Obama: grading his first year’s economic performance

By Edward Harrison of Credit Writedowns

The Democratic defeat in yesterday’s Massachusetts Senate race puts a punctuation mark on the grinding erosion of support for the Obama Administration and its economic policy in a tough first year. Clearly voters were sending the Administration a message that America is on the wrong course with Obama’s poll numbers slipping below 50% by December and Democratic defeats in both of the major state elections in which Obama campaigned in November (Gubernatorial races in Virginia and New Jersey).

But, I don’t think the President gets it. He is holed up in the echo chamber called the White House. If the catastrophic loss in Massachusetts’ Senate race and the likely defeat of his health care reform bill doesn’t wake Obama up to the realities that he is not in Roosevelt’s position but in Hoover’s, he will end as a failed one-term President.

With this in mind, I want to grade the President’s economic policy performance on his first year anniversary, putting Obama’s economic agenda and inheritance in historical terms. I will try to make this as comprehensive as a blog format allows. At the end, I will make some remarks about what to expect going forward.

Grade: Incomplete

If I were a university professor grading the Obama Administration’s economic policy, I would give it an incomplete – but with a warning that the final grade was unlikely to be good given what I have seen so far. Barack Obama has been in office for only one year; so, clearly he has a long way to go before we can make a definitive assessment of his economic policy.

Similarities: Reagan and Clinton

When I look at the polling data, two recent Presidents come to mind, particularly because of the economy: Ronald Reagan and Bill Clinton. Reagan entered office during a deep recession, at the tail end of what might be termed an inflationary depression due to secular issues involving fiat currencies, inflation, interest rates, equity market losses, currency depreciation, globalization of the money markets, and de-industrialization in the United States. And to top it off, Reagan suffered another deep recession right after he came to office. For the United States, the 1970s were a catastrophe economically.

The polling data for Obama and Reagan are very similar. The December chart below from Pollster.com demonstrates this.



So, clearly the economy has a lot to do with Obama’s falling poll numbers.

I also look at the early days of the Clinton Administration as a comparison. Clinton was a centrist, triangulating New Democrat who entered office during a period of lingering joblessness which engendered the term jobless recovery. Obama’s situation is similar given the rising unemployment rate today and the job losses despite a broad-based economic pickup (Goldman Sachs is estimating 5.8% GDP growth for Q4 2009). The centrality of healthcare reform in the President’s domestic agenda – and it’s potential failure and the resulting mid-term election losses for Democrats in Congress – makes this comparison even more apt.

However, there are critical differences which I will highlight after making another comparison.

The Roosevelt comparison

obama-as-roosevelt Given some of his statements in the past, I suspect the President sees these similarities to Clinton and Reagan. But, it is the comparison to Roosevelt which Obama and his people played up the most during the election campaign and the period just after it.

The media parroted this theme endlessly. As Time put it in the story accompanying the Obama as Roosevelt photo to the right:

Even in the calmest of times, the transfer of presidential power is a tricky maneuver, especially when it involves one party ceding the office to another. But not since Franklin D. Roosevelt took office in the midst of the Depression has a new President faced a set of challenges quite as formidable as those that await Obama. That’s why Obama has been quicker off the blocks in setting up his government than any of his recent predecessors were, particularly Bill Clinton, who did not announce a single major appointment until mid-December. As the President-elect put it in his first radio address, "We don’t have a moment to lose."

Obama is not Roosevelt

But Barack Obama is not Franklin Roosevelt – far from it. He enters office at a point much nearer the beginning of a cyclical downturn as did Clinton and Reagan. His people fail to realize that Obama is more Herbert Hoover than he is Franklin Roosevelt.

What historical period should Obama be looking to then? Clearly, he should be looking to Hoover. And I believe this is very important with the G-20 right around the corner. Any number of pundits from Simon Johnson to Wolfgang Munchau will tell you the G-20 summit will be a big failure. While the Americans are trying to reflate the bubble and bring back the same unbalanced system which got us here, the Europeans are putting their heads in the sand, wishing all of this would go away.

And that’s not a good thing at all. If one thinks back to Hoover again, after a long period of globalization, an interconnected world meant problems in one country quickly became manifest elsewhere. The world’s major nations failed to come together and build a common solution. Some thought themselves immune. But, when the depths of Depression finally came, it was little Austria which ushered it in. And soon, depression was everywhere.

This was 1931. Herbert Hoover was president, not Franklin Roosevelt.

Barack Obama as Herbert Hoover, Apr 2009

Obama’s failure to understand where we are in the economic cycle and the relationship to historical precedent has been catastrophic to the conduct of economic policy and critical in his missteps. There is more to Obama’s misfortune than a bad economy (see Nate Silver’s take on the Massachusetts special election).

Reliving the Clinton days via Reagan’s silver tongue, Kennedy’s Camelot, and Roosevelt’s New Deal

I feel like the Obama Administration is stuck in the past. They talk about the transformative presidencies of Ronald Reagan or  Franklin Roosevelt and the magic Camelot feel of JFK’s time in the White House. But, above all, stands the “Don’t Stop Believin’” retour of the Clinton era. These comparisons to past presidents is blinding the Obama Administration to the realities on the ground (see here and here).

The huge number of Clinton-era re-treads in the Obama Administration should tell you that. And the quote from Time Magazine shows you that lessons learned during the early Clinton days were very much on these policy makers’ minds. The policy agenda (think healthcare and deficit reduction in particular) makes them think that 2008 was a repeat 1992. It was not.

Now, looking back, if one hearkens back to 1992 and the election that took Bill Clinton to the White House, ‘it’s the Economy, stupid’ was the phrase that symbolized Clinton’s victory and George H. W. Bush’s defeat. Today, as we are mired in a deep economic downturn, we should be tempted to bring back that phrase.

