Monday, August 25, 2008

Obamanomics In Profile

NYT's David Leonhardt interviewed Barack Obama for his views on the economy, here. It was a wide ranging interview that profiled Obamanomics and its many nuances.

When someone discusses their views on the economy is important to see if they have a business cycle theory and, if so, what that theory is. Obama strikes out here, he discusses all kinds of cures for the economy but not once does he mention the business cycle. The Federal Reserve and its control of the money supply is also never mentioned.

MSM seems to want to promote Obama as a "free market liberal". Indeed, at one point in the NYT profle, Cass Sunstien is quoted as calling Obama a "University of Chicago Democrat", implying that he is liberal but with influence from the famous Chicago school of economics once lead by Milton Friedman. If there is influence, again, it certainly isn't in the area of money. Although, Friedman and the Chicago School have a faulty simplistic view of the money supply that was an important area of discussion for the group. Obama's recognition of such in the interview is zero. Rather than a "free market liberal" what we appear to have with Obama is a Socialist with certain loppholes and opt outs.

Leonhardt captures Obama pretty well when he writes:

So his policies often involve setting up a government program to address a market failure but then trying to harness the power of the market within that program
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The problem is that Obama sees the market economy as one would see Swiss cheese, with holes everywhere. Thus, there is a lot of micromanaging to do.“[T]here are certain things the market doesn’t automatically do,” Leonahrdt quotes Obama as saying. "In other words, free-market policy isn’t likely to dominate his agenda; his project would be fixing the market," Leonhardt writes.

Leonhardt also tells us that Obama has become interested in "behavioral economics", as a theoretical framework way to fix faults in a fee economy. Obama is going to micromanage irrationalities that beahvioral economics spots in the economy, since apparently he is immune from such irrationalites.

As Leonhardt puts it:

To deal with one example of such myopia, Obama would require companies to automatically set aside a portion of their workers’ salary in a 401(k) plan. Any worker could override the decision — and save nothing at all or save even more — but the default would be to save.


And, of course, here we get the first glimpse of an Obama "opt out" clause. Through his policies, he seems to insert this clause, except when it comes to taxes or national service. As we have pointed out before, Obama is a taker. When he wants to take, you will have no choice. When he wants to "give back" through his micro-managing you have the option of saying, "No thanks."

Obama has also inserted his "opt out" option into his health care plan:

A more controversial version of Obama’s market friendliness came from his health-care proposal, which, unlike Hillary Clinton’s, would not mandate that people have health insurance. Like other Democrats, he was pushing for a big government program to deal with what he saw as market failures in health care and to bring down the price of insurance. Once the program was in place, though, he trusted a market of individuals to make its own decisions; once the government had subsidized health insurance, he thought the vast majority of the uninsured would sign up.


There are similar strains in Obama’s proposals on housing and education, says Leonhardt.

Obama also wants "closer oversight for Wall Street." Leondhardt sets the scene: "Shortly before Obama’s speech, the Federal Reserve made emergency loans to investment banks that hadn’t officially been under its supervision. Obama argued that, going forward, the Fed had to be given permanent oversight of any such institutions..."

As I have pointed out eleswhere since the Federal Reserve's top economists issued a paper denying a housing bubble, it is an intersting trick to call upon these types to provide oversight.

And, here's a scary point, as if this other stuff isn't:

There is, plainly, a big potential conflict between the University of Chicago side of Obama and the regulator side. A regulation that sounds sensible today can end up having nasty unintended consequences. But in Obama’s view, the risks to market-based capitalism now have more to do with too little regulation than too much. He can sound almost righteous on this point.He talked to me about the need for a moral element to capitalism and said that the crony capitalism of recent years should be the nightmare of any market-loving economist. At times, this part of his message can seem to overwhelm his respect for the market.


A righteous regulator, not good at all.

Then, we have Obama the re-distributionst, although Obama doesn't like the term:

Economically, he is trying to use the tax code to spread the bounty from the market-based American economy to a far wider group of families.


And, Obama time is definitely soak the rich time:

Obama would raise taxes on this top 0.1 percent by an average of $800,000 a year.

Then, we arrive at some blatant non-sequiters in Obama think. Since Obama is pushing for alternative energy solutions and conservation, and is concerned about the "over-consumption" of gasoline, it is near bizzarre that he wants to spend money on the infrastructure:

Obama moved the conversation toward a discussion of how the government could improve the nation’s infrastructure — its backbone of bridges, roads, tunnels...


You don't make it easier for people to travel by automobile, if you want them to cut back on automobile travel.

So what do we have in Obama, Leonhardt says:

Grand New Party [a book by Douthat and Salam ]...doesn’t mention Obama by name, but it contains one of the best summaries of his economic policy that I have read. The authors describe a new-model liberal consensus that weds “the free-market centrism of the Clinton years to a revived push for European-style social democracy.” This neoliberalism, as they call it, wouldn’t involve the big-government programs of the postwar years, but the government would come to play a larger role in the economy and would redistribute much more income from the rich to everyone else. “This is, in many respects, a deeply un-American solution to the problems facing our country,” the authors write, “one that would emphasize dependence over self-sufficiency and bureaucratic condescension over self-help.”

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