This diary that hopes the President will wake up is based on the premise that Obama is sleeping. That the events of the past year were miscalculated or based on poor information. That somehow despite his immense skill in being deferential to corporations the President doesn't realize how this looks to middle America. The Democrats are very simple political animals - they will serve the ultra wealthy until an event like in Massachusetts and then they will pull back a little (as opposed to Republicans which won't pull back at all).
We all knew that breaking up the large banks and re-imposing some sort of Glass-Steagall to prevent them from getting too big to fail was the right thing to do one year ago. The President knew this then as well and it was completely in his power to accomplish. That the President is only maybe doing something about the financial sector a year later is not an accident. It's not that he is now standing up for his principles; it's that he is partially caving in on his real principles out of fear.
The evidence for President Obama's real principles being stay the financial course is overwhelming.
- Geithner, Summers and Bernanke - there can be no other reason to keep this trio around other than belief in de-regulation and unaccountability.
- Emanuel Rahm free trade supporter and
During his time on the board, Freddie Mac was plagued with scandals involving campaign contributions and accounting irregularities. The Obama Administration rejected a request under the Freedom of Information Act to review Freddie Mac board minutes and correspondence during Emanuel's time as a director.
- Trade Representative Ron Kirk - supporter of NAFTA (anti unregulated trade Hilda Solis safely tucked away as Secretary of Labor)
- Chair of the Council of Economic Advisers Christina Romer says in 1999
But describing the source of the change in this way makes it clear that the trend toward greater stability could be quickly reversed. The "new economy" is not the inevitable result of structural changes, globalization, or the information revolution; instead, it has emerged because we have had a steadier hand on the macroeconomic tiller in recent years than in the years before. Whether the management of aggregate demand has been steadier because of new economic theories, the skill of particular policymakers, or a new consensus about the goals of policy is hard to say. What is clear is that, replace that steady hand with an unsteady one, and the old economy could re-emerge in a flash.
Not only is the globalization draining the life blood of American labor good but the whole economy is dependent solely on a steady hand instead of a sustainable structure.
And what does the steady hand do? Increase the money supply of course.
That monetary developments were very important, whereas fiscal policy was of little consequence even as late as 1942, suggests an interesting twist on the usual view that World War I1 caused, or at least accelerated, the recovery from the Great Depression. Since the economy was essentially back to its trend level before the fiscal stimulus started in earnest, it would be difficult to argue that the changes in government spending caused by the war were a major factor in the recovery. However, Bloomfield's and Friedman and Schwartz's analysis suggested that the U.S. money supply rose dramatically after war was declared in Europe because capital flight from countries involved in the conflict swelled the U.S. gold inflow. In this way, the war may have aided the recovery after 1938 by causing the U.S. money supply to grow rapidly. Thus, World War I1 may indeed have helped to end the Great Depression in the United States, but its expansionary benefits worked initially through monetary developments rather than through fiscal policy.
This is the principle that guides this administration - regulation of trade, the financial sector, health care, oil policy and war are incidentals; it's the money supply stupid. Everything other than the money supply is a show orchestrated to please upper classes and maybe some Democratic Party loyalists.
Could skillful enough manipulation of the money supply fix the Great Recession in a sustainable way? Well theoretically it could end the strong dollar and so fix our trade balance. Theoretically it could induce inflation that would be a boon to the great majority of Americans now deep in debt and an inflation tax on the wealthy. Theoretically it could mean the end of oil trade in dollars and so a great pressure forcing America towards oil independence. Yes in theory Obama and his cast of monetarists, Geithner, Summers, Bernanke, Rahm, Kirk and Romer, simply continue expansionary policies and are all hailed as heroes in a few years when the economy rises like a phoenix from the ashes. In theory.
In practice voters will probably lose patience watching absolutely no change while waiting for monetary developments to take effect. In practice expanding the money supply without the great manufacturing base that America had dormant in the 1930s will probably have no effect other than to increase executive bonuses. In practice Geithner, Summers, Bernanke, Rahm, Kirk and Romer are likely full of shit and so Obama is now considering hedging his ideological bets.
Whether Obama now listens to monetary conservatives like Volcker or continues to inflate the money supply, won't change the fact that he is still considering money supply as his best and only way of helping the economy. And who knows one day maybe he will hit some magic combination of global monetary policy. But let's not pretend that such a vain hope has anything to do with winning elections. Pretty much any other course would put more change craving voters on his side.