But, 2008 was not 1992. This is no garden variety downturn. It is something altogether different. We are not witness to a case of over-production and overheating as is usually the case. It is a case of over-leverage and over-indebtedness. As a result, the key to the outlook for the American economy is fairly simple and it hinges on a single word: credit.

It’s the writedowns, stupid, Mar 2009

We are in depression not recession because the secular trend is of the three D’s: deleveraging and debt deflation leading to depression. Harkening back to the same old policies of 1992 is not just wrong, it is catastrophically so. It made Obama promise 8% unemployment instead of the 10.0-10.5% that we have received. As I said after the defeats in Virginia and New Jersey called Obama’s economic policy into question:

Well, if you’re the President, you have to under-promise and over-deliver. President Obama has been doing exactly the opposite. Of course people are going to be angry when you promise 8.0% unemployment and instead we get 10.2%. Right now, Obama should be talking about 13% unemployment.

Unemployment rate illusion, November 2009

I would be remiss if I didn’t remind you that all of this was predictable from the word go. A cautious (Keynesian) politician would have understood the under-promise/over-deliver tactic and implemented a much larger and better-crafted stimulus package as I suggested last January rather than resorting to half-measures as I called the Obama policy in February. And he would have understood the coming implosion in state and local governments’ budgets (as I also pointed out as far back as March 2008 and again as the stimulus package was coming due). A cautious politician would, therefore, have sensed the enormity of the problem and taken precautionary action.

The Triangulating Neo-liberal Con

But, Obama is yet another centrist, triangulating New Democrat in the Bill Clinton mold. Don’t be bamboozled by Republican propagandists telling you Obama is running left or that he is a ‘socialist.’ This is nonsense – kabuki theater, if you will. They are merely using Obama’s weakness to gain control of the historical political narrative. In reality, Leftists are absolutely outraged at his legislative agenda.

Obama is a corporatist like other New Democrats of the neo-liberal mold. The schtick – as also used by Schroeder in Germany, Koizumi in Japan and Tony Blair in the UK – is to say the things that progressives want to hear, but do the things that big business wants to be done. You have to give a sop to the base here and there like exempting unions from the healthcare bill’s Cadillac policy tax. But, the goal is to curry favor with big business, which is the paymaster of both established parties in the U.S.

In the 1990s, the so-called Third Way, popularized by Bill Clinton and Tony Blair, changed the fortunes of liberals dramatically.  Traditionally, the Democratic and Labour Parties were controlled by unions and working class interests – the so-called left wing.  This is one reason Democrats controlled the South until the civil rights movement. But, stagflation seemed to discredit leftish policies. In the U.S., the 1980s ushered in 12 years of Republican Presidency.  Labour’s trip into exile was even longer, 18 years.

The Republican’s were stopped only as a result of an unusual combination of Ross Perot’s third-party candidacy and Bill Clinton’s co-opting of large parts of the right’s pro-business anti-regulation, pro-free market platform – so-called Neo-Liberalism.  The neo-liberals in America were so successful that Tony Blair adopted the same tactics in creating New Labour and overthrowing the Conservatives in 1997. Junchiro Koizumi copied Blair in moving the LDP away from its base toward neoliberalism, vaulting him into power in 2001. In fact, one could even see Gerhard Schroeder as a neo-liberal who moved Germany’s SPD into power in 1998 – one reason the SPD is now losing voters to Oskar Lafontaine and die Linke (The Left).

So, Marshall is right. Obama has been more interested in sending out a pro-business signal to re-assure business interests and to court independent voters. I believe he has made a political calculation that he can hold his base of support even if he adopts a more center-left positioning because they have nowhere else to go.  It’s not like they are going to vote for the Republicans. This has been an effective way to power for left-leaning mainstream parties for at least 15 years.

Obama and the Fat Cat bankers, Dec 2009

Read the post above in its entirety because it highlights many of the political issues we are now seeing and why Obama’s newfound populism rings hollow. I should add that there is nothing Libertarian about this Corporatist agenda either. If I had to define corporatism, I would call it “the policy whereby government favors of incumbent and larger enterprises over other businesses or households.” See my post Deregulation as crony capitalism for more on this theme.

The political capital lost in bailouts 

The real killer for Obama has been his dependence on Summers and Geithner which I liken to George W. Bush’s dependence on Rumsfeld and Cheney. For his part, Geithner, now ensconced in a huge scandal over the cover-up at AIG, says:

The test is whether you have people willing to do the things that are deeply unpopular, deeply hard to understand, knowing that they’re necessary to do and better than the alternatives.

And indeed they have been willing to go against the will of the people. But, Obama mis-underestimated the outrage these policies would cause. It’s the bailouts and the crony capitalism and looting they brought into public view that people object to most – not healthcare, not the wars in Iraq and Afghanistan, not the Christmas Day airline failure.  Think about the public mood and the joy of election day one year ago at electing the first Black president in American history:

President Barack Obama was elected last year in a sizable victory over his Republican competitor. Bolstering his position was the huge Democratic majority in both houses of Congress. Given these advantages, combined with intelligence and his natural talent as an orator, the President could pretty much chart his own course.

He did so, immediately turning to the weak economy and the battered financial sector first. In his first days in office, Obama pushed through a sizable stimulus package, bailed out numerous financial institutions, and put into place a host of measures to prop up the banking industry at considerable cost to taxpayers.

The plan worked. The financial industry has roared back to life with huge profits and large bonuses all around as a result of the government’s largesse – well at least for most of the largest companies. The surviving large financial institutions are even larger and more dominant than before the crisis. Now, it is business as usual again on Wall Street. In this sense, Obama and his economic team have been very successful.

But at what cost?

While the captains of finance are deciding how to spend their bonus money, ordinary Americans are still losing their jobs and their homes. The economy is still in tatters.

People are angry about this juxtaposition.

