Sunday, January 25, 2009

Barack Obama's First Blunder

Well that didn't take long.

On his first full day in office, President Barack Obama created an order that has unknown long-term consequences. Obama pledged to freeze the salaries of about 120 staffers in the White House, those that make more than $100,000 per year.

I am certainly not one to object to reductions in government spending, especially when it comes to the salaries of top dogs in the White House, but as a move by President Obama this move has to be classified as a blunder.

It strikes of naivete or, possibly, a freakish demonstration of power. As for the order having any impact on the economy, puhleeze. WaPo cranked out the numbers on this one:

Based on a 2.8 percent annual cost-of-living and merit increase (the average by the White House over the past five years, according to Froomkin's numbers), staffers making $172,200 will miss out on a raise of about $4,822 next year. Those earning $102,000 will miss out on about $2,856 extra.
The total reduction in pay out is, according to WaPo, roughly $443,000. That's minuscule in the whole scheme of things. Making the order even more bizarre is the fact that Obama appears to be a Keynesian when it comes to economics. Keyensians believe that you try to get more money into people's hands to stimulate the economy, not less, during a recession. The freeze does the opposite. Further, most price freezes occur when inflation is heating up, not during a deflation! A price freeze is bad economics during an inflationary period, but during a recession, for a Keynesian, it is worse. It is shutting off the heat in the middle of winter. Thus, from the way Obama views the economy, a price freeze is about as dumb an economic move as you can get.

With the US headed for a $900 billion budget deficit, 443k doesn't even amount to a rounding error. But, to a specific wage earner, who was scheduled to receive an additional $2,000 to $4,000 a year, and who may have been counting on it to help send a child to college, it is not happy news.

It probably can be argued that it was a message to set some kind of tone, but what kind of message, if Obama really wants people to spend? And, there are plenty of other ways to send a message rather than freeze the salaries of those close to you.

It will impact 120 people. Is that a large enough group that it will change 1 or 2 from friend to foe? I think so. You can mess with a lot of things, but not with people's paychecks. The media is all over the White House like a pack of crazed sex starved dogs. They are looking for leaks any way they can find them. This past week I had a conversation with one of President Obama's Kenyan relatives. She told me the media was breaking into her email account.

The media is super-aggressive, if there is a disgruntled White House worker, the media will eventually figure out who it is. Here's the list of those with frozen paychecks. (The one's on the list with a salary of $100,000 and up are the ones whose salaries Obama has frozen.). Did Obama create a disgruntled employee from this group that will leak some negative news at just the wrong time? My bet is yes.

This, of course, raises the question, is Obama naive, or even scarier, some kind of oddball power freak just letting the staff know who is in charge?

Either way, it's an Obama blunder, with no upside for him.

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