. "But their economic policies, including the stimulus, have helped move the economy in the right direction."
While jobs have been slow to return, the country has experienced "an incredible productivity boom" that strengthens the economy for an expansion, says Greenhaus of Miller Tabak. Labor productivity, or worker output per hour, grew at a 6.9% annual pace in the fourth quarter, capping the biggest one-year gain since 2002. Over the long run, productivity growth is what raises living standards. Corporate profits also have been rising, up 8% in the fourth quarter, putting businesses on a sounder financial foundation to invest and hire as customers return.
The public, alas, does not see the signs of life that economists do, as the downbeat views in the Bloomberg poll demonstrate. And as long as job security remains a concern, it's easy to understand why psychology may trump data. Among those who own stocks, bonds, or mutual funds, only 3 out of 10 say the value of their portfolio has risen since a year ago, according to the poll—a near-impossibility given the size and breadth of the market gains.
The early stages of an economic rebound do not bring political safe haven for Presidents. (Just ask George H.W. Bush, who won a war against Iraq only to lose reelection a year after the 1990-91 recession ended.) Obama, however, may now have reached a pivot point with the economy finally beginning to add jobs. "He can make great strides in short order," says Steven Jarding, a former Democratic campaign strategist who is now a lecturer at Harvard's Kennedy School of Government. "Any indicator he can build on is a good thing. He'll be able to focus all his energy and attention to say, 'Here's what happened this year in the economy.'"
With seven months to go before midterm elections, and more than two years before Obama reaches his own reelection day, there's still time for the President's policies to swing to his political advantage. Again, follow the money: Consumer spending has been rising for five straight months. That may not last, but it suggests Obama is already on the right track with voters' wallets. If the Clinton Administration is a trustworthy precedent—and job growth continues—their hearts and minds could follow.
Dorning is a reporter at Bloomberg News.
Thursday, April 08, 2010
Start-Ups, Not Bailouts
Here’s my fun fact for the day, provided courtesy of Robert Litan, who directs research at the Kauffman Foundation, which specializes in promoting innovation in America: “Between 1980 and 2005, virtually all net new jobs created in the U.S. were created by firms that were 5 years old or less,” said Litan. “That is about 40 million jobs. That means the established firms created no new net jobs during that period.”
Message: If we want to bring down unemployment in a sustainable way, neither rescuing General Motors nor funding more road construction will do it. We need to create a big bushel of new companies — fast. We’ve got to get more Americans working again for their own dignity — and to generate the rising incomes and wealth we need to pay for existing entitlements, as well as all the new investments we’ll need to make. It was just reported that Social Security this year will pay out more in benefits than it receives in payroll taxes — a red line we were not expected to cross until at least 2016.
But you cannot say this often enough: Good-paying jobs don’t come from bailouts. They come from start-ups. And where do start-ups come from? They come from smart, creative, inspired risk-takers. How do we get more of those? There are only two ways: grow more by improving our schools or import more by recruiting talented immigrants. Surely, we need to do both, and we need to start by breaking the deadlock in Congress over immigration, so we can develop a much more strategic approach to attracting more of the world’s creative risk-takers. “Roughly 25 percent of successful high-tech start-ups over the last decade were founded or co-founded by immigrants,” said Litan. Think Sergey Brin, the Russian-born co-founder of Google, or Vinod Khosla, the India-born co-founder of Sun Microsystems.
That is no surprise. After all, Craig Mundie, the chief research and strategy officer of Microsoft, asks: What made America this incredible engine of prosperity? It was immigration, plus free markets. Because we were so open to immigration — and immigrants are by definition high-aspiring risk-takers, ready to leave their native lands in search of greater opportunities — “we as a country accumulated a disproportionate share of the world’s high-I.Q. risk-takers.”
In addition, because of our vibrant and meritocratic university system, the best foreign students who wanted the best education also came here, and many of them also stayed. In its heyday, our unique system also attracted a disproportionate share of high-I.Q. risk-takers to high government service. So when you put all this together, with our free markets and democracy, it made it easy here for creative, high-I.Q. risk-takers to raise capital for their ideas and commercialize them. In short, America had a very powerful, self-reinforcing engine for growing innovative new companies.
“When you get this happy coincidence of high-I.Q. risk-takers in government and a society that is biased toward high-I.Q. risk-takers, you get these above-average returns as a country,” argued Mundie. “What is common to Singapore, Israel and America? They were all built by high-I.Q. risk-takers and all thrived — but only in the U.S. did it happen at a large scale and with global diversity, so you had this really rich cross-section.”
What is worrisome about America today is the combination of cutbacks in higher education, restrictions on immigration and a toxic public space that dissuades talented people from going into government. Together, all of these trends are slowly eating away at our differentiated edge in attracting and enabling the world’s biggest mass of smart, creative risk-takers.