Obama and health care: Wasting political capital, Jul 2009

What’s likely to happen now

And of course, it is bonus season right now. So, the bonuses are a reminder that the recent populist rhetoric and the too-big-to-fail bank tax is a political stunt and nothing more. There has been absolutely zero attempt at making transformative amendments to the financial system and its regulation because the political process is broken. The emphasis on deficit reduction means a double dip recession is a distinct likelihood.  On both these issues, Obama’s centrist instincts make him an unlikely Roosevelt – either FDR New Dealer of Teddy Trustbuster (see FDR’s inaugural address for why). It also makes him an unlikely Reagan, who fought off a Democratic Congress and a deep recession to push through his agenda.

In all likelihood, we will not get any real reform and, as Jamie Dimon recently said – and Stephen Colbert ridiculed – financial crisis is “something that happens every five to seven years.” So, I see another crisis as likely – and given the fragility of the economic environment, this crisis will be a killer economically (and politically for Obama).

I fleshed out these themes in three 2009 retrospectives and my comprehensive post on recession and depression:

If one wants an economic parallel for secular bear markets and depression, 1931 (Hoover) or 1938 (Roosevelt II) and 1974 (Ford) are more akin to 2010 than are 1934 (Roosevelt I) or 1982 (Reagan I). From a Japanese perspective, think 1997 (see articles here, here and here).

For Obama, the loss in Massachusetts puts the nail in the coffin for health care. His linchpin domestic agenda item is bust and he must start anew.  Meanwhile, there is huge populist outrage and an improving but weak and unsustainable recovery in the works. Defenders of the President point to the recovery in financial services as testimony of Obama’s economic team’s mettle.  But my friend Marshall Auerback pointed out in an e-mail that:

While the Administration continues to take credit for averting a financial catastrophe, it is far more accurate to suggest that they have merely forestalled that eventuality.  The ultimate outcome is still in doubt.

Overall, Obama’s first year has been dismal.

I believe Obama is a triangulating New Democrat. His kneejerk reaction, therefore, is to look back to 1994 and draw the same conclusions Bill Clinton did when his own healthcare agenda collapsed. And all of the Clintonites surrounding him in the White House bubble are no doubt convincing him to do this. But 2010 is not 1994. Barack Obama would be well-advised to understand this.

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About Edward Harrison

I am a banking and finance specialist at the economic consultancy Global Macro Advisors. Previously, I worked at Deutsche Bank, Bain, the Corporate Executive Board and Yahoo. I have a BA in Economics from Dartmouth College and an MBA in Finance from Columbia University. As to ideology, I would call myself a libertarian realist - believer in the primacy of markets over a statist approach. However, I am no ideologue who believes that markets can solve all problems. Having lived in a lot of different places, I tend to take a global approach to economics and politics. I started my career as a diplomat in the foreign service and speak German, Dutch, Swedish, Spanish and French as well as English and can read a number of other European languages. I enjoy a good debate on these issues and I hope you enjoy my blogs. Please do sign up for the Email and RSS feeds on my blog pages. Cheers. Edward http://www.creditwritedowns.com


  1. Seal

    I have contracted my private epithet for 0B to Nero. One of his REAL problems is Rahm. Once Ox year ends and Tiger year begins 0B’s problems will escalate.

  2. bobh

    This analysis seems right. Obama’s disinclination to rise above the bankrupt corporatist/new-democratic middle way, after seeming to have so much promise as an agent of meaningful change during the campaign, is sad, but it seems more and more likely that this has always been who he was and we never really had a chance of getting a transformational president who might try to stop the national decline and end the looting. Watching his further erosion over the next few years isn’t going to be pretty, especially with the hard core party loyalists getting more and more obsessed with the idea that Obama’s critics on the left are the cause of his failures. All of this is getting to be old news, however. Obama’s chance to be an FDR was squandered a year ago and the sad results will be unfolding over the next few years.

  3. paper mac

    Good post, Mr. Harrison. You seem to acknowledge that structural problems with our democracies and economies enable neoliberal corporatists to co-opt traditionally working-class political movements, which I think is an important point. This isn’t really about Obama, the man, is it? It’s about the system he’s embedded within. Would a HRC or a McCain presidency have been much different? Perhaps at the margins, but on the substantiative issues at the heart of our current Depression, it seems unlikely. Do you see, then, opportunities for someone like Obama to change course? Increasingly I don’t think we’re going to see real reform in either the political or economic structures that give rise to these milquetoast corporatist administrations without very serious economic/political crises, but perhaps I am wrong.

    1. Edward Harrison Post author

      paper mac, there is always hope (especially when we are just finishing the first year of a presidency). True leaders rise to the challenge in crisis; right now Obama is not making the grade. But, realistically speaking your comments regarding HRC and McCain point to systemic issues that go beyond Obama.

      The problem for Obama is unique on three fronts: I think there are generational issues at play as there were in the thirties and the seventies. This puts him in the position of a Hoover or Ford as President, coming into an economic malaise which is structural in nature.

      But, Obama is too cautious by instinct. And that means he will dither rather than take bold steps. Gordon Brown seems to have a similar problem in Britain.

      The last problem stems from having chosen the wrong advisors and is probably something he can’t change. If he had been advised properly, he would have seen this recession as more than a garden-variety one where the plumbers in government unstop the clog and things go back to business as usual. We’re in the beginning of the Great Private Sector Deleveraging in the U.S. So, the cautious approach would have been to apply a massive dose of stimulus, bank seizure and reform from the start. Having not done so, stimulus seems discredited, voters are angry at the cronyism, bonuses and unemployment and he faces even greater political headwinds in Congress.

      Can he overcome this? Realistically, no. But, let’s see what happens. There’s a lot of time left on the clock.

      1. flipspiceland

        TheBamster chose no one. He was told who he would hire and they would all key players be from Goldman Sucks. No ifs, ands, or butts.

