I see today that the National Bureau of Economic Recession has concluded that we entered a recession last December; a more generally known heuristic is two consecutive quarters of negative GDP growth, and the second quarter this year showed some GDP growth. However, given the rising unemployment, declining manufacturing, the raft of bankruptcies and near-bankruptcies (including Big Three Auto and Big Banks), and struggling retailers, with only well-established discounters like WalMart holding their own, the fourth quarter is a near certain lock to fulfill the heuristic. The average tenure of a recession has been 10 months; this one almost certainly will be longer.
There are two primary points I have to made regarding President-elect Obama. (Technically he's not the President-elect until the Electoral College meets and formally votes later this month.)
First, I have concerns with the excessive uncertainty in the market (and certainly the Bush administration, including Treasury Secretary Paulson, has been responsible for much of this, in terms of selective bailouts and shifts from buying up bad mortgages to shoring up banks). I am very concerned that Obama may be looking to emulate the same failed approaches of Hoover and FDR in the aftermath to the 1929 market crash and the 1990's ineffectual responses of Japan to their own real estate bubble (including pushing interest rates to zero and massive infrastructure spending). The "carrot-and-sticks" approach Obama has described (rewarding employers with tax breaks for in-sourcing jobs or hiring new workers) is not promising.
The seeming willingness to put off an explicit tax hike on higher-income taxpayers, quite often the job creators, is a good first step. But I would like to see a more pro-growth policy to coax money off the sidelines and into domestic equities. One good way is by Obama's adopting McCain's promise the cut the business upper-income bracket from 35% to 25%. I would also like to see other pro-growth policies, e.g., offsetting the regulatory/ reporting requirements on small business, reducing the barrier of entry to capital investment (such as allowing a discounted capital gain tax rate for investments made during this recession), allowing more rapid depreciation rates on high tech and other equipment, etc.
Second, I have some concerns about Obama's appointments. Whereas the reappointment of Gates and a solid pick in James Jones as National Security Advisor signal some stabilityand continuity between administrations, and Obama in many respects seems to be making more pragmatic choices which is more consistent with his more centrist promises during the general campaign, one must be wondering (1) if Obama is simply attempting to coopt Senate Clinton, moderates, and independents through staff appointments, paying lip service to listening to alternative points of view while relying on his liberal inner muse for decisionmaking, and (2) the legitimacy of his ideal of change from the Bush-Clinton years, the "turning of the page", given a heavy influx of Clinton administration and holdover of more recent experienced hands (e.g., Gates and New York Fed chief Geithner). Others defend Obama on this, arguing how else is he going to get experienced personnel. I'm not arguing that point on its merits, but the key question is, why is experience more salient at lower levels of managment? You would think from his rhetoric that Obama would really think outside the box, his comfort zone, in making appointments, e.g., some names from academia or the business world.
This is not to say that I don't appreciate his explicitly stated motive to appoint people like Gates, Jones and/or Clinton, whom might challenge his way of thinking and guard against groupthink (although it would be a more plausible point if lead Democrats like Obama, Biden, and Clinton had significantly different voting records). Even conservatives such as myself have criticized Bush for his isolation from Congress and his dependence on known and familiar faces (e.g., Cheney, Gonzales, and Miers). Probably there's no clearer case of the "emperor wearing no clothes" than Bush's famous quote to Hurricane Katrinia FEMA head Michael Brown: "Brownie, you're doing a heck of a job!", after days of national TV coverage showing bodies floating in water, chaos on the streets and at shelters, etc.
Still, Obama is treading a fairly thin line. His liberal ideologue supporters are fuming that he's recycling "more of the same" old, more orthodox names; his more moderate, independent supporters are worried about a "bait-and-switch" from his uncharacteristic general campaign stands promoting middle-class tax cuts, gun rights, the traditional concept of marriage, etc. Obama cannot be all things to all people; he will at some point need to make decisions where rhetoric will not mollify the losing side. Obama, despite the advantages of a change election, a 2-1 money advantage down the stretch, and an economic tsunami (when economic downtimes generally favor the welfare net Democrats), did only modestly better than Bush did in 2004, and Bush's favorability ratings quickly fell with Katrina and Iraq.
Defense Policy
What I would like to see from Obama is a commitment to replenishing and upgrading military equipment and supplies, expanding our military (in particular, the Army and the Marine Corps.), and a disavowal from early campaign statements to obstruct or cut funds for future military weapon systems research and development. I'm particularly concerned about our satellite vulnerability and sophisticated cyber attacks, particularly on military operations and related systems. I would also like to see more emphasis on resurgent militaries in Russia, buoyed by natural resource trades, and China, with a growing monetary reserve .
