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How radical is Obamanomics?

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Paul Mason | 13:40 UK time, Wednesday, 5 November 2008

Recession, stagnant wages, rising unemployment, financial meltdown...these are the issues that propelled Obama to victory and that demand answers now. There is no shortage of pledges either: but whether they amount to a coherent programme to meet the recession and financial meltdown is a different issue.

Obama's economic programme was a blatant pitch to working class America: tax the rich more, everybody else less, boost the economy with infrastructure spending, a windfall tax - and of course a crackdown on high finance. The problem is, how to pay for it?

The national debt clock in Times Square, which measures America's overdraft, has run out of noughts. The USA is $10 trillion in the red now and that will rise to 11 trillion as a result of the banking bailout. They had to remove the dollar symbol to make room for the figure one when it passed 9.9 trillion!

The annual budget deficit has also spiralled, driven by tax cuts and the doubling of military spending: it stood at zero when George Bush took office, it is now $438bn.

The state of America's finances means Obama will either have to raise taxes or cut public spending. If not immediately, the over the next four years. For all the detail in his economic plan, this is the one issue where the details look vague.

For now Obama has to be in crisis mode: bailing out the carmakers, pushing an economic stimulus package though congress before he takes office, and preparing a bigger one to follow.

With the economy the number one issue, who Obama picks to run it will define the administration...

The last two Democratic presidents put free-marketeers in charge of the economy: Carter installed Paul Volcker at the Fed to unleash recession and a monetary shock in 1979; and Clinton's Treasury secretary Larry Summers oversaw the sweeping deregulation of the finance industry, and of course Clinton kept Greenspan on board at the Fed.

Both Volcker and Summers are part of Obama's backroom economics team. But the team also new kids on the block, economists Austan Goolsbee and Jason Furman. They're part of the generation that brought us Freakonomics: more focused on how policy can effect behaviour at the micro level, less dogmatic about free-markets while remaining broadly within the free-market arena.

Obama is the modern first president who's come to power largely free from commitments to corporate interest groups and lobbyists. So he looks centre-left.

Much of his economic programme is inspired by the so called "new social economics": adapting freemarket principles into policies focused on micro-level changes in a complex world. What is not obvious, even now, is a guiding principle to replace the neo-liberalism of the old regime, which has collapsed.

Obama's economic programme was a series of pledges: on health, on union rights, on taxes and job creation. His task now it to go beyond that and outline a strategy to guide the world's biggest economy through the biggest crisis it has ever seen.

The answer to the question: how radical is Obamanomics? We don't know, yet.

Comments

  • Comment number 1.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 2.

    #1 Mancroft

    Checked your links and followed up a considerable amount of reading. I wouldn't worry too much.

    It refers to sustainable development. I was asked by DEFRA to advise the UK Cabinet Office on legal definitions of SD.

    The agenda for the 2005 G8 was derived using the 2002 model of sustainable development before I recommended changes.

    What they came out with eventually is not radical enough. They still want to maintain high levels of economic growth. Why?

    They mention Club of Rome, I have no problem with many of their derived reports, publications etc. Eg Hawkeye brought in Prof Jay Forrester in previous posts.

    https://en.wikipedia.org/wiki/Jay_Wright_Forrester

    The Limits to Growth is based on his previous work.

    https://en.wikipedia.org/wiki/Limits_to_Growth

    Obama is not radical enough, should I say contemporary.

    Much of what he has said is going to have to be back tracked or revised etc.

    Take everything he said with a pinch of salt. He might know what he has to do, but if he said it, he was never going to get elected in the first place.

    Celtic Lion

  • Comment number 3.

    HMG has appointed Mr Kingman, a 39 year old Treasury mandarin, to run UK Financial Investments Limited that will hold over £37bn in RBS, HBOS and Lloyds TSB, the three banks using the government’s recapitalisation fund and Northern Rock and the rump of Bradford?&?Bingley.


    Kingman, old chums with Peston, of whom, according to the Mail, Sir Richard Branson wrote: ‘John Kingman, the civil service powerbroker in the Treasury charged with running the show, actually told our team that in any decision made, the Government would have to take account of the view of Robert Peston, the BBC’s business editor.

    Which is a bit frightening?

    Further farce is the FSA staff are to get bonuses despite overseeing the greatest financial disaster in western civilisation while the Treasury wants to clamp down on bank bonuses?