        He’s merely a figure head, just like all the others before him and we have many bloggers to thank for exposing to the light of the day, the Vampire Squid.

    2. Jason C. Rines

      Representation in the money supply would deter this kind of a corporatism paradigm but not completely prevent it in the end.

      A theory worth considering may be that the best we can do as a species is extend the fatality sequence of a Republic (including a global one at some point) to 300-400 years instead of 200.

  4. Boo-urns

    Don’t blame Rahm, Obama chose all his advisors. If you were paying close attention during the campaign, you could see that Obama was even right of Hillary, as Krugman (our modern-day Cassandra) was screaming from the rooftops.

    The signs were all there, but people read into high-flying rhetoric what they wanted. Obama was very careful not to make promises, but on the few articulated policy proposals he threw out there, you could see an unnuanced fetishization of private industry.

    One item I’d add to this excellent narrative: we may be even worse off than under Hoover. Because Hoover was optically a pro-business Republican with libertarian instincts, which meant that Roosevelt could come in as an unapologetically anti-trust populist and wield the levers of government to remedy the numerous market failures out there.

    The alternative to Obama looks likely to be a faux populist libertarian who will continue with more of the same (deregulation, lower taxes on capital and high wealth, and thus higher structural deficits). Unless someone can point me to a likely Republican candidate who won’t come out of the Tea Party mold, I think we are severely farked.

    1. liberal

      “If you were paying close attention during the campaign, you could see that Obama was even right of Hillary, …”

      I don’t think that’s really true. They seemed pretty much of the same mold to me, with perhaps Obama a hair to the “left” of Hillary on foreign policy.

      Most notably, their Senate Americans for Democratic Action scores were pretty much identical.

      1. David

        With all due respect that’s because you weren’t paying attention! “Yes we can” is not a policy or a promise. For example he wasn’t much different from McCain on foreign policy. McCain would fight mainly in Iraq, Obama would move those troops to Afghanistan. He kept that promise.

        I guess he broke a few promises too, though. But which liar do you elect? Well one good clue was that GS was funding Obama. If you were really paying attention you would have known that!

  5. callistenes

    Clinton did not triangulate until after the ’94 republican takeover in congress.
    He called in Dick Morris (who was so despised by Rahm, Hillary, etal that he had to be brought in through the white house basement) to help him figure out how to get anything done with the GOP.
    The result was triangulating.
    And was why a lot of his staffers including Rahm left.

  6. nowhereman

    Yes, the operative word is SAD.
    So much promise lost. The pitting of American against American through pigeon-holing.
    No truth, just spin.
    SAD so SAD.

  7. craazyman

    Excellent rundown, Ed, thank you.

    Looks to me like the closest presidential parallel to Obama might be Tiger Woods. I know that’s out of the box thinking, but it’s clear that the American people now feel a bit like Mrs. Woods when they finally wake up and realize the big O has been sleeping with all the Wall St. bimbos, denying it all the while.

    But honestly, I still hope the President can “get it”. Clean house a bit and move on with a new team. Anything can happen in politics.

    One of my predictions for 2010 was that Tiger Woods’ wife would host a new talk show, and the Man himself (Tiger not Obama) will appear as a guest.

    Yes, it can happen yet. But I agree, it doesn’t seem like a slam dunk right now.

  8. Jim in MN

    The Obama Administration’s critical error was in believing their own pagentry and thinking they entered office with political capital. In fact they had none or precious little and have done essentially NOTHING to earn any.

    The USA’s problem writ large: We have forgotten how to work hard to earn capital and treat it as a precious resource.

    Instead, a ‘new’ set of squealing pigs (along with many of the old) set about slurping at the trough, which is now only filled with promises to pay…levied on my baby and my toddler.

    Shameful depravity. We need a William S. Burroughs writeup for this.

    Note that I voted for Obama and worked to get him in. But it seems that the bubble of unreality is just as bad no matter who is inside.

    There’s a good post topic: The Ultimate Bubble is not in any asset class, but in the epistomology of the White House and the elites. Thus the industries that are most affected by health care, climate change, financial regulation, etc. end up destroying the political systems that could, if not corrupt to the point of complete breakdown, save them.

    Too bad Main Street, small business, the middle class, and my kids are first in line for the machine guns.

  9. Blurtman

    Perhaps Obama’s self-awarded B+ grade is a result of Ivy League grade inflation and non-merit based social programs.

    Obama has horrendously miscalculated the public’s response to the Wall Street coddling.

    An illustration of what is wrong in America occurred over the recent Christmas holidays when a street hustler in Times Square, NYC, was shot dead by police for scamming $10 from passersby. If only the cops would have relocated to Wall Street and shot a few armed investment bankers who have stolen millions!

    Unlike Yves amazing claim that little fraud occurred on Wall Street, other knowledgeable folks are convinced that banksters knew what they were doing when they sold toxic securities. Janet Tavikoli makes a great case for fraud investigations here: http://www.youtube.com/watch?v=TT6xr6RI7Yw

    Is Eric Holder on the job? Do we sill have an FBI?

    The message that Obama is sending is that there are two sets of laws – one for the peasants, and one for the priveleged class.

    But beyond criminality, what the bailouts show is that certain people can be paid fabulous amounts of money for being horribly incompetent.

    These really are “teachable moments.”

    1. Doug Terpstra

      “Unlike Yves amazing claim that little fraud occurred on Wall Street, other knowledgeable folks are convinced that banksters knew what they were doing when they sold toxic securities. Janet Tavikoli makes a great case for fraud investigations…”

      Yves can ably defend herself; I’m not sure, but I suspect her claim is that little “legally defined technical” fraud occured. Clearly we need a redefinition of fraud—and bribery.

      1. Blurtman

        Tavikoli disagrees and believes that “legally defined technical” fraud did indeed occur.

