Monday, November 02, 2009

A Year After (Domestic Policy)

Here is my take on domestic policies of President Obama and his Administration since his election last year.

Tom Friedman in his latest NYT column mentions that Obama Presidency is lacking a narrative and as a result his 'nation building' is sounding like a 'work project' which Americans feel just to slough through without much emotive force. Essentially Friedman is alluding that this White House is operating as some kind of 'Program Management Office' devoid of projecting any stronger overreaching purpose for the entire nation. On the same pages, Maureen Dowd explains why it might be the case so - Obama has to encounter the reality of America's two wars and Great Recession. But then intellectual expectation from Obama is despite these wars and lack money, he would articulate and execute a plan and 'narrative' which will ignite American imagination.

The reason why this might not be happening is the choice President Obama made for his nation building - in the midst of severe recession and collapse of Capitalism, he decided to make Health Care Reform as the top priority. The reform will very likely pass soon (by January end for sure). But the price it has extracted is make this Congress unable to take any other legislation seriously. It has jammed out all other important initiatives. Because this Health Care Reform has a hefty price tag with a strong realistic possibility of Uncle Sam requiring to foot unexpected bills in future, President Obama still cannot talk about deficit, tax reforms and better fiscal management. Further, Administration has been bit lax in forcing Congress to adopt 'prudent fiscal path' in the Health Care Reform which sustains a belief that Obama Administration and Dems in particular are not very vigilant in spending tax dollars.

How much of a serious mistake is this - taking Health Care Reform before anything else? Well, most people backed Obama in April when this reform process started on the premise that Obama Administration will be able to do multi-tasking competently. In fact President Obama forcefully rebutted his critics when they pointed President Obama was taking too much.

But forcing critics to shut up in a debate is one thing and 'walking the talk' is another. The two glaring omissions which are become apparent during these months are:

- active intervention to kick start employment and
- financial regulatory reforms.

Administration claims that it created or saved one million jobs due to stimulus package. But as the blogsphere is awash with the statistics which show that indeed the stimulus so far has been disappointing in creating jobs fast; it is apparent that we are nowhere compared to what we were promised. Again Administration critics who pointed then the aggressive assumptions of the Administration in projecting employment effect of stimulus were derided. The debate whether more stimulus is needed or more deficit spending is needed; all that is a policy debate where this Administration is expected to have some hold. With such a disappointed showing so far of the first stimulus package, Administration is short on credibility here. No matter deficit spending or not, one thing is very clear - funds have to be spend fast, smartly and intelligently to generate jobs. That is not happening and this is something President Obama will have to own now. For example, after the stimulus bill, by May - June it was clear that Small Businesses were getting hurt because of the credit freeze. Still it took October for President Obama to take this issue seriously and even today it is not clear how Administration actions would fundamentally solve this particular problem. As whatever 'push' effect of the stimulus wears down, there is a real possibility of renewed challenges to economy and there are no signs on the horizon that American rulers are any ready for those challenges.

For the other issue of financial regulatory reforms, Rep. Barney Franks in House is taking the initiative. But reading all sorts of early reports indicating how these bills are getting compromised during the sausage making in Congress; things do not look very hopeful here. The way derivative market and swaps are proposed for regulation, it is possible that big fishes will leave the net easily. It is also obvious that this Administration did not take any concrete actions in controlling compensation of Bankers, even though Pay Czar issues few orders for some companies owned by Fed. It is not just compensation, it is unclear why AIG honored all bets to Big Banks which essentially benefited too much at the expense of taxpayers. Meanwhile, there is no serious movement in controlling rating agencies which contributed so significantly to the mess we all have landed into.

People recognize that rebooting of the Capitalism is needed. Agreed that entirely new framework of Capitalism is required and that task cannot be done all by the White House alone. But leadership is never about only executing when intellectual clarity is there. While such haze is there, fog is there; White House is still needed to put forward steps to rectify excesses of Capitalism; especially immediate things which are beneficial for average person. It is perplexing that so many of these things politically winner, but the Administration is not undertaking those. This fuels the suspicion that as like any other American Administration, and despite multitude of vows by President Obama; this Administration is no different than others when it comes to withstanding the pressure exerted by Big Banks and Financial Industry. I am not denying the culpability of Congress here and ultimately they are the ones who own most in these matters; the Administration has not set any great examples here as well.

Bernanke, Geithner, Romer, Summers and President, all can argue that saving Big Banks was necessary to avoid collapse of our Economy and there is no denying that. Their fundamental call of not going for nationalization (Paul Krugman and Simon Johnson turned out to be wrong there) is great and probably one of the most important accomplishments of this Administration. But the impression still remains - this whole American Capitalist System is rigged against common man as articulated by NYT commentator Frank Rich sometime back. This Administration has so far been quite lacking in removing such an impression as well as falling short in creating jobs for common people. Automobile Industry bailout (another excellent domestic success, even though bond holders got unfair haircut there) is only one isolated example where some concrete actions by this Administration helped Labor. Apart from that, we are still waiting. Will it be the waiting forever or the wait ends soon; that will be the story of coming year.

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