    So here we see the fault line of the new grey State. Innocents walking into the DMZ between state and business. As the old city saying goes if you don't know who the sucker is in the room then its you.

    So NN need to interview both heads of UK Financial Investments Limited.


    whats this got to do with Obama?

    Well Brown keeps saying the world is looking to Brownomics to get them out of this mess. Brown gives Obama the template. The uk model.

    So Obamanomics may well be turn out to be Brownonomics? Meddle based on muddle?


  • Comment number 4.

    perhaps one point which is not recognised much in the uk is that americans have to find their own pensions which they do through the stock market. So every mom and dad [unlike in the uk] has an emotional [money] attachment to the stock markets.

    If the stock market is going up americans feel secure because the ordinary persons future wealth is tied in to Wall St.

    In the UK because we get State pensions etc most people don't care [the bore yawn, not more charts steffi attitude] what the markets do because they are not [financially] 'in the game'.

    So the health of the stock markets is a bigger psychological factor among ordinary americans than it is among ordinary Brits.

    It is one of the main reasons no one in the USA likes to rock the boat when it comes to the stock market and why regulation that reduces the income of the ordinary american is seen as bad. Why shorting the market is seen as 'unamerican' because you are betting against ordinary people's pensions etc.

    If, for example, the level of BBC pensions were tied directly to the level of the ftse i think people would be taking an interest in it? And take a dim view of anyone trying to run the market down?

    In an interesting example Bloomberg radio sometimes has an american and a brit on at the same time talking about the markets. When the markets were crashing hundreds of points on the open the american said he felt psychically sick whereas the Brit seemed a bit bemused by that reaction.

  • Comment number 5.

    3. At 4:06pm on 05 Nov 2008, bookhimdano

    Looks like I had better change the licence DD to pay in $, or, maybe, decline.

    With the slim chance of anything in the UK cropping up as Glenrothes approaches, I have to thank you for the bookhimdano news and the analysis that affects me and mine, here and now, and all rather sadly lacking from my national media.

    Remarkably, for financial jiggery-pokery is not my forte, I understood all of what was shared... and have to say it doesn't sound quite on, if not outright dodgy.

    'Plus ca change', as has been said, but possibly not often enough of late.

  • Comment number 6.

    obama's first test is here. GM looks close to needing a bailout. Given the mention of more 'billions needed' its clear to see there is no end to that road of bailouts nor to debt.

    the way out? Bailouts aka 'socialism' in the usa? Or use the money for the creation of new industry with huge growth potential. There isn't much growth potential in SUVs or the usual gas guzzlers?

    Gordon is sitting on a feed in tariff that would create 100,000s of jobs and for the sake of protecting nuclear he won't do it.


    see bloomberg article

    GM's `Time Is Very Short' for U.S. Aid, Altman Says

  • Comment number 7.

    There seems to be a coalescence forming around Obama. Colin Powell joined up.

    Obama and McCain were always friends. Here is the presidential race from 15th Feb 2008, with some background. (Follow Climate Change Act). McCain again defended him when he conceded.

    https://thecelticlion.blogspot.com/2008/02/should-ecologists-call-for-obama.html

    Will McCain join Obama? Do we have forming a political/ legislative/administration that is no longer based on adversarial duality?

    Obamas policies at present will not solve the environmental imperative. The collapse of the ecological life support systems of the planet. See #79

    https://www.bbc.co.uk/blogs/newsnight/paulmason/2008/10/new_world_financial_order_what.html

    There is a policy trajectory that Obama must follow, if he is being advised correctly, if any of us have any hope of survival.

    That trajectory has so far not been mentioned. Though hinted at during his victory address. He placed a "planet in peril" above financial crisis.

    https://www.ens-newswire.com/ens/nov2008/2008-11-05-01.asp

    What Obama and the world needs is the infrastructure to resolve the challenge of the "planet in peril" if and when he moves it to the top of the must do agenda.

    And that is:

    The Fierce Urgency of Now

    https://brooklynjunction.blogspot.com/2008/01/dr-martin-luther-king-jr-on-fierce.html

    Celtic Lion

  • Comment number 8.

    Obama is getting a great deal of support from corners from which you wouldn't expect it. And a lot of money went into his campaign to get him elected, much more than was given to McCain.

    Which immediately raises for me, the question - why? Why would the heavy corporate funders be doing that? They have all turned really nice? Dont think so.