        From Denninger: “Ok, find me the FBI or HUD warnings in ANY of the prospectuses issued in 2004, 2005, 2006, 2007 or 2008 for ALT-A securitized RMBS.” http://tickerforum.org/cgi-ticker/akcs-www?post=125141

        From a Collosal Failure of Common Sense (Lawrence McDonald) also quoted on Denninger:

        “He also never mentioned that not only were the mortgage holders running for their lives but U.S. investors were finally saying no–and that finance houses appeared to have no alternative but to start moving those toxic loans abroad in ever-greater volume. That way they could cripple the entire globe, instead of just America. Chris attempted to belittle the importance of this development by mentioning, somewhat loftily, that subprime mortgage securitization accounted for less than 3 percent of Lehman’s total revenues. What he did not say was that there was a growing mountain of these things piling up, not sold, unloved, massive potential liabilities, yet deftly removed from the balance sheet by means of qualified special-purpose entities. In other words, accounting sleight-of-hand, witchery, trickery, sorcery, or skullduggery. Now you see it, now you don’t.”

        How can anyone conclude matter-of-factly that no crimes had been committed, as has Obama, without an investigation?

        Considering the magnitude and its effects, where are the investigations?

    2. Jason C. Rines

      Good comment. What you are describing is what happens when a Republic becomes a Democracy (mob rule). The only good news about this according to Thomas Jefferson is that Democracy burns itself out quickly. Jefferson didn’t mention the bad news but it appears quite evident to me. We are operating in the law of the jungle and it is one hell of a dangerous jungle these days.

  10. Peter T

    If Obama goes down, who profits? The Republicans under Bush have shown little capability to govern in crisis.

  11. M

    Hi everybody, (Hello Yves!!!)

    Here in Canada, the comparison that pops to mind is BO = Gorby.

    I believe the USA might be in the “final throes of economic insurgency” before individual, separate states simply call it a failed experiment; which, unfortunately, it is.

    California, Texas, Michigan, Florida and others are all on the brink, or nearly past it; might recognize their self interest in dumping the union-of-the-morbidly stupid.

    Year of the tiger sounds about right to bleed this gutted antelope out of its miserable predicament.

    1. M

      From: http://en.wikipedia.org/wiki/History_of_the_Soviet_Union_%281985%E2%80%931991%29

      “The Soviet Union’s collapse into independent nations began early in 1985. After years of Soviet military buildup at the expense of domestic development, economic growth was at a standstill. Failed attempts at reform, a stagnant economy, and war in Afghanistan led to a general feeling of discontent,”

      “By 1990 the Soviet government had lost control over economic conditions. Government spending increased sharply as an increasing number of unprofitable enterprises required state support and consumer price subsidies to continue. Tax revenues declined as republic and local governments withheld tax revenues from the central government under the growing spirit of regional autonomy.”

      “The final round of the Soviet Union collapse took place following the Ukrainian popular referendum on December 1, 1991, wherein 90% of voters opted for independence. The leaders of Slavic republics agreed to meet for a discussion of possible forms of relationship, alternative to Gorbachev’s struggle for a union.”

      There ya go. Of course, the USA aren’t the USSR, but you got to admit the similarities are more than just passing, no pun intended.

      1. David

        It doesn’t sound too similar, because here the states are weaker. The fed gov is bailing out the states with extended unemployment, mortgage subsidies, etc. The states cannot afford to break away lest they have instant collapse.

        Hm, maybe that’s intentional.

  12. b.

    Even 1994 was not 1994. There is a lot of revisionist history on the bumbled health care reform then, and a lot of omerta on NAFTA and its impact.

    If somebody is willing to pay the money, history’s tragedies will repeat themselves over and over.

  13. b.

    BO = Gorby

    Gorbachev did what he believed was right and necessary at the expense of his own career, and knowingly placing his own nation at risk. Obama does nothing that he believes to be at odds with his career prospects, he cannot possibly believe what he is doing is right, and he he never does what is necessary.

    Hostis humani generis.

    1. M

      “Hostis humani generis.”

      great! Someone can speak a defunkt language!

      Of course, those are the only three words you know, right?

    2. charcad

      “The Soviet Collapse: Grain and Oil”


      Gaidar demonstrates that Gorbachev had very little power of decision over Soviet macroeconomic policy. He only had slightly more control over personnel choices.

      The oil price chart at Figure 4, Page 4 works in reverse for the USA as an oil importer.

  14. Jesse

    I would not underestimate the damage being done to Obama by his reliance on Larry Summers, Tim Geithner, and Ben Bernanke, and possibly Rahm Emanuel.

    Obama is a consensus guy and has little or not knowledge of economics. He adopted Team Clinton, or perhaps they were given to him, and it is a disaster.

    So, his fault, if anything, is not being able to manage his team. And his personality seems to be amenable to this, given his non-confrontational bias.

  15. Eric L. Prentis

    With the loss of the late-Senator Kennedy’s seat in Massachusetts, President “Obusha the Appeaser” (by appointing Gates, Summers, Geithner, Bernanke) is on track to be in office for only one-term. Perhaps Obusha could placate his enemies on the right and on Fox Noise even more if he brought back Michael Brown at FEMA, Karl Rove and Tom DeLay and then proceed to supposedly rehabilitate this dastardly trio with his scintillating BS speeches, that way Obusha could earn the title, “the Great Appeaser.”

  16. DownSouth

    I have a real problem with your parsing of neoliberalism and Austrian-Libertarianism.

    If we step back and take a much longer historical perspective, what we see is that in the French Revolution the new rich combined with the poor against the aristocracy, the final result being that the French Revolution replaced the landowning aristocracy with the money-controlling business class as the ruling power.

    A similar result occurred in nineteenth-century England without bloodshed, and without disturbing the public peace.

