When in doubt, do nothing

When it became clear that Barack Obama would win the Democratic nomination for the presidency, I remarked to any of my friends willing to pay me any attention that I thought, should he win, Obama would likely be a second Jimmy Carter. As the campaign progressed, and John McCain’s running mate comprehensively undermined the credibility of the Republican platform, I hoped that Obama would prove me wrong.

So far, however, I think my prediction is holding up. Certainly, there are now rather more people making the Obama-Carter comparison now than there were then, as any “Obama Carter” Google search will demonstrate. Before going too much further, I should make it clear that any claim I might make to be any sort of oracle on matters political is rather undermined by the prediction I made earlier in the campaign that Hillary was a shoe-in. And the one after that, when Obama started looking like a serious contender, that, should Obama get the nomination, McCain would eat him for breakfast. But, if you make enough predictions, one of them is bound to be close to the mark and the Obama-Carter comparison is looking good.

Some in the US are now saying that it will be nigh-on impossible for Obama to win. I don’t think that’s true yet. I do think the Republicans will actually need to field a credible candidate. And, if Sarah Palin were to run as an independent as some have suggested she might, I think that would be likely to split the anti-Obama vote and all but guarantee him re-election.

But the validity of the comparison between the two doesn’t rely on Obama being a one-term president – it merely requires him to be a failed president, and so far, so good on that front. Here’s a quick summary of the parallels as I see them. They were both elected as young “Washington outsiders”, they were both hailed as being exceptionally bright, they were both expected to reform American politics, and, more importantly, both convinced Americans that government was a solution rather than a problem. After being elected, both have had largely unsuccessful first terms, and have seen initially high levels of popularity decline. History never really repeats, however, so there are some important differences. Obama’s approval rating has only gone as low as 38%, which is 10 points above Carter’s nadir. And, of course, Carter actually earned his Novel Prize. But that Obama’s popularity is this low so soon after US forces managed to kill Bin Laden is telling.

Some of my colleagues still think it unjust that Carter lost to Reagan, who they and, apparently, lots of others at the time considered to be something of a joke candidate. They think that Reagan was a bit thick, particularly once dementia set in, whereas Carter was (and is) in their view very clever. For what it’s worth, I too think Carter is clever. I think Obama also almost certainly has a very high IQ. And I strongly suspect that both men are brighter than Reagan was. But Reagan was a much better president than either. Reagan grasped what neither Carter nor Obama have grasped, which is that no-one is clever enough to be able to make better decisions about millions of individuals’ lives than the individuals themselves. Reagan was more successful as president simply because his campaign platform was that government was not the solution to Americans’ problems, but that government was the problem. As such, his task was simple – don’t interfere in stuff. Carter and Obama set themselves an infinitely more complex task, and they predictably failed (or are in the process of failing).

This I suppose brings me to the point of this post, if indeed there is one. Obama is to all intents and purposes a committed Keynesian, which is to say that he is of the view that in a recession government should spend to stimulate the economy. To this end, one of his early acts as president was to push a stimulus package through Congress at the cost of nearly US$1 trillion. This package clearly has not resulted in an economic recovery. The most optimistic argument one can put forward about it is that the US economy would be in even worse shape than it is now had there not been a stimulus. Faced with a possible ‘double dip’, Obama is now promoting a second stimulus, this time worth a rather more modest US$450 billion.

There are people far more qualified than me on both sides of the Friedman-Keynes divide (if I might be permitted to employ a simplistic shorthand for a complicated debate). They are also far more qualified than Obama, who trained as a lawyer, not as an economist. I make this point because I think it demonstrates that Obama cannot really have any certainty that the stimulus is the right approach, despite his (surprising) assertion that there is no disagreement on the matter. So, let’s say, for the sake of argument, that half of all eminent economists support stimulus and half don’t, and that it’s therefore 50/50 on whether active intervention and stimulus is the right approach, or whether, as others have argued, “lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth”. In that situation, the most sensible approach would be to look at the cost of getting it wrong in either scenario. If you opt for stimulus and get it wrong, the economy worsens and public debt is further increased by the amount of the stimulus package. If you opt for a hands-off approach and get it wrong, the economy worsens but public debt doesn’t increase.

When faced with an indissolubly complex problem, policy makers should, I believe, seek to minimise the costs of policy failure. But that doesn’t appeal to the likes of Obama and Carter, whose powerful intellects are matched only by their even mightier egos. That a problem might be too complicated for them to solve is not an appealing proposition. This is why Obama will almost certainly fight tooth and nail to pass his stimulus. Perhaps it will work (I doubt it, but, as I say, there are those who know more about it than I do who think it will), and perhaps it won’t. But if it doesn’t that’s another half trillion that future US taxpayers need to pay off with their reduced incomes.

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One comment on “When in doubt, do nothing

  1. […] Last week, in regard to Obama’s planned second stimulus package, I argued that the default position of government should be to avoid interfering in the economy. […]

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