Sunday, September 30, 2012

What Could Have, What Should Have


1. Political failure of President Obama in communicating to Americans how long the recovery is going to take. Twice or thrice Obama landed selling 'recovery is on the corner' but something else happened to thwart the recovery. I believe this is a fair criticism. Obama Administration failures like promising unemployment below 8% to purchase passage of stimulus from Congress; those are well known. What does this indicate is how important it is for White House to be guarded in prognosticating economy. It seems to me, President indeed may have much less room when it comes to undertaking concrete measures to improve economy; but "White House as the economic watch tower"; that seems to be the fundamental job here and clearly Obama failed in that. Federal Reserve and other economic institutes put their diagnosis and forecast on table. Administration has access to many other sources. It is the job of White House to 'communicate' these inputs, observations and manage expectations of American Public at larger; all in political terms. No doubt that is where Obama dropped the ball to an extent.

2. Failure to fill Federal Reserve Board positions at a crucial time so as there was an effective quorum for backing 'quantitative easing' early on. For a while now Liberals like Yeglesias and Ezra Klein have been criticizing Obama Administration for this failure.

3. The biggest 'bus' the Obama Administration missed is for sure Housing. I know from my personal experience that so many eligible well employed folks during the recession could not refinance their homes to lower the monthly mortgage payment because of lower house valuation. Banks kept on with high rates of 2007 / 2008 wherever they could and that sapped additional 'cash' from the economy. Obama Administration made few feeble attempts to help few home owners; but did not show any appetite to take on GOP and Banker lobby to push hard on any of those measures. Whatever strength we see today in the  Economy, it is all because of improving house prices and clearly this is what Obama Administration could have engineered early.

4. Leonhardt has one more interesting point like how Administration could have taken advantage of structural deficiencies of Washington Political Apparatus (I guess that is what Bob Woodward would have called 'breaking walls by finding ingenious ways'). GOP obviously was loath to increase the stimulus price tag. Leonhardt makes an argument that Administration was right in saying that no one could sense 'coming anemic recovery',  CBO included. CBO expected good recovery, meaning less unemployment in coming years and hence computed less cost of unemployment benefits. That CBO bias would have helped Administration to propose more generous terms of extended unemployment benefits. Leonhardt faults Obama Administration for not utilizing this opportunity. 

This is a very smart observation and possibly with some leg. But for one I cannot imagine that despite Congress passed stimulus law with substantially more liberal terms, if the price tag would have increased substantially; GOP would not have kept quite. GOP  would have forced to stop this bleeding or else would have forced Obama to pay the political price.

In general Leonhardt downplays how damaging and destructive GOP has been to policies which would have improved economy. The worst part is despite all that, Republicans keep hammering Obama for their own non-cooperation and blithely Media forgets that too as somehow it is the Obama fault that Speaker Boehner could not bring his caucus to a deal or GOP agreed for sequestering.(Exhibit A - Bob Woodward, who wanted Obama to find some magic to 'break the wall of GOP resistance'.)

Leonhardt does mention 'oil spikes and Euro mess' as external shocks which did derail recovery. But it is as if he wants to underplay that along with rest of American Media since all these folks are not ready to put aside their cherished 'non-sense of all powerful American Presidency which can swim against global events' (it cannot).

For a balanced coverage I would have expected Leonhardt give equal credit to concrete accomplishments of Obama Administration:

1. Despite the political cost Obama has been made to pay, stimulus was passed and it helped to soften the blow.

2. For me the smartest move was 'bank stress test' and the way Administration helped engineer securing equity capital to banks in relatively harsh environment of 2009 and 2010. The way Administration orchestrated 'saving of American Banks' is under appreciated (and for their own political reasons Administration under sells that too since the image of 'cop of Wall street' is much more easy politically! )

3. Automobile industry intervention. At times it was a heavy handed tactic; but it helped American Auto Industry to survive and that is all that matters in the end.

4. Finally, Administration played a key role to co-ordinate with other G20 nations for globally synchronized stimulus during those tumultuous times. If one looks at Europe and subsequent lack of G20 actions; one realizes how correct that policy approach was and how tight that execution was.

What does all this mean - a) to the election and b) to the policy after the election?

Romney camp is in no position to debate these valid points with Obama expect the point #1; all for their ideological extremism. Given that, Obama Campaign has to vigorously debate with Leonhardt type journalists and continue defending economic policies while conceding grounds for valid criticism.

The real importance of all this is how Administration approaches second term economic policy. To start with, on the campaign trail, Obama needs to 'hedge' recovery and constantly remind American Public about the hard road ahead. For Housing, Obama needs to say that he will work with GOP to re-calibrate roles of Fannie Mae and Freddie Mac in Housing Finance while completely rejecting any proposals to curtain 'mortgage deductions' for middle income folks. The overall message of 'short term expenditure to help economy while balancing longer term fiscal deficit' is what Obama needs to emphasize and that is the value of Leonhardt's criticism.

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