    The American Revolution was not only a revolt of colonials against a distant government; it was also an uprising of a native middle class against an imported aristocracy.

    The ideology of the new burgher-oligarchs in all three cases–France, England, United States–was classical economics. It was fashioned to give the new ruling elite—industrialists, merchants and bankers–moral and intellectual legitimacy, just like traditional religion lent the landed aristocrats moral and intellectual legitimacy. Covering naked economic truth with a fig leaf is an art that comes down to us from the ancient Greeks.

    But I don’t care how you parse it—classical economics, neoclassical economics, orthodox economics, Libertarianism, Austrian school, Neoliberalism—they’re all variations and mutations of classical economics.

    Standing in opposition to classical economic ideology are two forces that the common man has used in his defense: labor unions (highly pragmatic) and Marxism (highly ideological). In the United States in the 1930s the petty bourgeoisie, along with much of the intelligentsia, threw its lot in with the working class, forming a coalition that allowed for a redistribution of power and wealth. In 1980, in the watershed election of Ronald Reagan, that coalition was overcome, and the bourgeoisie-oligarchy returned to power.

    How you can make these Democratic vs. Republican or Austrian-Libertarian vs. Neoliberal distinctions in a post-1980 world is beyond me. Since 1980 the bourgeoisie-oligarchy has been firmly in control, and both parties, as well as whatever ideologies they espouse, are in the service of that oligarchy.

    1. DownSouth

      And your rendition of history requires us to believe that Reagan and Thatcher weren’t neoliberals. Everything I’ve seen indicates that the New Right was completely under the spell of the “Chicago Boys.”

    2. Edward Harrison Post author

      DownSouth, when you say

      How you can make these Democratic vs. Republican or Austrian-Libertarian vs. Neoliberal distinctions in a post-1980 world is beyond me. Since 1980 the bourgeoisie-oligarchy has been firmly in control, and both parties, as well as whatever ideologies they espouse, are in the service of that oligarchy.

      I’m not sure who you’re referring to. I am not making a distinction in the article between major parties or between neoliberal and ultra-libertarian ideology. See the following post:

      Thatcher/Reagan was much more under the sway of free market ideology than Obama and this has been destructive – what I have termed deregulation as crony capitalism. I have a lot more faith in markets than government, but I have no sense that there is operationally any difference between parties.

      1. DownSouth

        I was picking up on this statement from your post:

        I should add that there is nothing Libertarian about this Corporatist agenda either. If I had to define corporatism, I would call it “the policy whereby government favors of incumbent and larger enterprises over other businesses or households.”

      2. DownSouth

        Oops! I did get confused there. The first time I read your post I came away with the impression that you said only the Democrats were neoliberals. But upon re-reading that’s not what you said at all.

        But I still don’t see how you can claim “that there is nothing Libertarian about this Corporatist agenda.”

        1. Edward Harrison Post author

          It’s not libertarian, it’s corporatist. There’s a big difference – as I attempted to define in the post I referenced on deregulation as crony capitalism. Listen to a Libertarian like Marc Faber:


          In the videos above he talks about the Central Bank of India and speaks specifically about the need for regulation to keep things from getting out of hand. The people acting as if Libertarianism means ‘no regulation’ have a hidden agenda, in my view. This is ideology pure and simple.

    3. Jeff65

      Well said. Smashed out of the park, in fact.

      Regarding the Libertarianism distinctions, remember there are Left Libertarians in addition to the more usual Founders Fetishists.

      1. DownSouth

        Wow! I went and looked “libertarian” up on Wikipedia and there are many, many types of libertarians. And it looks like some are locked in mortal combat with others. So when one says “libertarian” that’s kind of like saying “Christian.” It can mean many different things.

        But the words “nothing Libertarian about this” in Ed’s post link to a post about von Mises, who was kind of like the grand master of the Austrian School. So when Ed used the word “libertarian” I thought he was referring to a very specific type of libertarian.

  17. Robespierre

    This is why Obama lost in MA and why Dems will lose in 2010 and Obama will be a single term president:
    “The salary and bonus pot at the bailed-out U.S. firm jumped 31per cent to £8.8billion last year (about $14.4 Billion), despite turning a profit of just £705million (about $1.15 billion) in 2009, it revealed today. An astonishing 62 per cent of revenues were set aside for pay – the highest level in at least a dozen years and nearly twice the 33 per cent level earmarked by rival JP Morgan.”

    This is the way the bankers tell Obama who really is in charge.

  18. Michael Fiorillo

    Obama, like the country at large, is wholly captive to finance although he appears to be a willing captive.

    My guess is that he will attempt some faux populist rhetoric, to be followed by attacks on Social Security, in the name of “deficit reduction” and “fiscal responsibility.” Meanwhile, the national security/surveillance state will continue to be engorged, accelerating the de facto end of the republic.

  19. Hugh

    Enjoyed the post. I give Obama a very low F, like a 15-20 out of 100.

    I don’t buy the meme that Obama avoids conflict. He has been sticking it to progressives since before his election (the FISA Amendments Act and TARP), after the election his choice of advisers and nominees was, as you say, full of Clinton retreads, even a few Bush retreads as well, but he effectively stuck out a “Progressives need not apply” sign on his Administration. Since his Inauguration, he has governed as a conservative and a corporatist. He hasn’t been hesitant at all about running rough shod over progressives, the Democratic base, and most ordinary Americans. Trillions for banksters and crumbs for everyone else. Healthcare should have focused on the needs of American instead Obama only paid attention to the needs of insurance, drug, and medical companies.

    Supporters of Obama and the Democrats are abandoning both in droves. Bottomline is that they promised change and they haven’t delivered, worse they have repeatedly done the opposite. November is shaping up as a bloodbath. The only mitigating factor is that the Republicans remain as batshit crazy as ever.

