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Saturday, December 19, 2009

Lincoln or Hoover?

As the year draws to a close it has become clear that President Obama, our sixth crisis President (after Lincoln, Andrew Johnson, Hoover, FDR, and perhaps George W. Bush), is not the new Franklin Roosevelt that many of us dreamed he might be. For reasons to which I have often alluded here, that is not really his fault. FDR came into office in conditions of completely unprecedented distress and desperation, possessed of huge majorities in both houses, and even enjoying some bipartisan support. He also could draw on a cadre of progressive reformers--many with backgrounds in social work--to transform the federal government's role. Our problems today are the most serious we have faced since then, but one party remains in complete denial, and the other--the Democrats--are significantly split. In addition, President Obama seems to have come into office with a reformist rather than a transformative agenda. His health care proposal, the centerpiece of his agenda this year, drew on long-established ideas. The stimulus was a one-shot emergency measure that the Democrats and the White House show now signs of wanting to repeat. And the President, as I wrote last year, has not, as his initial speeches suggested he might, transformed our foreign policy. He is winding down the Iraq war--something the feelings of the Iraqis themselves might well have made necessary in any case--but he is doubling down in Afghanistan and Pakstan, about which I may have more to say as I sit here snowbound tomorrow.

President Obama would never have reached the White House without acute political sense, and he has been dealing, daily, with current political realities for some years. Sad to say, he may have been pushing as hard as anyone could. Yet he may be suffering from a real misconception about the state of the nation. His policies, particularly in the economic sphere, seem to suggest that we do not in fact need fundamental reforms parallel to those of the New Deal and the immediate postwar era. In Larry Summers, in particular--who declared last week that everyone knows the recession is over, thus going Herbert Hoover, who talked of good times just around the corner, one better--he has a man who obviously refuses to recognize that there is anything wrong with the freewheeling financial institutions that he, in the Clinton Administration, helped to create, that a few hundred billion dollars of government funds will not cure. If Summers is right, employment will start to grow, albeit slowly, by the second half of next year. If he is wrong, and we are suffering from long-term structural problems that need to be addressed, the consequences will be both politically and economically disastrous. Indeed, it is not inconceivable that such an approach could turn the Obama Administration into the new Hoover Administration.

Hoover was, as I indicated years ago, a very different kind of man that Obama. He was, in generational terms a Prophet, not a Nomad, and he suffered, like George W. Bush, from an excessive faith in his own instincts and opinions. Yet he was neither a fool nor a knave. He had an impressive record as a businessman and an administrator. He took steps to deal with the depression, one of which, the Reconstruction Finance Commission--a kind of institutionalized TARP, but one that lent money to industrial enterprises rather than to banks--remained a pillar of the New Deal all through the Roosevelt Administration. But he also had firm principles, including an unshakable prejudice against any direct or indirect government assistance to the unemployed. Had the economy rebounded during his last two years he might have been vindicated--but it did not. By the beginning of 1932 Hoover in his State of the Union address was reduced to complimenting the American people for not having resorted to revolution or violence, unlike other nations. The people completely lost faith in him and his approach, opening the way for the Roosevelt revolution.

Sadly, it does not seem to me impossible that a similar fate could befall the current Administration. While I have been writing this post Senator Ben Nelson, the most powerful man in America this week, has announced his support for a health care bill. It will evidently do little or nothing to cut costs and break the power of the insurance companies (which some are beginning to compare to the utility companies of 80 years ago, for which the New Deal provided both competition and regulation), and it is thus unlikely to cut costs. But in any case it will do nothing to help the average unemployed American for at least a couple of years, and even then, the help will be marginal. Shockingly--and this really is a provision I do not think the Administration can afford politically--it will not even end the denial of insurance based upon pre-existing conditions until 2014. It gives those without employer-based insurance the right to buy US-government sponsored plans (like my own), but it is not yet clear to me who will pick up the employer's share and make them affordable. I have just read that the bill includes another awful provision, one allowing companies to sell any plan anywhere in the United States, and thus to evade stringent regulations and appeals processes in tough states, just as credit card companies already do. The White House seems to think that the mere act of signing the bill will project an image of effectiveness and accomplishment and create some momentum leading into the mid-term elections. It is true that the public, by substantial majorities, supports health care, including far more radical options than are going to pass--but it is simply not the most pressing concern, I would suspect, of those on the lower end of the economic spectrum. They need jobs. (Earlier this week, Arianna Huffington expressed these same fears rather eloquently, pointing out that Larry Summers is sounding more and more like Chauncey Gardner in Being There promising growth in the spring.)

