"But I also know," President Barack Obama said last night, in his typically self-referential fashion, "that in a time of crisis, we cannot afford to govern out of anger, or yield to the politics of the moment. My job—our job—is to solve the problem. Our job is to govern with a sense of responsibility."
It was a pleasingly presidential sentiment for a subdued, not-quite-a-State-of-the-Union speech. Unfortunately for Obama—and us—it was also contradicted, and blatantly so, not four paragraphs prior, by a guy named Barack Obama. "This time," the president warned us the minute before, while giving that stern schoolmaster look of his, "CEOs won't be able to use taxpayer money to pad their paychecks or buy fancy drapes or disappear on a private jet. Those days are over!" Democrats leaped to their feet.
Obama aims to be the president of all Americans, a position that appears to be sincere. But I wonder whether in the process he might also want to consider appointing himself chief executive of his own head. All night long, with equally sonorous vigor, he served up confident assertions, only to state moments later, with equal conviction, their near opposite.
"We will rebuild, we will recover, and the United States of America will emerge stronger than before," Obama crowd-pleased near the beginning, in the slot normally reserved for lines like "the state of our union is strong." Not long after, though, Americans learned that our very "survival depends on finding new sources of energy." Also, "there will be no real recovery unless we clean up the credit crisis...our recovery will be choked off before it even begins," and if we don't do whatever Obama wants us to do about the banking system, "it could result in an economy that sputters along for not months or years, but perhaps a decade." Better! Stronger! Crippled for a decade!
After detailing some clean-energy advancements in China, Germany, Japan, and Korea, the president averred, "Well, I do not accept"—there's that self-referencing again—"a future where the jobs and industries of tomorrow take root beyond our borders." A few paragraphs later, however, zero-sum gave way to kumbaya: "The world depends on us to have a strong economy, just as our economy depends on the strength of the world's." Just don't you get strong by producing clean energy, Koreans!
It was like this all night. The president's stimulus package "will save or create 3.5 million jobs." One of those, anyway! His administration has "created a new website called recovery.gov so that every American can find out how and where their money is being spent," unless they try to use it to find out how and where their money is being spent. Importantly, Obama vowed to "act with the full force of the federal government to ensure that the major banks that Americans depend on have enough confidence and enough money to lend even in more difficult times," a pledge he took so seriously that later on he stressed, twice, that "it's not about helping banks—it's about helping people."
The contradictions came flying even in his read-my-lips moment: "If your family earns less than $250,000 a year," he said, "you will not see your taxes increased a single dime. I repeat: not one single dime." But as recently as the previous paragraph the president vowed to "restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas." And a few paragraphs before that, he called for a "market-based cap on carbon pollution." So: You will not see your federal taxes increased a single dime...unless you own a company that emits carbon or hires some of those dastardly Koreans.
The two faces of Obama reveal more than just a man hard-wired to work both sides of a room. There is an essential contradiction at the heart of his populist economics. He wants to jump-start the "flow of credit"—it's "the lifeblood of our economy," after all—but somehow surgically remove the "speculators" from the process. "I will not spend a single penny," he promised, undeliverably, last night, "for the purpose of rewarding a single Wall Street executive, but I will do whatever it takes to help the small business that can't pay its workers or the family that has saved and still can't get a mortgage." His press secretary, Robert Gibbs, declared last week that, "I think we left [behind] a few months ago the adage that if it was good for a derivatives trader, that it's good for Main Street. I think the verdict is in on that."
Here is one of the many problems with that line of thinking: Wall Street isn't just some abstract pit of snakes that can be drowned in poison oil or otherwise given a wide berth—it's the heart (if tattered) of the country's financial industry. Which, among other things, does more to unleash the lifebloody "flow of credit" than any other power center in America. Not only does Obama get it wrong when he thinks you can best "help the small business" without involving the best single source of small-business funding, he also wildly misses the political and financial ethos of the abstraction he can't stop campaigning against. "I understand that on any given day, Wall Street may be more comforted by an approach that gives banks bailouts with no strings attached, and that holds nobody accountable for their reckless decisions," he said with a smirk. "But such an approach won't solve the problem." Nor will erecting a giant straw man in Lower Manhattan.
But there's more: Not only is Wall Street going to be key to any recovery, the reviled "derivatives trader" is right at the clenched heart of the financial blockage. As Washington Post economics columnist Robert J. Samuelson pointed out earlier this month, "Contrary to popular wisdom, banks—institutions that take deposits—aren't the main problem. In December, total U.S. bank credit stood at $9.95 trillion, up 8 percent from a year earlier, reports the Federal Reserve. Business, consumer and real estate loans all increased....The real collapse has occurred in securities markets."
Securitized lending instruments, and the various insurance and pricing bets placed on them, sloshed hundreds of billions of dollars into the economy, but have now locked up. The point is not that the derivatives trader needs a bailout—he most certainly does not—it's that inaccurately demonizing him is not the shortest route to economic wisdom.
There were some promising notes in Obama's speech last night, particularly his vow to "end direct payments to large agribusinesses that don't need them," and discontinue the dishonest and irresponsible way that Congress has funded wars for the past seven years. But the biggest promise was the one that his contradictions—or maybe just his ideology—did not let him fulfill. "It is only by understanding how we arrived at this moment," he said near the beginning, "that we'll be able to lift ourselves out of this predicament." Too true. Moments later, however, despite piles of evidence to the contrary, he said: "Regulations were gutted for the sake of a quick profit at the expense of a healthy market."
If understanding root causes is the key to good economic policy, we may have longer to go than even the pessimistic half of Obama thinks.