    As for Coakley, Democrats are already blaming her (bad campaigner) and progressives (who stayed home) for her loss. There is this weird idea among Democrats that it is OK to freeze progressives out but still blame them for not voting Democratic. There is in fact quite a brawl going on between the two and between progressives who continue to maintain that it is better to vote for the lesser of two evils (a corporatist like Coakley) and those, like me, who have said to hell with the Democrats if they can’t bother to give us someone worth voting for.

    I think we are seeing some of this also on the right among the Teabaggers. At the moment we have two parties that are owned by corporatist interests. Ordinary Americans whether on the right or the left are feeling disenfranchised and ignored. In this sense, it isn’t just Obama and the Democrats who deserve a failing grade but a political process that only gives us choices between a corporatist with a D after their name or an R. It increasingly makes no difference who is elected because that person is almost certain not to represent the views and needs of their constituents.

    1. Forty2

      “There is in fact quite a brawl going on between the two and between progressives who continue to maintain that it is better to vote for the lesser of two evils (a corporatist like Coakley) and those, like me, who have said to hell with the Democrats if they can’t bother to give us someone worth voting for.”

      I was one of the former yesterday. No longer.

      But the lunchroom b.s. session at work was still of the opinion that Obama is a liberal. Le sigh. I guess hearing batshit teabaggers on teevee screaming about socialism and birth certificates enough times makes it all true…

  20. michael

    Great post, Ed.
    Special thanks for laying out how the so-called Third Way lead to where we are today.

  21. Edward Harrison Post author

    By the way, here are Obama’s takeaways:


    “I think, you know, what they ended up seeing is this feeling of remoteness and detachment, where there’s these technocrats up here making decisions,” Mr. Obama said. “Maybe some of them are good, maybe some of them aren’t, but do they really get us and what we’re going through?”

    “That I do think is a mistake of mine,” he continued. “I think the assumption was, if I just focus on policy, if I just focus on this provision or that law or if we’re making a good rational decision here, then people will get it.”

    As Marshall said, Obama thinks this is about his doing a poor sales job. Clearly, he’s out of touch. Also, see this Krugman piece. He’s not sounding too positive.


    1. Doug Terpstra

      Thank you, Edward, for a superb article, comprehensive and comprehensible. The first chart was quite interesting, with Obama shadowing the path of Reagan, another smooth politico who trumped reality with rhetoric. Most interesting, though, was GWB’s super sharp spike post-9/11; Obama’s fortunes would soar with an event like that, huh?

      Today’s takeaways sound so small-minded—sounds like Bush’s “it’s hard work, it’s hard work…”. I can’t imagine that he doesn’t understand the disconnect. He sure had me fooled.

  22. Vinny G.

    Very sad. The man is a total failure. The ultimate Wall Street trojan horse.

    I would give him an “F” but the problem is that at most educational institutions, “F” is anything below 60%. I must give him a “Z”. Yeah, “Z” as in “zero”…


  23. d4winds

    Obama did not get a legislative carte blanche. The current, historically unprecedented use of the filibuster in the Senate by a lockstep minority party representing only 10% of the population has been his undoing. It is has also rendered the country essentially ungovernable. The biggest mistake of his presidency was made before he took office by the Senate Democrats in refusing to modify the filibuster rules when the new Congress was sworn in a week or two before his inauguration. Those rules cannot be modified until the new Congress is seated in January 2011.

    1. DownSouth


      I just don’t believe there’s any historical validity to what you say.

      Take a look at this:

      Narrator: A bill to prohibit the segregation of blacks and whites in public facilities had been put before Congress by John Kennedy, but it was stalled. Johnson determined to act.

      President Johnson: This bill is going to pass if it takes us all summer and this bill is going to be signed and enacted into law because justice and morality demand it.


      1. DownSouth

        And while doing some research trying to come up with some bullets to fire at Ed’s deregulation-regulatory oversight argument, which I do not believe to be sufficiently nuanced, I stumbled across the following. Judge Harold Greene was the federal judge who broke up the AT&T monopoly, but refused to deregulate the seven baby Bells created in the process. But he also wrote the Civil Rights Acts of 1960 and 1964 and the Voting Rights Act of 1965. Greene was participant and witness to historical passage of his own bill, in his own words:

        I do remember sitting in the Senate Gallery on the day that the filibuster was broken. That was an historic moment because a Senate filibuster had never been broken on a civil rights measure. You needed a two-thirds vote to break a filibuster, and this time the pro civil rights forces got exactly 67 votes. Senator Clare Engle of California was on his death bed. He was dying of a brain tumor and could not speak. He was brought in on a stretcher and made a gesture with his hand, and that was the vote that broke the filibuster. So that was a major turning point. I remember feeling that I was witness to a very significant event.


      2. DownSouth

        And this brings up another important point. Here’s Obama’s takeaway:

        I think the assumption was, if I just focus on policy, if I just focus on this provision or that law or if we’re making a good rational decision here, then people will get it.

        And here’s Johnson’s:

        This bill is going to pass if it takes us all summer and this bill is going to be signed and enacted into law because justice and morality demand it.

        Johnson’s talking about “justice and morality” and Obama’s talking about “making a good rational decision.” That’s a moral gap you could drive an 18-wheeler through, and the Republicans did.

        But you have to consider that Obama maybe really has drank the Kool Aid and buys into Classical economic ideology, whose basic building block is homo economicus, the rational P1 maximizer. And although that portrayal of man has about as much grounding in factual reality as the Garden of Eden, Obama has completely surrounded himself with his “scientist-kings”–Geithner, Summers, Bernanke, etc.–who buy into that mythology.

        But politically it’s a huge mistake, because in the repertoire of human decision making mechanisms, rational self-interest often plays second fiddle to morality.

        1. David

          Maybe Obama just has no frigging idea what he’s talking about.