    Why would the corporate world be so keen on the 'America has changed, its now led by Mr Nice Guy' story?

    Maybe part of the answer lies in the Transatlantic Economic Council; and the shift in the spin away from transatlantic 'competition' to 'co-operation' between the two major economies in the world. And who wouldn't want to co-operate with a nice person like Obama?

    Unfortunately the 'co-operation' in process is a hard core 'harmonising' of regulation, through the mechanism of the TEC, in a downward, deregulatory direction, whereby the EU loses its social and environmental regulation etc to 'harmonise' with the US.

    Or where the US has a higher standard, at any point, maybe on transparency, then they can 'harmonise ' down to our (lack of ) regulation.

    Either way, the corporate world will be getting reduced regulation (dont forget the financial deregulation we are suffering from), at the expense of democracy. The regulation is there, putting a break on corporate power, because it has a function and people want it there. Overriding it for a corporate agenda is anti-democratic.

    Just one example of this is will be forcing the EU to accept GM foods. This is something Big Pharma has never ceased to pursue - EU food markets are too lucrative.

    And once the EU falls in line with US deregulation, so will everyone else.

    There is no discrimination in what regulation will be pushed downwards. And we all know that 'discrimination' just went out the window!

    And then, with those barriers removed, which are effectively trade barriers, we can be one big transatlantic economic unit.




  • Comment number 9.

    THE PRICE OF FREEDOM

    "Which immediately raises for me, the question - why? Why would the heavy corporate funders be doing that? They have all turned really nice? Dont think so."

    Most of the damaging revisions to the CRA and the repeal of Glass-Steagall in 1999 occured under Clinton (that great ally of Blair in globalisation). Look who funded Blair. As Barrie has said a number of times, this has all the aura of Blairism about it.

    It takes skills (genetic human resources) to forge a great economy and the USA is losing these by not replacing them.

    As a consequence of its Liberalism, it's on its way to becoming a Third World country.

  • Comment number 10.

    Without trying to get drawn into a debate on declining intellect per se, I do get a sense that Obama does need to tackle head-on an endemic American perspective.

    The main example that springs to mind is the prolific actions of many US (and UK!) companies to resort to outsourcing / off-shoring. Many executives when faced with tough trading conditions took the easy option (outsource the labour to somewhere cheaper). Not only was this a tactical mistake (often leading to a deterioration in quality of goods and services), but also a broader economic strategic error (Graham Turner cites this as being a key contributor to the house price bubbles in the UK and the US). Rather than seek a true business innovation through intellectual / entrepreneurial spirit, many executives plumped for the soft option. The alternative story of Zara clothing is an impressive one:

    https://en.wikipedia.org/wiki/Zara_%28clothing%29

    It took a European firm to have the foresight and strategic vision to resist outsourcing, and still out-compete far-East sweat-shops.

    It is apt that many a US / UK board meeting was probably presented with the suggestion of outsourcing to India, China, Mexico etc. as a "no-brainer" decision. The decision wasn't a "no-brainer", but the people making it were. In the end this was a culmination of the over enthusiasm of myopic witless little twerps. Well paid, middle class myopic witless little twerps.

    Surely for Obama to implement tax incentives to encourage businesses to bring jobs back to the US is missing the point.

    As W. Edwards Deming would say "Let's make toast the American way, I'll burn, you scrape!"

  • Comment number 11.

    #10 Hawkeye

    Allied to your comments is the problem of carbon trading. Which I totally disagree with.

    US companies out sourced manufacturing work to China etc. This allowed them to gain financial advantage, the emissions generated were then in China, outside the main body of the scheme.

    Their US carbon credits could then be sold. Carbon was still created in manufacture plus added in transport. So no environmental benefit.

    Not really gone into fine details as I have never liked the scheme.

    Celtic Lion

  • Comment number 12.

    RE: 10. Hawkeye_Pierce

    "Many executives when faced with tough trading conditions took the easy option (outsource the labour to somewhere cheaper)."

    "Surely for Obama to implement tax incentives to encourage businesses to bring jobs back to the US is missing the point."

    I doubt whether he will even have the option.

    I liked this proposal when I first saw it. It looked like it might penalise greedy executives who try to make themselves richer by destroying other people's jobs.

    Unfortunately on thinking about it I can't see it working. As soon as Obama puts this legislation on the agenda it will send a signal to all the companies that are considering off-shoring to get on and do it now before the penalties kick in. In fact they should off-shore more than they really want because, when the tax breaks arrive, they can repatriate some of the recently off-shored jobs and collect the tax breaks for "creating" new jobs.

