I would
like to preface this post by saying that before you read this or any other post
discussing the presidential debates, you should read this
brief Gawker post about the leaked 21-page memo revealing the agreement between
the two parties over the rules of the debates. It’s quite revealing.
The
purpose of this post is to examine the similarities between Obama and Romney on
some of the core systemic issues that
will define the US’ future course. There are, of course, notable differences
between the two on social issues such as gay marriage, abortion, and gun
control, but I believe that differences on those issues are
amplified to distract voters from the two parties’ similarities on core
systemic issues..
A Different Set of Rules for Folks at
the Top
Obama
tries to differentiate himself from Romney early on in the debate by saying the
following:
Governor Romney doesn't have a
five-point plan. He has a one-point plan. And that plan is to make sure that folks at the top play by a different set of
rules. That's been his philosophy in the private sector, that's been his
philosophy as governor, that's been his philosophy as a presidential candidate.
There’s
no doubt in my mind that Romney is exactly what Obama claims him to be. Romney
is a corporatist stooge who will make sure that “folks at the top play by a
different set of rules.” The point, however, is only worth making if Obama can
demonstrate that he, in contrast to Romney, won’t allow folks at the top to
play by a different set of rules. When you examine Obama’s record, the facts
are plainly not in his favor.
A
May Newsweek article titled, “Why Can't Obama
Bring Wall Street to Justice?” notes that financial-fraud
prosecutions under Obama’s Department of Justice are at 20-year lows despite
the fact that Wall Street executives had just recently perpetrated the most
massive and widespread fraud in human history. Prosecutions, in fact, are “just
one third of what they were during the Clinton administration.” An
ex-government regulator observes in an interview for the article, “There hasn't
been any serious investigation of any of the large financial entities by the
Justice Department, which includes the FBI.”
Wall
Street executives acting in violation of the law and not being punished for it
sounds an awful lot like “folks at the top [playing] by a different set of
rules” to me. Under Obama, the folks at Wall Street have been able to craft the
rules in their favor. The 1% helped finance
Obama’s 2008 campaign
and in return, Obama appointed Eric Holder as the head of the Department of
Justice. As the Newsweek article mentioned above notes, Holder is a former
partner at the law firm Covington & Burling. Covington has “an elite
white-collar defense unit” and some of its major clients include names such as Goldman
Sachs, JPMorgan Chase, Citigroup, Bank of America, Wells Fargo, and Deutsche
Bank.
And
let’s not forget that under the Obama administration, no Bush-era officials
have been prosecuted for their roles in starting a war based on lies, enacting
a worldwide torture regime, and eavesdropping on Americans without warrants.
Given
this set of facts, one can only conclude that President Obama’s philosophy as
president has been to make sure that folks at the top play by a different set
of rules. In that regard, both candidates are indistinguishable.
Balancing the Budget
Both
candidates also stress the importance of balancing the federal budget
throughout the debate. Obama describes it as “a moral obligation to the next
generation” and Romney warns at one point that not doing so would “[put] us on
the road to Greece.”
Their
devotion to balancing the budget at this time is entirely wrongheaded. Job
growth is sluggish at this time because the US is currently in the midst of a
balance sheet recession, a typical by-product of financial crises. During the
bubble years of the 00s, economic activity was primarily debt-fuelled, with the
private sector (businesses and consumers) accumulating massive levels of debt
with the help of easy access to credit. When the mortgage bubble finally popped
in late 2007, the credit markets dried up, and the private sector could no
longer fuel economic activity through borrowing. Since then, the private sector
has been focused on deleveraging, i.e. relieving their balance sheets of their
debt obligations.
Deleveraging
is necessary, but it comes at the expense of economic activity. When consumers
and businesses are paying off their loans, they are not spending or investing,
which in turn reduces aggregate demand, the total amount of demand for goods
and services in the economy. When total demand for goods and services is low,
businesses have less incentive to provide those goods and services, so fewer
people are hired, and thus recessions are perpetuated. But don’t just take my
word for it.
The
main reason U.S. companies are reluctant to step up hiring is scant demand,
rather than uncertainty over government policies, according to a majority of
economists in a new Wall Street Journal survey.
Aggregate
demand is calculated as follows:
AD
= C + I + G + NX
C
= consumer spending
I
= investment (what businesses spend to acquire land, buildings, or equipment,
or to build up inventory)
G
= government spending
NX
= net exports
During
times of deleveraging, C and I cannot fuel aggregate demand. NX obviously
cannot fuel aggregate demand because the US has notoriously run large trade
deficits for quite a while. The only option left for picking up the slack in
aggregate demand is government spending. In other words, the federal government
should be engaging in more deficit
spending. When the government runs a deficit, the private sector can run a
surplus, which accelerates the deleveraging process and will eventually bring
back us the path to robust job growth fuelled by consumer spending and private
investment. The charts don’t lie:
When
Obama and Romney say that they want to balance the budget through spending
cuts, what they’re saying unwittingly is that they want to keep the recession
going. Government lay-offs at the state and local level have been a
huge drag on the recovery.
If
balancing the budget is actually counterproductive to bringing about a
recovery, what could be the true purpose of this deficit hysteria? The answer
is that both parties want to tear apart the social contract that built a viable
middle class in this country. Spreading fear about current deficits allows
politicians from both parties to convince the public of the need to cut Social
Security and Medicare today. Let’s not forget that during the first
presidential debate, Obama had to
admit, “on Social Security, we’ve got a somewhat similar position.” By the
way, those two programs, contrary to conventional wisdom, are
NOT going bankrupt and don’t face any problems with funding shortfalls for a
long while.
