Wednesday, August 12, 2009

Obama as Manager.

Interesting first because the Administration cooperated. I suspect they did so to reassure Wall Street and the corporate community that the White House was well aware of the implications of an exponential increase in public debt. I further suspect they did so because the charge that President Obama "knows the brief but not the subject" was beginning to stick amongst the well-informed and his handlers wanted to slap down that perception before it spilled over into "public" consciousness.

Interesting second because it captures the box that President Obama is in. Which is: he needs to stimulate the economy to prevent its collapse (so goes the economic theory anyway), but he must do so in such a way that it does not lead to runaway inflation, which would doom him as certainly as it doomed President Carter (not a theory, a political fact).

It is clear that President Obama cannot think his way out of this box (no one can). He has to roll the dice to some degree. For a control kinda guy, that's uncomfortable. I imagine that he finds comfort in the search for facts, details, statistics because he imagines that if he keeps digging, he might just find the coordinates for a surer, less politically risky course.

Interesting third because health care isn't the focus of the WSJ story; the substance discussed is fiscal policy in particular and economic policy in general. It's a useful reminder of how large those issues loom over everything else. Still.

Interesting fourth because whatever the official pronouncements, the immediate future is hardly bright and leveraged IUDs litter the economic landscape. Commercial Real Estate, residential mortgages, credit card debt, auto loan debt, student loan debt, corporate debt, household debt...............everywhere you look there is leveraged trouble lurking. As someone said, it doesn't make it better if massive private debt is converted into massive public debt. It's still a nightmare. These are the issues that President Obama's advisors are grappling with in the article and it is clear (reading between the lines) that they share the view that "the recovery" and "the end of the recession" are, at best, very fragile things.

Interesting fifth because it is evident that some very, very smart people think that President Obama is a very, very smart man. This is reassuring and disconcerting at the same time. Reassuring because smart people are always good to have around when things get really tricky. Disconcerting because if the economic issues are as over-riding as they in fact are (and as the article assumes them to be based on conversations with the President's advisors), then why is this very smart man also trying to grapple with managing cap-and-trade legislation, a complete overhaul of the health care system, a possible make-over of the Social Security system, and God knows what else. All while fighting two wars in Iraq and Afghanistan, the latter of which is inordinately important because of its collateral implications for our "allies" in Pakistan. Who have nuclear weapons.

Part of what the President is facing as he slides down the approval rating grid is the (legitimate and somewhat alarmed) concern that he's trying to do too much, too fast and that he's not fully focused on the two things that must be addressed before anything else can be done. Those two things are eradicating Al Qaeda and forestalling economic depression. The former is obvious, the latter involves corrective action with regards to the marketplace itself; putting in place policies, regulations and laws that make it much more difficult (and perhaps illegal) for so much leverage to be utilized for the benefit of so few.

The fact that President Obama has not stepped forward and said.... "The repeal of Glass-Steagall didn't really work out. So, starting tomorrow, we start the process of repealing the repeal...." is, at some level, astonishing. Not least because it's such an easy and obvious fix and it carries the added advantage of making Wall Street howl. There is nothing wrong with that. Repeal of Glass-Steagall, at this moment in time, is very much more important than over-hauling Social Security. If only because it reassures people that what just happened won't happen again for a long time, perhaps a very long time.

And this gets to what is most important about the article: it is very important for the United States of America that President Obama successfully navigate these waters. If he ends up in 2010 as the guy who couldn't get it done, then it will be a very grim four years indeed. He is already well on his way to getting slapped around in the mid-term elections of 2010, even with anemic GOP opposition. If he loses on health care and guides cap-and-trade to an early grave in the Senate and suddenly all the promise drains out of the White House and it bunkers in, this will not be good.

A better strategy for the Obama Administration would be to build on success; make policy decisions that are (a) smart and (b) all but certain to be successful. Put some "wins" on the board. Success begets success, which begets confidence in the policy-making appartus which begets a general sense of well-being ("we're in good hands, these guys know what they're doing"). Which in turn begets business confidence; investors start to invest. They get much less afraid.

What is coalescing around President Obama (and his Administration) now is the sense that "this too isn't going to work." And this is where the Wall Street Journal article sort of missed the point. It's not really about micro-management or "big picture" policy-making. It's about picking your fights in the context of what is urgent and what can wait. The Obama Administration is doing a lot of things that can wait.