Foreign Policy
Hillary Clinton's nomination as Secretary of State still puzzles me. That would make 3 former rivals for the nomination now prominently working for Obama (Commerce Secretary Richardson and Vice President Joe Biden), whom he previously condemned for not having made the right decision on authorizing the liberation of Iraq. There could be a number of factors at work: Obama could be coopting former rivals; Obama could also be intentionally including a diverse set of foreign policy views for the crucible of his policy decisionmaking; Obama could be signaling a shift in his foreign policy views.
What I would like to see is a realistic foreign policy which, for instance, doesn't assume that the Germans will send soldiers to Afghanistan simply because Bush is no longer President, that rogue nations will cease and desist destabilizing activities simply if the President would just meet with them, that relies more on regional security, and that avoids costly foreign entanglements like the Iraq occupation. At the same time, Obama needs to assert, not apologize for, America's values, power and influence and actively promote American goods and services.
Economic Team
Treasury Secretary Tim Geithner, Council of Economic Advisors chair Christina Romer, National Economic Council Larry Summers, and OMB director Peter Orszag constitute a solid team of competent pragmatists whom seem to signal support for free trade, responsible tax policy, and fiscal responsibility. In addition, Obama seems to be indicating he will postpone any income tax hikes for upper-income taxpayers over the next two years, and he has backed off from his punitive, counterproductive threats of windfall profits taxes on domestic energy corporations.
Still, there are a variety of concerns I have. First, the Democrats are talking, on top of all the federal bailout already at work in terms of stabilizing banks, AIG, Fannie Mae and Freddie Mac, etc., a second stimulus package. Karl Rove, in a recent column, cited sources indicating less than 20% of Americans spent their first stimulus check. In this recessionary period, my gut feeling is that most Americans, fearing the recession may drag on or prices may deflate from here, may simply bank the check. If so, there will be little to spark the two-thirds of the economy based on consumer spending. It seems to me somewhat unconscionable to increase our national debt to push for a stimulus package which is largely pushing on a string: why are we asking our children and grandchildren to take on yet more borrowed money for a short-term spending boost? I oppose a new stimulus bill.
Second, there is some discussion of infrastructure spending, noting the multiplie effects of such spending. I like this alternative better than stimulus checks, which could be used for purchasing Chinese-made toys or other foreign consumer goods (e.g., clothing and electronics); we end up with tangible American-built assets in fixing deteriorating roads, bridges, levees, etc., which have tangible, durable payback. There are some issues, however. One of them is what projects get approved (these can be influenced by political factors such as party affiliation or seniority); second, there are potential supply/demand constraints, existing engineering firm backlog, manpower supply vs. demand (and associated training/skill requirements) and ability to take on additional projects. For many (if not most) projects, we are often talking about leadtimes before you actually can start work.
What I would like to see is an Obama reality check. We need an explicit recognition that the federal government cannot and should not bailout each and every industry (or politically favored industries, like the Big Three) and struggling states and local governments looking for a way out of making politically unpopular budget cuts. We need Obama to understand the federal government, with its current obligations, cannot take on some $800B of his new federal spending initiatives. Obama needs to enact, like JFK/LBJ, a pro-business growth agenda, recognizing, like McCain did during the election campaign, that we have among the highest business tax brackets among the developed nations and the fact those taxes are implicit costs of doing business and attracting job-creating investments to America. Favorable investment tax policy, e.g., by encouraging investment during the recession, would go a long way towards stimulating cash off the sideline and into the economy. I would also like to see government getting out of the way of business competition, e.g., allowing health insurers to market policies across states, and reassessing on a cost-benefit basis costly business reporting requirements and other mandates.
Some Disappointing Appointments
Attorney General nominee Eric Holder is, in my judgment, too tied to certain unsavory aspects of the Clinton Presidency, including the unconscionable pardon of billionaire fugitive (and Democratic contributor) Marc Rich and the sentence commutation of certain violent Puerto Rican nationalists. Homeland Security Secretary nominee Arizona Governor Janet Napolitano is notoriously soft on border issues, sarcastically commenting that there are workarounds to any restrictions against illegal border entry, i.e., if you build a 50-foot wall, Latin Americans will counter with 51-foot ladders.
Pro-life blogger Jill Stanek, in a current post, identifies a number of troubling Obama appointments, including pro-abortion choice EMILY List's executive director Ellen Moran, Domestic Policy Council member Melody Barnes (former board member to Planned Parenthood and EMILY List), and the oxymoronic choice of Alta Charo as Obama's ethics adviser, whom opposes conscience exceptions (to human life-destructive policies) for health care professionals and favors human embryo experimentation.
