The Obama Watch

What Barack Obama Is Thinking

Students of history will recognize the method to this President's madness. 

By 5.26.10

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Students of history will recognize the method to President Obama's madness.  The parallels in both policy and politics to the Roosevelt Administration are too striking not to be deliberate. President Obama is consciously modeling his Administration on the Roosevelt Administration. But just as the liberals of the 1930s graduated to the New Left of the 1960s, President Obama's policies and politics transcend the liberalism of the 1930s. He is building what Newt Gingrich rightly calls a secular socialist machine in his new book To Save America.

Unreconstructed Keynesian Economics

Roosevelt's Keynesian economics was left for dead in the 1980s with President Reagan's supply-side revolution miraculously ending the stagflation of the 1970s with a 25-year economic boom. But President Obama came into office talking as if that never happened, casting it down the memory hole. While Reagan's early 1981 budget cuts slashed the federal budget by about 5%, Obama rammed through an almost $1 trillion stimulus package of nearly all Keynesian economics from the 1930s, laughing at his astounded critics with the question, "What do you think a stimulus is?"

Economically, it didn't work, just as it didn't in the 1930s or the 1970s. Now 29 months after the recession officially started in December, 2007, unemployment is 10% and rising, and the stock market is again stumbling, with the Dow still 4000 points off its last highs. The recovery was overdue a year ago, and even now economic growth is not half what it should be.

But note how the stimulus spending was structured so that more is spent this year than last. Was the goal to reduce unemployment as quickly as possible, or to use the guise of Keynesian stimulus spending for a political slush fund to buy as many votes as possible in this political year? Note also that about half of the direct "stimulus" spending went to state and local governments to prop up the employment of public employees, the most reliable supporters of liberal Democrat candidates. The only thing President Obama's stimulus is stimulating is a left-wing Democrat political machine.

Attack on Wall Street

Another early central theme of the Roosevelt Administration was a searing attack on Wall Street. The famed Pecora hearings, led by the Chief Counsel to the Senate Banking Committee Ferdinand Pecora, crucified top Wall Street bankers and brokers as the cause of the Depression. Despite the hallowed political propaganda long taught to American schoolchildren, Wall Street misdeeds played only a minor bit role in the Great Depression. The real causes were Fed mismanagement enabling a drastic collapse of the money supply, causing ruinous deflation, followed by brutal tax rate increases, and the soaring protectionist tariffs of the Smoot-Hawley Act. Roosevelt's massive overregulation and Keynesian economics draining private sector investment were additional factors extending the Depression for a decade, putting the "Great" into the "Great Depression" as Amity Shlaes put it in her eye-opening book, The Forgotten Man.

But the Pecora hearings and Roosevelt's class warfare rhetoric excoriating "the malefactors of great wealth" successfully shifted the blame politically from the government to the private sector. The result was passage of the Securities Act of 1933 and the Securities Exchange Act of 1934, imposing extensive new regulation on Wall Street, as if that would resolve the causes of the Depression. The measures did not produce economic recovery, but rather mostly just decades of voluminous securities filings filled with meaningless boilerplate that nobody ever read.

Today we see President Obama trying to pull off the exact same thing. The Democrats managed to inspire union-generated civil unrest with their incendiary rhetoric regarding contractually specified Wall Street "bonuses." The statesman Obama then poured oil on the fire, explaining, 

The people on Wall Street still don't get it. They're still puzzled why is it that people are mad at the banks? Well, let's see. You know, you guys are drawing down 10-, 20-million-dollar bonuses after America went through the worst economic year that it's gone through in decades, and you guys caused the problem. And we got 10% unemployment.

But actually, no, Washington, it was "you guys" who caused the problem. The Fed again started it, this time with excessively loose monetary policy during the Bush Administration keeping real interest rates below zero for years, as explained by Stanford monetary policy guru John Taylor in his book Getting Off Track. That policy essentially subsidized excessive leverage and runaway risk.

Those cheap dollar, easy money policies joined with the "affordable housing" policies of the Clinton Administration and Congressional Democrats to create the housing bubble, pumped up by subprime mortgages going to people who couldn't afford them, or who were just speculating and willing to abandon their homes if they got into trouble. The Congressionally sponsored, financial terrorist organizations Fannie Mae and Freddie Mac then spread trillions in toxic securities backed by these subprime mortgages throughout the global financial system, ultimately threatening to bring it all down.

Following Roosevelt, President Obama again used the crisis to enact further government regulation of Wall Street in the financial regulatory reform bill. But Obama's regulatory monster makes Roosevelt's Wall Street regulation look like a sellout. Obama's bill effectively takes over Wall Street, institutionalizing bailouts with comprehensive new federal authority to seize any institution the government deems troubled. That power does not even have to be used, for the financial industry to become a house pet of the Democrat political machine, with President Obama's new billy club always ready and waiting in the closet. Don't expect to see any Republican fundraisers on Wall Street any time soon. Those are all Democrat affairs now, collecting protection money.

Further following the Roosevelt model, the Obama Administration inaugurated the Congressional debate on the financial regulation bill with a trumped-up, show-trial securities fraud suit against Goldman Sachs. Any free market advocate has to detest Goldman, which already has long been a central cog in the Democrat political machine. But the civil fraud suit against Goldman is an abuse of power, alleging essentially that Goldman defrauded itself into $75 million in losses in sponsoring an investment vehicle demanded by the market, which enabled investors to bet either for or against the subprime housing bubble. The suit is so contrary to legal precedent and the basic facts that the government prosecutors richly deserve sanctions, and if it ends with the deserved judicial excoriation, remember you read it here first.

In the end, two of the actual malefactors of the great wealth of government power themselves at the root of the housing bubble crisis, Barney Frank and Chris Dodd, stood taking credit for the financial reg reform bill, which will only add to the secular socialist machine rather than address the root causes of the financial crisis.

Crony Capitalism

Another major portion of the stimulus went to subsidies for so-called "green" energy, solar, wind, biofuels, etc. This was supposed to create "green" jobs, with President Obama proclaiming, "The nation that leads the green energy economy will be the nation that leads the global economy." (The global warming scientific grounds for such subsidies are sheer fantasy as discussed at length in this column many times before). Last year, a study of the experience with such subsidies in Spain found that they destroyed 2.2 jobs elsewhere in the economy for every green energy job created. High cost energy that has to be heavily subsidized with taxpayer dollars is not a good strategy for creating jobs.

More recently, a leaked Spanish government study estimates even greater net job losses. As Chris Horner of the Competitive Enterprise Institute reported last week at Pajamas Media, the Socialist Party Spanish government has publicly acknowledged that its green energy subsidy program has to be drastically curtailed if not abandoned altogether, "lest the experiment risk Spain becoming Greece." Investors Business Daily further reported last Friday a new study of green energy subsidies in Italy considering the full impact of the higher energy costs on the economy, and concluding, "Each green job cost 6.9 jobs in the industrial sector and 4.8 jobs across the entire economy." Indeed, high energy costs kill manufacturing.

But while green energy corporate welfare fails miserably as economics, it succeeds politically in building the Obama/Democrat political machine. All the "businesses" that exist, whether wind, solar, ethanol, or others, solely because of their Democrat party benefactors now also have trade associations that will join in contributing and openly campaigning for continued Democrat party majorities, especially as Tea Party conservatives exhibit greater clout in the Republican Party, defeating RINOs.
The same strategy is now being pursued in the new Kerry-Lieberman cap and trade bill, structured to deliver billions and billions to corporate interests to buy off their potential opposition. If that bill becomes law, all these businesses will be added to the Obama/Democrat political machine as well.

Government Dependency

President Obama has also followed Roosevelt's creation of massive new entitlements with the Obamacare takeover of health care. If not repealed, that government takeover will mean the end of high quality American health care, with government bureaucrats ultimately deciding what health care you can receive in service of the cause of "social justice" rather than your personal health.
But in the process, the legislation massively increases government dependency with an estimated trillion dollars in increased welfare providing health insurance subsidies for families making as much as $88,000 per year. Those cost estimates will prove woefully inadequate, as the legislation will likely cost at least 3 times as much, if not following Medicare in costing 10 times original estimates. But the ultimate cost does not matter to President Obama. What matters is that he considers the votes of everyone receiving the new entitlement benefits to be bought and paid for as part of the New Left political machine. The same politics are reflected in the one-third increase in federal welfare spending President Obama has already adopted in his first two years alone, with total national welfare spending now to cost an astounding $10.3 trillion over the next 10 years.

Like Roosevelt, Obama has thoroughly aligned himself with the labor unions, even though the great majority of workers today have rejected unionism as not in their best interests. Just as Roosevelt's 1935 Wagner Act heavily favoring the institutional interests of unions over the interests of workers until corrected by the 1947 Taft Hartley Act, Obama today seeks to pass card check legislation that would take away the vote of working people over unionization. It would effectively turn small and medium businesses over to union organizers as well through mandatory, 90 day arbitration dictating the terms and conditions of union contracts. Besides the massive auto bailout, actually a bailout for the UAW, Obama seeks to overturn the careful balance of traditional labor law through every means possible, including the appointment of radical leftists like Craig Becker to controlling labor-related government positions. Expanding unions, of course, just further expands the Obama/Democrat political machine.

President Obama's misrepresentation and defamation of the Arizona immigration control law is a further, naked attempt to build his secular socialist machine. That law was carefully crafted only to enforce current legal requirements of federal law. It also expressly prohibits racial profiling, allowing officers to investigate immigration status only during otherwise lawful contacts arising out of other matters, and only when there is probable cause to question such status. Yet Obama sponsors Mexican President Felipe Calderon before a joint session of Congress misrepresenting the Arizona law and effectively denouncing America, to the great applause and glee of Congressional Democrats, while Mexico maintains punitive immigration laws. Obama here is simply trying to rile up his Hispanic voter base for this year's elections.

In short, President Obama and the Democrats are trying to nationalize the urban political machines dating back to New York City's Tammany Hall that have long been the backbone of the Democrat party.

It Won't Work

But it won't work. Only an intellectually cloistered prep school Marxist could think the politics of the 1930s would be an effective model for today's modern America 75 years later. While America's old media and brain freeze academia are part of the Obama/Democrat New Left political machine as well, they are effectively countered today by the modern media of the Internet, cable and satellite TV, talk radio, nationally distributed conservative newspapers and magazines, and the conservative and libertarian think tanks and grassroots organizations.

In this environment, the Obama/Democrat political machine cannot survive the substantive policy failures that will blast it to smithereens over the next 24 months. We are enjoying now the high point of the Obama economy, a natural cyclical recovery that Obama has already managed to stunt to my own surprise. Yet the ultraliberalism of Washington's ruling Democrats is already cratering their political fortunes. When the concrete economic disasters of the 1970s begin to reappear next year with a new economic downturn, President Obama and his propagandists are not going to be able to talk their way out of political chaos. The American people are far too sophisticated now and have experienced too many years of bountiful prosperity to settle for the stagnation of European and Latin American socialism that Obama and Pelosi are brewing.

Compounding this is a trajectory of grievous foreign policy reversals, with President Obama inviting War through Weakness in the Middle East and elsewhere, and mushrooming nuclear proliferation in response to the now emerging nuclear Iran. The likely result of all this is a geometrically worsening downward spiral of political collapse for the Obama Democrats.

The better political survival strategy for the Democrats is the Blue Dog Democrat ploy that continued to work in the Pennsylvania 12 special election last week. But even that shows the weakness of the Obamunistas. In a two to one Democrat district, represented by Democrats for decades, with the national union infrastructure able to focus all of their resources on that one race, the Democrat won campaigning against the Obama agenda on a Rush Limbaugh platform. Will Obama really be able to maintain his leftist agenda with a Congress increasingly populated by those winning in this way?

Republicans must and will learn to counter this more effectively by aggressively attacking and exposing Blue Dog double dealing. Even more important, they must get much better at projecting a vision and theme of renewed American prosperity and growth.

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About the Author
Peter Ferrara is Director of Entitlement and Budget Policy at the Heartland Institute, General Counsel of the American Civil Rights Union, Senior Fellow at the National Center for Policy Analysis, and Senior Policy Advisor on Entitlements and Budget Policy at the National Tax Limitation Foundation. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.