In this morning’s Asia Times Online, I discuss the implications of a Republican victory in Massachusetts.
The electorate is like Archilochus’ hedgehog, which knows one big thing, rather than the fox, which knows many things, in the classical aphorism cited by Russian-British philosopher and historian, Sir Isaiah Berlin. In 2008, the voters knew that thecapital gains and home equity cushion gleaned during the Ronald Reagan boom were at risk, and that the likes of presidential candidate John McCain as well as former candidate, now Secretary of State Hillary Clinton, would not make things different. A vote for Obama under these circumstances had no downside from the vantage point of the ordinary household, and they held out the hope that Obama actually might have a magic wand up his sleeve. The voters were not entirely misguided, for the current economic situation almost certainly would have been just as bad under a McCain administration.
The big thing that the American electorate has learned during 2009 is that Obama is all talk. There are many little things that annoy voters: special treatment for trade-union health plans, a Treasury secretary who seems to have given special treatment to Goldman Sachs in the rescue of the insurance giant AIG, and a confusing foreign policy. But the idling of one-fifth of the population overwhelms every other issue. Tens of millions of families that only two years ago felt affluent and secure are now anxious and impoverished. And Obama can do nothing about it.
Memo to Republicans: Careful what you wish for. It’s not enough to chant, “Win one for the Gipper.”
America is the world’s most successful state, and the one with the greatest longevity in its present constitutional form. But neither of the major parties is presently capable of governing it. The Republicans have been hoping that rage against Obama’s failed economic policies would carry the party through the November congressional elections. But it is entirely conceivable that the Obama presidency will implode as quickly as the Obama campaign metastasized during the 2008 primaries, and that the electorate will call the Republicans’ bluff.
There is no quick or easy fix to today’s economic disaster.
When Reagan took office in 1981, the baby boomers were in their 20s and 30s, America had a 10% savings rate, the current account was in surplus, and America was the world’s largest netcreditor nation. Reagan was able to cut taxes and finance an enormous budget deficit because the world’s demand for US Treasury securities was correspondingly large. In 2010, the baby boomers are in their 50s and 60s, America has saved nothing for a decade, the current account remains in severe deficit and the world is choking on the existing supply of Treasury securities. Cutting taxes to stimulate the economy is not as simple this time round.
Professor Reuven Brenner and I argued in the December 2009 issue of First Things that fundamental changes in American economic policy are required to emerge from the Great Recession. We proposed that the United States fix the dollar to the Chinese yuan and other currencies in order to re-orient trade flows to the developing world. We added, “We have been borrowing in order to consume; we need now to save in order to invest. We need to shift the tax burden, moving it away from savings and investment and toward consumption. We should replace individual and corporate income taxes with consumption-based taxes.”
Americans need to be told that they will need to invest before they can consume, and that the cure will take years rather than months to take effect. It’s not a happy message, and no one in politics is willing to deliver it - if indeed anyone in politics understands it.
