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How Obama saved the economy but lost the mid-terms

There’s a very interesting assessment of Obama’s record in office from Timothy Egan in the New York Times. One of the difficulties for any American administration is that in a society where government has a relatively small economic footprint, they are hostage to developments outwith their control. In an aggressively market oriented economy, the levers available to the government are limited. As Egan explains, the Obama administration has efficiently intervened to protect the American economy from the financial crisis of 2008, but has been unable within the constraints of the American political system to translate that into jobs, and a feeling of security and prosperity; and the parlous state of the economy has overshadowed everything else that Obama has accomplished:

For no matter your view of President Obama, he effectively saved capitalism. And for that, he paid a terrible political price.

Suppose you had $100,000 to invest on the day Barack Obama was inaugurated. Why bet on a liberal Democrat? Here’s why: the presidency of George W. Bush produced the worst stock market decline of any president in history. The net worth of American households collapsed as Bush slipped away. And if you needed a loan to buy a house or stay in business, private sector borrowing was dead when he handed over power.

As of election day, Nov 2, 2010, your $100,000 was worth about $177,000 if invested strictly in the NASDAQ average for the entirety of the Obama administration, and $148,000 if bet on the Standard & Poors 500 major companies. This works out to returns of 77 percent and 48 percent.

But markets, though forward-looking, are not considered accurate measurements of the economy, and the Great Recession skewed the Bush numbers. O.K. How about looking at the big financial institutions that keep the motors of capitalism running — banks and auto companies?

The banking system was resuscitated by $700 billion in bailouts started by Bush (a fact unknown by a majority of Americans), and finished by Obama, with help from the Federal Reserve. It worked. The government is expected to break even on a risky bet to stabilize the global free market system. Had Obama followed the populist instincts of many in his party, the underpinnings of big capitalism could have collapsed. He did this without nationalizing banks, as other Democrats had urged.

Saving the American auto industry, which has been a huge drag on Obama’s political capital, is a monumental achievement that few appreciate, unless you live in Michigan. After getting their taxpayer lifeline from Obama, both General Motors and Chrysler are now making money by making cars. New plants are even scheduled to open. More than 1 million jobs would have disappeared had the domestic auto sector been liquidated.

“An apology is due Barack Obama,” wrote The Economist, which had opposed the $86 billion auto bailout. As for Government Motors: after emerging from bankruptcy, it will go public with a new stock offering in just a few weeks, and the United States government, with its 60 percent share of common stock, stands to make a profit. Yes, an industry was saved, and the government will probably make money on the deal — one of Obama’s signature economic successes.

Interest rates are at record lows. Corporate profits are lighting up boardrooms; it is one of the best years for earnings in a decade.

All of the above is good for capitalism, and should end any serious-minded discussion about Obama the socialist. But more than anything, the fact that the president took on the structural flaws of a broken free enterprise system instead of focusing on things that the average voter could understand explains why his party was routed on Tuesday. Obama got on the wrong side of voter anxiety in a decade of diminished fortunes.

What the mid-terms reveal is a broken political system, where the structure of American society fails to provide a sense of well-being and security for tens of millions of people; and yet the prohibitively expensive, and advertising driven, electoral system merely exploits that populist discontent without giving expression to genuine and substantive political debate.

Obama rode to power on a wave of expectation of radical change, and has instead been a technocratic, efficient and intelligent president who has managed a difficult legacy. He took power as the American economy teetered on the edge of the abyss; he inherited an unwinnable war in Afghanistan, that made him politically vulnerable to charges of lack of patriotism if he wasn’t hawkish enough; and as the incumbent he became hostage to the same, anti-politics mood for “change” that he himself harnessed to win the election.

His health care reforms exemplify his dilema. Not radical enough to satisfy many of his supporters, too radical for his critics. In fact the health reforms were an improvement in security and fairness for millions of people, and were probably the best that could be achieved by negotiation and compromise within the constraints of Washington politics. Obama’s strength is his skill at working the system, his weakness is his inablity and unwillingness to change the rules of that system by mobilising any pressure from outside. But Obama was never going to be the one who encouraged such a mobilisation.

The key question therefore is why has popular discontent manifested itself in the libertarian Tea-Party movement; and why has progressve opinion not taken to the streets demanding more from Obama?

One Comment

  1. Adam Colclough says:

    Where did it all go wrong for Barack Obama? He swept to power in late 2008 on a tidal wave of optimism, now two years on he has bombed in the mid-term elections.

    He’s still the smartest and most charismatic man to sit in the White House since Kennedy but whatever he’s selling people just aren’t buying it.

    Perhaps the problem is that the pedestal he was put on was just too high for any mortal to balance on. He also comes across as slightly cold, which doesn’t play well in a country where politicians seem able to emote on cue.

    That said Obama is still a man of substance and towering intellect, several of his predecessors have bounced back from a beating in the mid-term elections to win two years later. If anyone can pull that trick off again he’s the man.

    The one thing that could help him is that once the bunting comes down and the placards are put away his opponents in the Tea Party are going to be the ones finding out that there is more to politics than whipping up a crowd.

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