The Lincoln Administration offers a different parallel, one which may become critical to President Obama's success. Like Obama, Lincoln came into office hoping to re-establish a minimum of consensus within the United States--which at that moment meant avoiding the break-up of the Union. For the better part of two months his policies successfully persuaded Virginia and North Carolina, at least, not to secede--but when the firing on Fort Sumter led to open war, he lost them as well, and began a military response. He used martial law to keep Maryland in the Union after Virginia and North Carolina left, but he most certainly did not, however, take any serious steps against slavery. Just as Obama is now a hostage to the progress of our economy, he was a hostage to the progress of the Northern armies, and particularly of the Army of the Potomac and General McLellan. Because McLellan's invasion of southern Virginia ended disastrously and because the North was still not solidly behind the war, the Democratic Party began doing very well in elections during 1862. (Elections in those days were held at different times throughout the year in different states.)

Lincoln's short-term response was to move in a more radical direction. First, the Emancipation Proclamation, while formally emancipating slaves only where Lincoln had no power to do so--inside the Confederacy itself--put him definitely in the abolitionist camp. Secondly, he fired McLellan because the general evidently lacked enough offensive spirit to actually crush the southern armies. Thirdly, he increased the pace of mobilization, to include even the very controversial draft. It took another two years for all those steps to pay off, but by late 1864 victory over the South was clearly in sight, and he was overwhelmingly re-elected.

We shall not see such dramatic events over the next three years, but the President needs a significant, if incomplete, economic recovery, such as Roosevelt enjoyed by the end of 1936, in order to regain momentum and perhaps even to make sure he is re-elected. Many of the younger voters who put him in office will surely vote next time based upon their economic situations. Meanwhile, if--as I believe--the financial system is still fundamentally unsound, then the danger of another crisis remains present. It will be devastating to whatever Administration is in power when it occurs.

Like Lincoln in his early years, President Obama seems to me to be suffering from a serious inhibition. He wants to avoid confirming his enemies' image of him. Nowhere is this more apparent than on the issue of taxes. The President is now also taking political heat because of the size of the deficit, which as a percentage of the GDP is higher than at any time since the end of the Second World War (although a long way from being as large as it was during that war.) Republicans, of course, are acting as if this problem first emerged on January 21, 2009. The following graph, produced by the Center on Budget and Policy Priorities with the help of data from the Congressional Budget Office, very usefully tells us where our current woes come from.

This table seems to leave no doubt that the Bush tax cuts were, and remain, the principal cause of our financial crisis. Had the Bush Administration maintained the existing tax code, the then-existing surplus would have been eaten up by the recession of 2001 and the wars that Bush began, but the country would have been in far better financial shape to meet the current crisis. Tax increases on the highest brackets, it seems to me, would be an obvious political winner right now, particularly since the highest incomes--those enjoyed by investment bankers--are recovering so much more quickly than those of average Americans. Yet Obama in his first two years is teaching taxes the way Lincoln initially treated abolition, as the third rail that he does not want to touch. This is all the more serious since, as I have argued many times, low tax rates on the wealthy have done so much to strengthen the financial sector of our economy relative to the industrial sector, and to promote irresponsible financial practices that have already led to several crises and, I think, will inevitably lead to more.

