Taking Stock: Grading Obama's Domestic Economic Policies His First Year in Office

Barack Obama became America’s 44th President in troubled economic times. On the home front, his “conservative” predecessor had authorized spending that created a deficit of $l.3 trillion. Real-estate markets, stock markets, and financial markets collapsed. Advanced economies run on credit, and credit seized up. The United States entered a recession and feared it would be a deep and long one.

Economic doldrums, of course, helped make it possible for a newcomer to become President against the odds and the insiders. Now they make it harder for him to govern, even though they also contributed to creating strong Democrat majorities in both House and Senate. Immediate concerns over rising unemployment and vanishing nest eggs in recession trump longer-term interests in getting expensive healthcare and environmental reforms right.

Nonetheless, Obama has pressed forward on several fronts. What grades has he earned, this first year in the White House? And how does President Obama compare to Candidate Obama?

Candidate Obama sounded and acted like a natural leader. When he promised us Change, followed by Change We Can Believe In and then Change We Need. Many of us believed him and agreed that we needed a new way of governing. Business under his administration, Candidate Obama said, would not be business as usual. Vested interests would lose their vesting, anti-trust regulation would be better enforced, and any bill with earmarks would be vetoed. Candidate Obama also promised us transparency. Not just the results but the process would improve.

Candidate Obama’s promises and pledges provide a standard for grading his programs. The grades do not suffer from inflation, but they do cut the President a little slack. When programs address recession rather than long-term needs, it’s hard to know what would have happened in their absence. Further, most of the programs are still works in progress. The healthcare bills that passed the House and Senate have yet even to be reconciled and implemented, but given the prominence they hold in Obama’s agenda and as 1/6 of the economy, they must too be evaluated.

However carefully caveated, the grades below remain bold. All readers are encouraged to voice their agreement or disagreement by submitting comments to CenterMovement.org. Please visit the archives, too, for columns providing more details about the programs as they are and as they could be.

Stimulus Package: C-, so far. Nobody knows what “the multiplier” is — macroeconomists haven’t really studied Keynesian economics empirically for years, and surely there are several multipliers depending up the kinds of spending. “Shovel ready” is a stupid concept. Very few projects can be implemented quickly to increase overall demand and employment, and even fewer are valuable for society as a whole. Lags plague all stimulus efforts – lags in predicting, or even recognizing, recession, lags in deciding what to fund, lags in getting the programs up and working. Tax cuts are quicker, and arguably fairer, if the designs are right. Maybe even better is just letting the economy right itself.

These, though, are generalities. What’s particularly disappointing about President Obama’s package is that he let the House’s Nancy Pelosi and the Senate’s Harry Reid determine so much of it. As easily predicted, it’s more about pork and parochialism than national in vision. And vested interests are likely to gather quickly around the “temporary” spending and make it permanent. Would that Obama had taken leadership of this program. He certainly put together the team to address and ameliorate the situation. Instead, business has continued as usual. And while the stock market has soared almost 60% since its March nadir, unemployment remains at miserably high levels. [See “The Road Untraveled: Obama and the Middle Road” for a visionary alternative.]

TARP: C, so far. Part of the stimulus package and inherited from Bush 43, this program has aided Wall Street more than Main Street and appears particularly attentive to Goldman [a.k.a. Government] Sachs. It’s not clear that TARP unfroze lending by its recipients, but maybe matters would have been even worse without it. At least it was fast. Billed as a sort of taxpayer investment that would actually generate a positive return for us, it keeps re-investing any returns in new or repeat losers. With the third round of aid to GMAC, it’s now more involved with the auto industry than with the banks. The bill was passed in haste and without restraining detail by Bush 43, and Obama didn’t insist on making it transparent when he took office. [See “Is Goldman Sachs the New Halliburton” for more on the problem of vested interests and conflicts of interest.]

GM and Chrysler Bailouts: D-. They went bankrupt anyway. Bankruptcy, by the way, doesn’t destroy “real assets” – it destroys financial assets – all stockholder equity and some unpaid bills of suppliers. Why not an F? Because it’s possible that delaying bankruptcy prevented or reduced investor and consumer panic. The gain was a short grace period during which some of us felt the government was in charge and taking paternal care of us. How do we measure this gain, and the cost immediately thereafter of considerable loss of faith in that government and enhanced worries about deficits and future tax increases? And then there’s the $30 billion for which taxpayers are ultimately responsible. Hm. The program was further off the mark because lots of foreign companies make their cars in the United States, employing American workers. The distinction between “American” and “foreign” production is porous indeed. Just how valuable are the GM and Chrysler labor unions to the Democrats? Enough to justify more than $30 billion? Plus more than $16 billion, so far, to GMAC ? Plus $3 billion for Cash for Clunkers?