          There’s a theorem in basic microeconomics saying that any equilibrium is Pareto optimal, that is, that in any equilibrium you have achieved a state where the only way to make anyone even better off is to make someone else worse off.

          That doesn’t mean that people don’t starve in equilibrium, just that it would require a few pennies from GS bankers to help them.

          If Homo Economus is starving, all the theory in the world won’t make food appear. What has to happen is that someone TAKES the food / money from the GS guy and gives it to the guy who’s starving.

  24. Element

    I hope you enjoy a Polemic.

    This week the Mike Moore documentary “Sicko” was run on national TV here in Oz and it was truly disgusting that any civilised nation would do that to it’s citizens. Or that any Democracy could allow for a moment that US Health Insurance companies can get away with effectively condemning killing and maiming people for greed and profit.

    I came away from this film with a new appreciation for how deeply merciless greedy thieves, killers and liars control every aspect of United States culture. The sections on Nixon’s recorded conniving to damage health care, Ronald Reagan’s unbelievably demented propaganda and the GW Bush’s quorum of bribed yes-men was a crime against Humanity.

    Many years ago I participated in making a TV science program in a remote bush location and local traditional aboriginal landholders (an Elder and about ten other men) were involved. I got aquainted with these guys around a fire and the talk turned to their cultural Law. They told me at some length about traditional aboriginal Law and what would happen if for instance a person was found to have caught and consumed a fish out of the allowed season.

    The punishment was uncompromising, you get speared, which can of course be fatal, because such greed was considered the most serious ‘deadly sin’ to them. To be greedy threatened the food supply and the ability for everyone in the tribe to have an equal ability to eat and to survive and be happy. It was the most foul of behaviours, right up with kidnapping, rape and murder.

    So greed was never tolerated, it was lethal to aboriginal survival, and degraded everyone else’s life. In drought times it literally killed if allowed to occur during the good times. With this direct and unforgiving system of Law-with no exceptions for anyone-equality, balance and survival were preserved for all, and aboriginals survived this way for over 60,000 years in a very harsh, meagre and ephemeral environment.

    Greed is considered a ‘deadly sin’ in Judeo-Christian scripture also, as it was actually deadly to society in drought times-it was socially condemned and punished where excesses occurred.

    In other words, metering out essential resources was not reserved to a crisis condition, rationing was not unusual it was routine, it was also normal to ensure that no one took more than what was needed from what everyone else needed. They were not permitted to, for the good of everyone else.

    But in the USA today, the ‘Elder’ or supposed ‘Leader’, oversees a version of ‘Rule-of-Law’ that’s so perverted and removed from social reality and need, that it does not protect society at all against the super greedy unaccountable ‘deadly-sinners’.

    And he has a LAW DEGREE.

    So much for modern advanced ‘Law’. Not only are the greedy completely unpunished, and thus encouraged to greater and greater material excesses, they are fawned over (Warren Buffet etc.) or rewarded with incredibly large and totally undeserved and unjustifiable bonuses, while they endlessly lie to us all, about what great things they do for us.

    They just keep on damaging the lives of others, and killing via deprivation and misery, while the tribe’s Leader/Elder/Lawgiver does practically nothing to protect the people from the crimes of the implacably greedy by eliminating this foul remorseless pest.

    Getting shot somewhere on their body by a hand gun fired from 50 meters away should be about the equivalent of a random spear throw-and it would have about the same effect, immediately ensuring everyone else can live a better life. Amend the Constitution with that response to greed as Law, and enforce it without exceptions, and your social problems and inequality of opportunity would evaporate overnight. And if the Elder/Lawgivers neglect or refuse to enforce it, in any instances, the new Constitutional Law requires the entire government branch be fatally shot by one of several civil nominees elected to the post of executioner, then discharged after the deed is done, and after new elections have been held.

    If you don’t take some firm action and say, “here and no further”, the USA will be gone within 60 years, not 60,000 years.

    Right now the Elder LawGiver in the White House is just a grinning puppy for the super-greedy legalised-criminals that are wilfully and ruthlessly destroying the lives of any and all others, while nothing of consequence at all is done about it.

    I have a much greater respect for the directness and clarity of Aboriginal Law and it’s morality than for modern Rule-of-Law, which makes a complete scandal to the notion of fairness and justice, while totally missing the point, via a sick pretence of forbearance for unpardonable unsustainable debauched limited-liability aberrations.

    Why are US Leaders and LawGivers so unspeakably dumb?

    Well, they aren’t, it’s entirely premeditated and contracted.

    Mr. Obama, and all your phoney leaders, the whole point of Law is to fully protect the harmless, and immediately dis-empower and winnow-out the grossly harmful and socially ‘deadly’.

    The current sick perversity of Western ‘Rule-of-Law’ is beyond the pale. I have no further respect for its shameless empty pretence of universal fairness and the protection of the harmless.

    I’ve no further time for the mercenary utterances of the praetorian swine that manufacture endless venal apologies for the systematic atrocity venerated as ‘Rule-of-Law’, that pretends to guard and shield humanity’s integrity, equality and long-term survival potential.

    That ‘Rule-of-Law’ is in fact the anti-thesis of authentic Human Law.

    Humanity needs a far simpler more direct system of Law and punishment, to end this demented and deadly rule of the psychopathically greedy and sociopathically rapacious.

    Mr. Obama:
    1) You know nothing about Law
    2) You are no Leader of Humanity
    3) You are the Buttress of Swinedom

    And any traditional Aboriginal Elder would know exactly what to do with that.

    In aboriginal society the tribe itself ensured that the Law was always applied, because they know it’s death not to. But what has occurred in Western society is the public have totally failed to insist that the psychopathically Greedy and the Politician that fails to protect the harmless citizen, are both severely physically punished.

    And the ‘poor time’ when there’s a deadly lack of enough is coming fast.

    And now it appears like the current US Health Care bill may be shafted also.

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