It is, of course, because our situation is nowhere near as serious as it was in 1933 that the response has been so much more measured in its consequences. History, as Tocqueville wrote, is full of such paradoxes. And we face a truly new problem this time around. Never before, either in 1861 or in 1933, has Washington been inhabited by such a powerful army of lobbyists dedicated to the preservation--and indeed the growth--of an old order that has become dysfunctional. Had the southern states not seceded in 1861 and left their representatives in Washington, slavery could easily have been maintained where it existed for decades more. Ironically, white southerners destroyed the institution by deciding to make war over it. (So inconclusive were the results of the war, however, that they managed to re-establish white supremacy within two decades--another interesting lesson.) Our evils today are not nearly so grave as in 1861, and our economic situation--at least so far--is nowhere near as bad as in 1933. Because of this, most of those at the highest level--including in the White House itself--still believe that a modified form of business as usual is all we need. I am not convinced.


Anonymous said...

Mr. Kaiser:

are you convinced that TAX & SPEND is the solution?
Are you convinced that there exist the amount of taxes that the current TAX & SPEND
administration will find sufficient?
Are you a proponent of nany state where the state is responsible for everything and an individual for nothing?

Anonymous said...

Dr. Kaiser:

You are making the same mistake that others are making. The President will not be signing the Senate health care fill. He'll be signing a conference agreement hammered out between the House and the Senate that passes both arms of Congress. Getting the Senate to pass something (anything) is a necessary condition for keeping the bill moving.

Jenny Genser

David Kaiser said...

Alas, I suspect the pressure from the White House will be on the House to accept the Senate bill, which remains hostage to Lieberman and Nelson, unless Reid should decide to use reconciliation, which I'm not even sure would be possible at that stage. I'll be delighted--but also very surprised--if the Senate votes for a substantially amended bill.

Anonymous said...

He is neither Lincoln nor Hoover, nor Roosevelt, he's Barack Obama, a brilliant, pragmatic man who understands the limits of his power.

First Lincoln: in some ways, Obama is like him in that he urges incremental progress through consensus. But then Lincoln in the midst of the crisis jailed extremist newspaper editors, he even locked up traitorous congressmen. But Obama cannot clap Roger Ailes in irons, he cannot arrest Glen Beck or Rush Limbaugh.

Hoover, there really is no comparison. Hoover was locked into a rigid market driven ideology. Hoover would not have acted boldly to save the auto industry (remember that?).

Roosevelt had two crises to deal with, but lots of space in between them. Looking at Roosevelt's first year, his record of accomplishment is not all that different than Obamas Indeed, one of his main platforms, the NRA, turned out to be ruinous and may have prolonged the depression. But he got things moving and, unlike Obama, he didn't have an implacable opposition united in refusal to compromise, to act in any fashion. Obama faces a congress that gives him little aid and comfort. The Democrats are fractured and poorly led in the congress (there is no Tip O'Neill George Mitchell to help Obama).

Obama managed to get the major international powers to at least agree to address global warming, a huge step - disappointing to many that it didn't go further, but could one have even imagined this agreement five years ago?

The economy is still weak, his inheritance from Bush is still operating the market. He has ended the war in Iraq, and, then there is Afghanistan. What would you do?
If Afghanistan were just an isolated struggle, it would be obvious that the solution would be just to turn the key and leave. But the real crisis is in Pakistan and we need to be in Afghanistan in order to confront what may be a crisis of unimaginable proportions if Pakistan falls to the Islamists. If that were the case, a nuclear war would happen within days, not weeks, between Indian and Pakistan and it would be a near certainty that we would be drawn into such a conflict, with China and Russia in close proximity. The stakes are exactly that high.
Climate Catastrophe, Nuclear Catastrophe, Nihilistic Terrorism of a scale unimaginable just twenty years ago, A world wide financial crisis that has only slightly abated, and the Middle East continues to simmer. Obama has to confront these crises all at once.
This superb, elegant, intelligent man will find the way. I believe that with all my heart.