A
couple more points on this topic:
(1) Earlier, I said that Romney warned that not reducing our deficits would put
us “on the road to Greece.” Romney, as a candidate who prides himself on being
a businessman, should be ashamed of himself for not recognizing a fundamental
economic difference between the US and EU nations such as Greece. Greece, as a
member of the Eurozone, has its public debt denominated in Euros, a currency that
it does not control. Paying off the national debt, therefore, is a concern for
Greece. The US federal government, on the other hand, is a currency sovereign, meaning
that it issues its own currency. For debts denominated in their own currency, currency
sovereign states have an unlimited borrowing capacity. They cannot default
except for political reasons, such as last year’s debt ceiling debate. Beyond
Republicans and Democrats engaging in political theater, the US doesn’t have to
worry about paying off the national debt because it can literally create money.
Of course, this isn’t without consequence. Inflation can become a concern for
irresponsible currency sovereigns. But the important point to be made here is
that the reality of currency sovereignty means that the federal government has
much more policy flexibility than Romney lets on.
(2)
Obama at one point, pines for the days of the Clinton administration when higher
tax rates “took us from deficits to surplus.” In reality, the budget surpluses
of the final Clinton years were awful
for the US economy. Look back at the chart I showed earlier. There is an
inverse relationship between public and private sector balances. When the
public sector runs a surplus, the private sector will likely run a deficit. What
the Clinton surpluses really signaled was the beginning of the household debt
crisis from which our economy is still reeling.
Policies Focused on the Top Doing Very
Well
Later
in the debate, Obama tries again to differentiate himself from Bush (and, by
party association, Romney) by saying:
“[W]e had been digging our way out of policies that were misplaced and focused on
the top doing very well and middle class folks not doing well.”
Again,
Obama is right to describe the Republican mindset in this manner. But, again, the
point is only worth being made if Obama can demonstrate that he is different.
And, again, when you examine Obama’s record, the facts are not in his favor.
Let’s
briefly examine who Obama has left in charge of our government:
·
Attorney
General – Eric Holder, who as I mentioned earlier, was a former partner at a
law firm that had major Wall Street clients
·
Fed
Chairman – Ben Bernanke (a Bush appointee, yes, but he was re-nominated by Obama in 2010), who in his academic career helped soothe worries about
the financial market’s risk-taking behavior, claiming in a 2004 speech that we
had achieved a “Great
Moderation” in business cycle volatility.
·
Chief
of Staff (2009-10) – Rahm Emmanuel, a corporatist Blue Dog Democrat who
recently made headlines for his efforts as Chicago mayor to screw over the
teachers union.
·
Chief
of Staff (2011-January 2012) – Bill Daley, former Midwest chairman of JPMorgan
Chase
That’s
a pretty damning list to me. Obama appears to have appointed a bunch of people
who have dedicated their careers to making sure that folks on the top do very
well. And those appointments have resulted in a policy archictecutre that works
toward that exact goal.
As
Amir Sufi, an economist at the University of Chicago, pointed out recently in
the Washington
Post, “The policy bias has been toward supporting financial
institutions as opposed to targeting what I think is the central problem. And
that is the household debt problem.”
The
Obama administration has dedicated itself to propping up Wall Street to the
tune of hundreds of billions of dollars. How much has it spent on helping
struggling homeowners? Comparatively very little. A fund meant to support
homeowners as part of the administration’s Home Affordable Modification Program
(HAMP) was allotted
a paltry $7.6 billion, of which only $217 million was spent at the end of
2011. Neil Barofsky, former TARP inspector general, points out in his book Bailout, that the primary purpose of
these paltry housing programs was just to “foam
the runway” for banks, allowing them to extract extra payments from homeowners
before inevitably foreclosing on them when the time was right. Housing programs
allowed banks to spread foreclosures out over time so that the housing market
wasn’t flooded with delinquent properties all at once, which would’ve caused
prices to plummet.
Over
the last four years, Obama has been presented with clear options for helping
homeowners deleverage and thus bringing about a robust recovery, but he has
deliberately chosen to ignore them. Mortgage servicers have clearly violated
the law numerous times over the last decade and various
legal mechanisms were at the administration’s disposal for forcing them to
modify people’s mortgages. Obama never took advantage of those. Bush’s outgoing
Treasury Secretary Hank Paulson offered Obama a deal to divert
TARP funds to a legal entity that would write down mortgages. Obama ignored
his offer.
Over
the last four years, Obama has put in place a policy architecture that focuses
on reinflating the value of elites’ financial assets while leaving the middle
class to suffer. The result of this framework is that under
Obama, the growth of income inequality is worse than under Bush. Again, in
the respect that policy favors “the top doing very well and middle class folks
not doing well,” Obama is indistinguishable from Romney and Bush.
Conclusion/tl;dr
In
conclusion, neither Obama nor Romney cares about you. Both
favor letting folks at the top play by a different set of rules and both favor
the top’s prosperity at the expense of everyone else. The real purpose of these
debates is to keep you distracted from
those basic truths. By leaving voters to fight over scraps on social issues,
the two parties can feel safe knowing that the transfer of wealth, and, by
extension, power, from the middle and lower classes to their friends in the 1%
continues unabated.