It isn’t drastic, but it is a decline — at a time when technology is allowing other countries to leverage and empower more of their own high-I.Q. risk-takers. If we don’t reverse this trend, over time, “we could lose our most important competitive edge — the only edge from which sustainable advantage accrues” — having the world’s biggest and most diverse pool of high-I.Q. risk-takers, said Mundie. “If we don’t have that competitive edge, our standard of living will eventually revert to the global mean.”
Right now we have thousands of foreign students in America and one million engineers, scientists and other highly skilled workers here on H-1B temporary visas, which require them to return home when the visas expire. That’s nuts. “We ought to have a ‘job-creators visa’ for people already here,” said Litan. “And once you’ve hired, say, 5 or 10 American nonfamily members, you should get a green card.”
We need health care, financial reform and education reform. But we also need to be thinking just as seriously and urgently about what are the ingredients that foster entrepreneurship — how new businesses are catalyzed, inspired and enabled and how we enlist more people to do that — so no one ever says about America what that officer says to Tom Cruise in “Top Gun”: “Son, your ego’s writing checks your body can’t cash.”
Message: If we want to bring down unemployment in a sustainable way, neither rescuing General Motors nor funding more road construction will do it. We need to create a big bushel of new companies — fast. We’ve got to get more Americans working again for their own dignity — and to generate the rising incomes and wealth we need to pay for existing entitlements, as well as all the new investments we’ll need to make. It was just reported that Social Security this year will pay out more in benefits than it receives in payroll taxes — a red line we were not expected to cross until at least 2016.
But you cannot say this often enough: Good-paying jobs don’t come from bailouts. They come from start-ups. And where do start-ups come from? They come from smart, creative, inspired risk-takers. How do we get more of those? There are only two ways: grow more by improving our schools or import more by recruiting talented immigrants. Surely, we need to do both, and we need to start by breaking the deadlock in Congress over immigration, so we can develop a much more strategic approach to attracting more of the world’s creative risk-takers. “Roughly 25 percent of successful high-tech start-ups over the last decade were founded or co-founded by immigrants,” said Litan. Think Sergey Brin, the Russian-born co-founder of Google, or Vinod Khosla, the India-born co-founder of Sun Microsystems.
That is no surprise. After all, Craig Mundie, the chief research and strategy officer of Microsoft, asks: What made America this incredible engine of prosperity? It was immigration, plus free markets. Because we were so open to immigration — and immigrants are by definition high-aspiring risk-takers, ready to leave their native lands in search of greater opportunities — “we as a country accumulated a disproportionate share of the world’s high-I.Q. risk-takers.”
In addition, because of our vibrant and meritocratic university system, the best foreign students who wanted the best education also came here, and many of them also stayed. In its heyday, our unique system also attracted a disproportionate share of high-I.Q. risk-takers to high government service. So when you put all this together, with our free markets and democracy, it made it easy here for creative, high-I.Q. risk-takers to raise capital for their ideas and commercialize them. In short, America had a very powerful, self-reinforcing engine for growing innovative new companies.
“When you get this happy coincidence of high-I.Q. risk-takers in government and a society that is biased toward high-I.Q. risk-takers, you get these above-average returns as a country,” argued Mundie. “What is common to Singapore, Israel and America? They were all built by high-I.Q. risk-takers and all thrived — but only in the U.S. did it happen at a large scale and with global diversity, so you had this really rich cross-section.”
What is worrisome about America today is the combination of cutbacks in higher education, restrictions on immigration and a toxic public space that dissuades talented people from going into government. Together, all of these trends are slowly eating away at our differentiated edge in attracting and enabling the world’s biggest mass of smart, creative risk-takers.
It isn’t drastic, but it is a decline — at a time when technology is allowing other countries to leverage and empower more of their own high-I.Q. risk-takers. If we don’t reverse this trend, over time, “we could lose our most important competitive edge — the only edge from which sustainable advantage accrues” — having the world’s biggest and most diverse pool of high-I.Q. risk-takers, said Mundie. “If we don’t have that competitive edge, our standard of living will eventually revert to the global mean.”
Right now we have thousands of foreign students in America and one million engineers, scientists and other highly skilled workers here on H-1B temporary visas, which require them to return home when the visas expire. That’s nuts. “We ought to have a ‘job-creators visa’ for people already here,” said Litan. “And once you’ve hired, say, 5 or 10 American nonfamily members, you should get a green card.”
We need health care, financial reform and education reform. But we also need to be thinking just as seriously and urgently about what are the ingredients that foster entrepreneurship — how new businesses are catalyzed, inspired and enabled and how we enlist more people to do that — so no one ever says about America what that officer says to Tom Cruise in “Top Gun”: “Son, your ego’s writing checks your body can’t cash.”
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