    So Obama's proposal will trigger the flight of even more jobs abroad, aggravating the problem of rising unemployment in a recession and then follow it with the cost to the taxpayer of subsidies for recreating jobs that never really left. Ironically, the only time that this proposal is feasible is when the economy is strong - and that's when opposition will be strongest because the strength of the economy "proves" that off-shoring is a good idea.

    "How radical is Obamanomics?"

    Probably not very at all if he hopes to be a two term president.

  • Comment number 13.

    ELEGANCE (#10)

    To be very simplistic, I reckon wisdom espouses holistic elegance while cleverness pursues fragmentation for GROSS profit.

    One of the good bits in the Bible (along with Mote and Beam) is: "What benefit a gender-non-specific-person if they gain the whole word and lose their soul" (or similar).

    I have said here, before, I doubt many in USA or UK now have a CONCEPT of wisdom (whether that is due to IQ or culture I have no idea). Long ago America gave us the word 'Smart' (with some derivaties) while wise has atrophied.

    The unwisdom of globalisation is lost on the clever. The route to globalisation had many warnings, but wisdom was moribund.

  • Comment number 14.

    #13

    Barrie

    SMART

    The Scottish Government had this thing about a SMART Safe Scotland. Eg

    https://www.scotland.gov.uk/News/Releases/2004/11/01081903

    Then the SNP got in and in October 2007 came up with this idea of a 'Celtic Lion' economy, based on high and sustained economic growth rates.

    https://news.bbc.co.uk/1/hi/scotland/7042726.stm

    (I thought it was a pretty name so decided to rescue it).

    You'll never guess what happened next?

  • Comment number 15.

    Hants GW #12 The problem is that this is a counsel of despair in which capitalists and wall street hold any democratically elected government, no matter with how watered down a proposal, to ransom with the threat of withdrawing capital. If workers withhold their labour illegally (according to laws made by capitalists) they are quickly sacked or their unions prosecuted etc. Conversely, if capitlaists withdraw or even threaten to withdraw their capital then that is treated as a sensible and realistic business decision. It is at moments that this when all the platitudes of egalitarian liberal democracy are unmaskedd as a facade for naked class rule of the bourgeoisie. They should not be encouraged, or chivvied or cajolled, they should be forced to do what the state requires of them and if they don't their capital should be confiscated and put to work for the good of the common wealth.

  • Comment number 16.

    RE:15. citizenthompson

    "The problem is that this is a counsel of despair ..."

    Yes. Mea culpa.

    As it happens I watched part of Channel 4 News tonight (I'll bet that doesn't get past the moderator) and they were running a piece about a huge increase in gun sales in the US because of fears that Obama might tighten gun control laws. I doubt that corporate America will be any less far-sighted when it comes to taxes.

    "They should not be encouraged, or chivvied or cajolled, they should be forced to do what the state requires of them and if they don't their capital should be confiscated and put to work for the good of the common wealth."

    You have more faith in "the state" than I do. I still remember crowds estimated at around a million people protesting against British involvement in the war in Iraq but Blair ignored them and cost us who knows how many lives and billions of pounds. A state that can make people do what you want can also make you do what other people want.

    Given that the original question is about Barack Obama do you really believe that he is in a position to implement the confiscation of wealth on the scale you describe?

    As best I can tell so far (which isn't much) the Obama plan is a lot like the Brown plan - borrow every penny you can get your hands on and spend, spend, spend. That doesn't sound very radical to me.

    Mr Mason asked a really good question a few weeks ago - the one about what drives the economy now that we've abandoned high wages and can't run up any more debt. No one addressed it on this blog, however, much more seriously, no one is addressing it anywhere else either. Both Obama and Brown seem determined to use the credit worthiness of their respective governments to borrow all the money that their citizens can no longer get in their own names.

    How long can that last?

  • Comment number 17.

    Not long, is my guess. And you're right, I don't have much trust in this state, but then I suppose I wasn't really talking about this state, even though it is the only one we have. But there we are, nothing stays the same forever!

  • Comment number 18.

    Radical is a relative term.

    Something may be considered radical now, but is it if implemented in response to a situation in the future, with sufficient lead time to resolve the issue with the optimum outcome, before adverse conditions manifest.