Cash for Clunkers: F. This program itself is a clunker. For $3 billion, it hurt the environment and clumped sales rather than increasing them. It contained no provisions for buying “American” and trading in “foreign”. Only two of the top ten models purchased under the program were manufactured by the corporations once known as the “Big Three”, while none of the top ten models traded in was “foreign”. Increasing miles per gallon didn’t even help the environment on net. New Guzzlers could still be purchased – they just had to guzzle less than the old ones. More importantly, destroying functioning engines is environmentally unsound. Surely the savings in foreign oil, gasoline and carbon imprints pale in comparison to the waste of resources in replacing and discarding cars before their time was really due.

Cap and Trade: Incomplete – so far, a C. Using market forces to trade carbon emission permits is a good idea: it encourages competition and efficiency. But who sets the cap, and how? Is it based on those now seriously questionable climate-warming data? Why are only 15% of the permits sold at auction, while the other 85% have apparently been gifted to utility companies, petroleum interests, refineries, and other businesses that must have political presence in Washington? It looks like business as usual within the Beltway. What about the implications for international trade and relations? Was it wise to raise costs during a recession? President Obama has a window of opportunity to answer some of these questions and right some of these wrongs. If he closes the window without doing so, his grade is D.

Financial Reform: C-, so far. Barney Frank, Chair of the HSFC, is working on tightening up bank regulations so that there’s more risk retention and less playing with subprime loans. This looks good, at least on the surface. After all, if some banks are too big to fail, they must not be allowed to embrace too much risk. The result would otherwise be to socialize the risks while keeping the returns private. At the same time, inspite of this insight, as part of the stimulus package, the FHA has already raised the ceiling for the amount of mortgages it will insure, and it’s still accepting minimal down payments of a measly 3.5%. It appears that DC insiders don’t understand that Main Street got in trouble largely because of feckless federal policies for mortgages. With Main Street, down went Wall Street, and the private sector as a whole. The private sector’s still down. Growth in jobs has been in the government sector and the semi-government sector of healthcare. Another problem is that we cannot understand the effects of regulations simply by reading them. Who’s going to enforce the complicated new strictures? More Goldman Sach exes? Who’s going to regulate the regulators? [See “Rolling the Dice with Congressman Barney Frank” for more on this topic.]

Healthcare Reform: D, so far, and likely to decline. It looks as if a healthcare bill will be passed this year. Both the House and the Senate managed to pass bills, and they’re likely to be reconciled. Access to care will be increased – in good measure by overturning Campaigner Obama’s pledge not to force Americans to buy health insurance. Obama didn’t squawk about this development. It doesn’t seem to bother him that additional coverage is being accomplished by following a goal that was Clinton’s, not his, when they campaigned against each others. He has said he wants to improve quality and access to care while controlling costs, and will veto any bill that’s not “deficit neutral”. The alleged neutrality of the Senate version of this bill is fake: it’s an artifact of projecting out only 10 years, before many of the expenses kick in. This is not reform, it is program expansion and cost explosion. Wyden-Bennett should have been given wide publicity and deep consideration. [See “RX for Healthcare Reform” for real change and real benefits.]

Not just the results so far but the process by which they were obtained keep the grade low. As with the stimulus package, President Obama gave too much power to Pelosi and Reid rather than leading from the White House. Transparency was negligible. The bills were so lengthy and voting followed their dissemination so quickly that it’s hard to believe that many of our reps read, much less understood, what they were voting for — or against. Doors were closed and people, corporations and other organizations with opposing views were denigrated and threatened rather than heard. Obama cut deals with Big Pharma and Big Insurance, although the latter’s cooperation appears to have faltered. Our second Louisiana Purchase and the buying of Nebraska’s Ben Nelson should be included in the costs along the perks awarded to other political holdouts. What were the rewards for early support and loyalty? What are the details? Where are the devils?

These are not the kind of grades one would expect for a former Editor of the Harvard Law Review. Most of them are modified by “so far”’s, some of which are modestly hopeful. Perhaps the tincture of time will reveal underlying wisdom and what now looks like cowardice will be seen as practical compromise. What’s already clear, however, is that President Obama has not been the leader Campaigner Obama seemed with such ease to promise. What’s also clear is that special interests aren’t being silenced and restrained, they’re being thrown juicy chunks of that other white meat commonly known as pork.

Not just Big Banks but Big Interests appear too big to fail, perhaps more for political than economic reasons. Until we change the system, no President is going to get good grades unless he or she leads instead of just coordinating and cooperating with elements within it. Mr. President, you can lead; please do lead. The House and Senate, the car industry, financial industries and other sectors of political and economic life see only their parts of the picture. You’re the one elected to represent the nation.