Anonymous said...

Obama and brilliant in the same sentence..what mushrooms are you on?
As for the climate agreement let me quite today's independent:
The most progressive US president in a generation comes to the most important international meeting since the Second World War and delivers a speech so devoid of substance that he might as well have made it on speaker-phone from a beach in Hawaii.
The rest you can read here:

Unknown said...

There is no one else who could have brought those five countries together to agree to as much as they did. It's a start, but considering the lack of consensus, and the fact that so many people, including US lawmakers are in denial about the problem, this is the best possible outcome at this time, realistically. Obama deserves a world of credit for getting this agreement especially as the Chinese were ready to walk away. He's the only world leader who could have accomplished this.

You don't think he's brilliant? Have you read "Dreams from my Father"? Just try and write one paragraph as eloquent as any in that book, a book he wrote himself.

Presuming you are a progressive, then you obviously, like many progressives do not understand Obama's leadership style. He's not a flaming liberal, but someone who builds consensus and works to bring people together. The right is completely locked in opposition. The progressive left appears to have a death wish. Go ahead and criticize and tear down the best leader progressives have had since Johnson. You do the Republicans work for them.

Unknown said...

Mr. Kaiser: You claim the following:

“It is true that the public, by substantial majorities, supports health care, including far more radical options than are going to pass--but it is simply not the most pressing concern, I would suspect, of those on the lower end of the economic spectrum.”

It is not clear to me that you are meaning saying the “public” supports “health care,” or that they support the Obama/Democrats Health Care Bill. I assume all of the public support health care over no health care.
In the event you meant that the public supports the “Health Bill, including far more radical option. I would suggest you check out the Real Clear Politics average of polls for the period Dec. 1 to Dec. 14, regarding the “Obama and Democrats’ Health Care Plan showing the 51.9% of Americans are opposed and 37.6% approve? To what “public” might you be referring? You may see the poll results at Real Clear Politics following link:

roadrunner said...
This comment has been removed by the author.
roadrunner said...
This comment has been removed by the author.
Anonymous said...


according to AP figures released today:

Deficit fiscal year 2009 1,417,121

Are you still saying the leader of the current administration is brilliant?

Anonymous said...

I wanted to comment some comments above.

I started my business now four years after I was laid off from my work. Since then, I have had individual health isurance for me and my wife. Every year, it has went up exactly 30% (+/- some desimal fractions). Next year I will have to pay 280% more than we I started. If I had an opportunity to put that money (almost $8000 per year) to some kind of public option or a expanded medicare, I, as an invidual, would do it instead feeding fat corporate overhead.

My business is selling capital goods for the indrustry. What ever we sell has to provide customers with monetary benefits either thru resulting additional sales or cost savings. It is safe to also say that if my customers for instance wanted to achieve those benefits, they at first had to make some serious investments and then wait for pay back. This, in most parts applies also to goverment altough there some common sense could easily good savings too. When country makes those investments money must come from somewhere. Pay back a debth is actually same thing as saving it for something, the difference is that by borrowing the money the goal can be achieved faster.

Seth C. Burgess said...

I hold hope that President Obama can move in the "Lincoln" direction.

Anonymous said...

James, since when do the words brilliant and elequent have the same meanings? Care to explain?

Unknown said...

David, can you tell me the name of the Center on Budget and Policy Priorities report that you took the deficit graph from? I'd like to look it up. Thanks.

David Kaiser said...

To anonymous, the business owner:

I hate to say this, but you had better hope that none of your employees get really sick. Bill Strauss was in a similar situation as the producer of the Capitol Steps, providing insurance to all his employees. When he got cancer, requiring a very complex operation (but which did keep him alive and active for 8 years), the company tied massively to increase the premium to recover its costs. Fortunately he was able to get insurance through his spouse instead.

To Malcolm: I have linked the original article.