The Clueless Commander

President Barack Obama has a tough job on his hands!! This is probably one of the most used cliché’s across the media for the past 2 years or so. His toughest job is actually not fixing the economy. At least not yet, for before he attempts to do that, he needs to surmount an even bigger obstacle called “Economic Theory“. If history has taught us anything, it is that this is probably unending!!

Since the dawn of his presidency he has been thrust into the middle of the age old debate of Classical Economics vs. Keynesian Economics. Of course this debate has raged over time and played itself out in different countries with different governments and under different circumstances.

John Maynard Keynes was in fact credited with rocking the boat of the neo-classists when he first arrived on the scene in the early days of the great depression (1929 – 1940) with his seemingly hair brained idea of deficit spending. It was then; out of sheer desperation that President Franklin Roosevelt launched his “New Deal“. This gush of government money that was hurtling towards a starved economy also came with a lot of legislation to prevent the occurred from re-occurring. It is however noteworthy to mention that this new deal did spawn a recovery (25% unemployment down to 15%). However, once the economy seemed steady in a comfort zone, President Roosevelt raised taxes in order to balance the budget. No sooner had he done that did the economy (almost as if it was on pills) went into a tizzy and almost collapsed yet again.

Through the ages we have had different Presidencies borrowing more than they can afford, only to leave it to future generations to pay back. In the 80’s, President Ronald Reagan whose ideology of Reaganomics could almost resonate with a majority of Republicans in fact turned the US from being the world’s largest creditor to the world’s largest debtor nation in his tenure. His policies of de-regulation, cutting taxes across the board and controlled government spending, meant that the US had to borrow to finance its military cold war spending.

Of course, with unemployment well below the 10% mark, no one was ready to blow the whistle on what seemed to be a bad precedent being set. Successive governments after that had no qualms about deficit spending since there were always national interests at stake (wars in Iraq, AfPak). There was a brief period in between when President Bill Clinton balanced the Budget with the help of Congress

What followed soon after was history in the making. What began with an unnecessary war acted upon unilaterally led to a burgeoning deficit, and when Lehman Brothers collapsed the entire nation went into shock. An already swollen deficit had to further carry the weight of the TARP so that the system would not shut down. Since then, as far as the deficit goes, we really have not looked back.

However, as they always say “this time it’s different”, this time it truely is different. Never before has any American President ever had to preside over a sovereign default for reasons that cannot entirely be attributed to him.

Of course, being the incumbent for 3 years now, there is a limit to the extent that one can indiscriminately use the line “these problems were inherited from the previous administration” though by and large, many analysts acknowledge this fact. From the Roosevelt days of the Great Depression to the promises of Universal Obamacare, opinions continue to pour in and newer angles of thought keep curling out of everywhere.  

Classical economists would point out to the thriving America that led the world in the last half century or so was made possible by the absence of strangling government regulation. Needless to say, this same unchecked profligate capitalism collapsed on its own greed and had to rely on a government bailout instead.

Now a few years down the line to what seemed like only yesterday, the Tea Party voices have risen from the dust. Their absolute Classical doctrine can be heard by the sound bytes of their torchbearers. Michelle Bachmann in her recent “let the nation default” statement to the press caused a lot of annoyance among her republican candidates, keen to distance themselves from her.

One can clearly see the dangerous path that the extreme right is treading on these days as the republican Right makes a return to extreme neo-classicalism. The Liberals on the other hand have headed for their safe havens in the Unions trying as hard as they can to make their case for controlled spending.

The Commander in Chief looks helplessly on as the battle between these 2 economic Ideas plays itself out relentlessly on Prime Time, Talk Shows, Rallies and now maybe even household dinner tables. The Great Depression cost the incumbent President, (Prez. Herbert Hoover) his job, with almost a year to go .. history may repeat itself.

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2 thoughts on “The Clueless Commander

  1. It is a classic dilemma – more regulations or less. I think overall the middle ground is always the most optimal approach. But it looks like when a new regulation is needed, we do not re-look at existing ones to modify, we just add to the list. The Sarbanes Oxley is one such unnecessary regulation. If SOX exists, then SEC is not needed. If SEC is needed, then the SOX is not. Anyone can come up with a regulation after a crime. The important thing is to look at the implications in the long term and as you point out – the short duration of each Presidential tenure undermines long term strategic thinking.

    1. This is actually sad because the Republicans have actually veered policymaking off towards the right. The want all regulation repealed, including the Frank-Dodd Bill that was done with their inputs. They hold on to their classical ideas as if they’re gospel. They refuse to accept any deal that imposes even a 1% tax on the wealthy, even after Warren Buffet tacitly admitted that the rich are being mollycoddled. The middle ground, it seems has clearly shifted !!

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