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How Obama Could Blow It
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Sure, he’s got 65 percent approval ratings now, but there are already signs of an economic calamity that could hand the next election to the GOP. Reihan Salam sketches out the disaster scenario.
In his first two months in office, Barack Obama has crushed Republicans with the remorseless good cheer of the Stay Puft Marshmallow Man. Amazingly enough, the number of Americans who believe the country is on the right track has increased by 23 percentage points. The iPhone-entranced Democrats who descended on the District during the inauguration seemed convinced that Obama’s healing powers would cure what ails America. At the time, I thought they were nuts. But insofar as America has been suffering from an emotional rut, