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Thursday, March 27, 2008

Obamanomics: rebalancing the national portfolio

One of Obama's favorite words is 'balance.' It's been a central premise of his campaign that moving economic policy to the left is a matter of restoring balance after a generation of deregulation, tax cuts, widening income inequality, and risk shift from institutions to individuals.

Given this recurring theme, it's amusing to look at how Obama, in his speech devoted to the housing crisis delivered at Cooper Union in New York City today, tacks back and forth between Hamilton and Jefferson to establish a framework for his proposed policies.

First, Obama enlists Hamilton in support of government providing 'prudent aids and encouragement' to economic growth, extrapolating from Hamilton's activism "weaving together the economies of the states and creating an American system of credit and capital markets" an implied support for government as rulemaker, i.e. regulator. He implicitly acknowledges that Hamilton's vision of an economy based on manufacturing enterprise better describes the path of American development than Jefferson's agrarian vision.

But then he tacks over to Jefferson's fear that Hamiltonian capitalism "would favor the interests of the few over the many." Finally, with a bit of sleight of hand, he implies that Hamilton shared this concern, by segueing from the rivals' different attitudes about concentration of power to their alleged agreement that "opportunity had to remain open to all." In effect he coopts Hamilton's authority for a strong Federal role in the economy, and Jefferson's mandate to work against the concentration of power and wealth.

Having yoked the rivals to support his own advocacy for free markets, strong government regulation, and reduced concentration of wealth, Obama goes on to frame strong if measured doses of re-regulation and government aid to distressed homeowners as a matter of redressing imbalances created in the Clinton era.

But the frame is not finished at this point. Before moving on to specific policies, Obama introduces these paired principles:

Prosperity is only sustainable if it's shared: "there is no dividing line between Main Street and Wall Street. The decisions made in New York's high-rises have consequences for Americans across the country. And whether those Americans can make their house payments; whether they keep their jobs; or spend confidently without falling into debt – that has consequences for the entire market." In the current crisis, "What was bad for Main Street was bad for Wall Street. Pain trickled up (my emphasis).

Concentration of power distorts policymaking and undermines shared prosperity: specifically, bank deregulation was botched in the 1990s because of unchecked lobbying. Characteristically, Obama begins here by acknowledging that "the other side may have a point": "The evolution of industries often warrants regulatory reform...There were good arguments for changing the rules of the road in the 1990s." But a broken political system distorted reform: "Unfortunately, instead of establishing a 21st century regulatory framework, we simply dismantled the old one – aided by a legal but corrupt bargain in which campaign money all too often shaped policy and watered down oversight. In doing so, we encouraged a winner take all, anything goes environment that helped foster devastating dislocations in our economy."

Within this context, Obama positions individual policy prescriptions -- as he always does -- as means of restoring balance and fairness. Let's look at one proposal aimed at distressed homeowners, and one at regulation of lenders. First, Obama's defense of the Dodd-Frank FHA Housing Security Program:
Senator McCain argues that government should do nothing to protect borrowers and lenders who've made bad decisions, or taken on excessive risk. On this point, I agree. But the Dodd-Frank package is not a bailout for lenders or investors who gambled recklessly, as they will take losses. It is not a windfall for borrowers, as they will have to share any capital gain. Instead, it offers a responsible and fair way to help bring an end to the foreclosure crisis. It asks both sides to sacrifice, while preventing a long-term collapse that could have enormous ramifications for the most responsible lenders and borrowers, as well as the American people as a whole. That is what Senator McCain ignores.
Asking both sides to sacrifice is a classic Obama trope. This 'balance' is matched by his acknowledgement of McCain's moral concern. But in Obama's moral universe, McCain's got just one hand clapping.

The proposal to subject mortgage brokers to the same lending guidelines to which commercial banks are subject is presented as a a restoration of government's historic oversight function:
we need to regulate institutions for what they do, not what they are. Over the last few years, commercial banks and thrift institutions were subject to guidelines on subprime mortgages that did not apply to mortgage brokers and companies. It makes no sense for the Fed to tighten mortgage guidelines for banks when two-thirds of subprime mortgages don't originate from banks. This regulatory framework has failed to protect homeowners, and it is now clear that it made no sense for our financial system. When it comes to protecting the American people, it should make no difference what kind of institution they are dealing with.
Having placed his measures to deal with the current crisis in this framework, Obama broadens it, articulating principles that he has emphasized throughout his campaign:

Good policy reform requires systemic political reform:
the American people must be able to trust that their government is looking out for all of us – not just those who donate to political campaigns. I fought in the Senate for the most extensive ethics reform since Watergate. I have refused contributions from federal lobbyists and PACs. And I have laid out far-reaching plans that I intend to sign into law as President to bring transparency to government, and to end the revolving door between industries and the federal agencies that oversee them.
To move left today is to restore the center:
today, for far too many Americans, [the American] dream is slipping away. Wall Street has been gripped by increasing gloom over the last nine months. But for many American families, the economy has effectively been in recession for the past seven years. We have just come through the first sustained period of economic growth since World War II that was not accompanied by a growth in incomes for typical families. Americans are working harder for less. Costs are rising, and it's not clear that we'll leave a legacy of opportunity to our children and grandchildren. That's why, throughout this campaign, I've put forward a series of proposals that will foster economic growth from the bottom up, and not just from the top down....we need to pursue policies that once again recognize that we are in this together.
Those who dismiss Obama's calls for unity as empty rhetoric miss his relentless efforts to create unity by force of argument -- to convince Americans that our true national center is well left of where we are now. His rhetoric is powerful because his thinking is powerful. He is unmatched by any living American politician in his ability to develop and articulate policy proposals in a clear historical and theoretical context.

Hillary's policy proposals are a laundry list. McCain's are a morality play. Obama's are new chapters in an historical narrative.

Related Posts:
Breaking the Commander-in-Chief Chokehold
Audacity of Obama: Embracing Wright and Grandma
Audacity of Respect: What Obama Owes to Reagan II
Obama's Metapolitics
Obama gets down to tax brass
Obama brings it back to earth in Virginia
Feb. 5: Hillary's Speech was Better than Obama's
Truth and Transformation
Obama Praises Clinton, and Buries Him
Obama: Man, those Clinton Kids are Something

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