Obama's Waterloo?

Obama's Waterloo?

The Federal Government has to spend, in order to provide liquidity in the market, during periods of economic contraction. That becomes even more critical, when a major factor in the contraction is the failure of the free market, in such areas as the management of supply and demand, and the proper valuation of asset, risks and opportunities.

The problem for the Obama administration is that for a long time Americans have been told that the free market alone is the key to prosperity. Government should not only leave Wall Street alone, to make up the rules of the road, but also avoid taxing citizens to pay for the things that they want from government.

Even the massive failure of the market that brought on the current recession has not been sobering enough, to dispel those faulty notions about the economy and the role of the government. As long as the United States could borrow massive amounts of dollars from places like China, the people could live large in their fiscal unreality. President Reagan, for instance, was a major political actor to tell the people in the 1980s that borrow and spend was preferable to tax and spend, and that government was the problem not the solution. His influence is still palpable in Republican circles.

Thus, two years after the big economic melt-down, President Obama's political opponents are telling the people, once again, that the problem with their situation in the economy is the government. See, they say, Obama had his stimulus dollars, and yet the economic situation remains as bleak as ever. All of the spending has been wasteful! Of course, they are wrong.

They forget that the economic crisis started under a Republican president, whose solution just before he left office, as the economy was sinking was to pour billions of dollars into Wall Street firms. President Obama followed that precedence. The valid criticism of the president is that he followed it with so much faith, instead of ensuring that Main Street was made the focus of the recovery under his watch.

Imagine what the situation would have been today, if the president's stimulus package had dedicated close to a trillion dollars to buy up most of the troubled mortgages in the United States, as a means of resetting those mortgages at today's interest rates for 15 to 30 years. In order to boost the political support for such a program, all mortgages might have been qualified for the modification, solving much of the mortgage problems at the roots of the recession. The Fannie Mae corporation might have been used to make the entire program automatic.

The economic situation would have been dramatically different today. However, politics is the art of the possible, and Charles E. Lindblom (1977) reminds us that in systems such as this, business occupies a privileged position, which any president will ignore to his own peril. Wall Street and business will have the upper hand.

I thank you.

Fubara David-West