Obamanomics

cross-posted at http://dagblog.com

Before the State of the Union address, I'd like to talk about the central issue of the Obama Presidency, which of course none of the talking heads will really get to. Obama's Presidency will hinge on how he handles the economy. More even than the wars, more than health care, more than the political sclerosis of the Senate, it's the economy. The bad news about that?

Barack Obama hasn't thought about the economy.

I don't mean it hasn't been on his mind. Barack Obama thinks about specific details of economic policy every day. What Obama hasn't done, from all external signs, is step back and begin to think about the whole economy, or about how to understand the massive changes it's going through. He hasn't had time. And no one around him, no one in elected federal office, has really thought about it either.

The chapter on economics in The Audacity of Hope is far and away the weakest. Obama had nothing much to say on the topic, even as he approached the campaign trail. The most he can say is, "Well, on the one hand Google is wonderful but on the other we have to protect the have-nots." He has no policy ideas per se, except a policy of balancing competing constituencies and an implicit acknowledgment that he, and the rest of the Democrats, don't actually have a long-term way to do that.

Then the financial system blew up, or blew up in ways that could no longer be denied, in the heat of the national election. And no candidate for President of the United States has time to think, to really genuinely think, about policy after Labor Day. There's just no time, and the risks are too high. The natural impulse is to go with the safest moves, or the smartest strategic moves, and try to get your head around the big stuff later. And once you take power, the natural impulse is to keep things from falling apart.

Lots of people lament that the financial crisis and the recession were badly timed, because the Democrats have to take the blame for a hole that the Republicans spent years digging. But it's actually worse than that. The real misfortune of the crisis's timing is that it happened too late for any Democratic candidate to actually think about the implications of the crisis, or about any wide-ranging policy for dealing with it. During the Depression, Hoover spent three years pursuing a grab-bag of policies designed to fix things without doing any big ugly structural digging; a few good, most counter-productive, all conventionally wise. The Democrats had three years to see those efforts fail, and for FDR, who was nobody's radical, to grasp that he would have to take a much bigger and riskier approach.

The wilderness time, the time out of power, help political parties think through new policy ideas in rational ways, insulated from the daily pressures of governance. (It also allows parties to come up with crazy policy ideas that are entirely unworkable, but those are the breaks.) Obama doesn't have any policy advisers who've been able to observe the meltdown and the Not-So-Great-Recession from a contemplative distance. He hasn't been able to watch someone else try the small-bore fixes and fail. He hasn't had the opportunity to evaluate the conventional wisdom and realize that it isn't wise.

In terms of economic policy, I suspect we're on the verge of a Kuhnian paradigm shift. (What it will be I have no idea, but the old paradigm isn't looking so viable.) Those happen slowly, as Kuhn has demonstrated, often in terms of generations. And the President of the United States doesn't have the luxury to rethink the entire basis of economics. He will only do it when he has no choice at all.

Obama's policies so far have been about keeping the wheels on the wagon. That's laudable, from a limited perspective. No good leader wants chaos. And nobody wants to junk everything and go back to the drawing board before, you know, someone's drawn something persuasive on that board. But the problem with our economic wagon isn't loose wheels. It's the axles, and the struts, and the whole damned thing. What we need is a new wagon. That will only happen if, as is all too likely, Wall Street has another high-profile meltdown that demands government intervention. AN obvious example would be for one of the megabanks that took TARP money, and then repaid it, to find itself on the verge of bankruptcy again, and to need another bailout. That is when Obama will find that he needs to start thinking about the whole question from a new perspective.

There are really only two questions about Obama and the economy. The first is whether or not he gets a second chance. The second is whether or not he takes it.