    The term of the present I hear in the media over the last month is "behind/ahead of the curve".

    Perhaps it would be more *********** (insert future word), if policy was considered in terms of being 'appropriate' (insert now) rather than 'radical'.

    Celtic Lion

  • Comment number 19.

    Celtic Lion.

    I have followed up your links, I must say I agree with many of your general points, in fact the original limits to growth was very convincing.
    I think that even though intellectually I understand that we are in for extinction somehow I have this "it just can't happen" emotional resonse.

    There are a few things I would like to say:

    1. Perhaps the politicians / world leaders have accepted what you (and others) have said but realised that the probability of us doing anything about it are about zero or less. Havinbg reached that conclusion the logical thing would be to let us forge on in blissfull ignorance like lambs to the slaughter.

    2. You predict disaster in 4 years but none of the source materal (except the Mayans) are that specific. It is unfair of you to quote such dramatic conclusions but to offer no evidence except your own historic infallability. Give us a clue.

    3. Hiding behind company law seems a bit at odds with you philosophy, if I give you the 2 billion you want will you let me in on the secret.

    4. My wife used to go berry picking in Blair about 40 years ago, perhaps we will drop in on you one day.

    On a serious note I took up an allotment several years ago to try and get myself some post apocalypse skills, would that get me a place in your bunker ?

    Cheers,

    Dave

  • Comment number 20.

    Not a single politician, not one commentator or presenter (including you) and certainly not a single 'expert' in the news has correctly identified the two interlinked problems the world is facing today:

    1. The little financial difficulty: True, it started with sub-prime mortgages, BUT it is far deeper than that. After all the total of sub-prime mortgages is reported as being some $1.5 trillion, whereas Governments have so far pump close to $10 trillion into the banks. If the problem was just sub-prime mortgages, or 'banks not lending to each other', this $10 trillion cash injection would have solved in one go.

    No, the problem is 'derivatives'. These debts and bets are worth some $500 trillion. Compare that to the GDP of the whole planet of just $50 trillion and you get some idea why this fantastic burden of debt can NEVER be repaid.

    The only solutions are
    a) hyperinflation to degrade the whole of that debt (following Zimbabwe)or
    b) legal cancellation of all derivative contracts (!!) or
    c) collapse of the whole financial system incl just about all banks, and starting all over again.
    We need to choose one and go for it. The future is bleak whatever Gordon does, but pumping borrowed money into the economy in the utterly vain hope of recovery is just about the worst possible strategy.

    2. The little problem of Energy and Growth.
    Next year the world production of crude oil will, for the first time in history, decline for geological, not political or economic, reasons. Peak Gas will follow some 10 years later.

    2008 is the end of the Era of Growth (as growth is predicated on the availability of cheap energy) and the start of the Era of Decline.

    No matter what investment is made in oil or gas fields, the total production from 2009 onwards will decline every single year by perhaps 4%, thus our energy sources will halve every 20 years or so. This has already happened in 60 oil producing countries around the world, incl USA (1972) and UK(1999) and now, in 2009, global production will begin to decline.

    The 1930s depression was bad enough, but this decline will be on a massively larger scale. To start with, it will be at least 40 years long. 40 years will take us to about 25% of current energy usage, which is what we can expect from all renewable sources combined. So at that stage, provided Governments have been wise enough to have invested massively in renewable energy, renewables may be able to take over from fossil fuels and perhaps stabilise the world economy.

    So, what should Obama do now? I suggest:
    a) embrace the Green New Deal (£50 billion per year invested in renewables)
    b) forget about tax cuts or other increases in current spending, they won’t do any good anyway and just add more and more to national (mine and yours) debt
    c) choose one of the strategies above for the self inflicted financial crisis - and follow through
    d) and go sustainable (if you can't continue doing the same thing for say 100 years without damage, then its not sustainable

  • Comment number 21.

    Being radical is not what is required, but rather sound economics.

    Bailing out the car and mortgage industry will be a big own goal because it will merely continue the rapid devaluation of the dollar.

    This means that when the proverbial s*** finally hits the fan, the resulting mess will be far worse than had the government not intervened.

    Excessive debt is what has caused the recession in the US and Europe and more debt will only make the problem worse.

    Interest rates should not be going down, they should be going up to encourage people to save rather than spend.

    Excessive spending and consumption is what got us into this mess. How will it get us out of it?

    I say "us" because the UK is in the same boat.

 

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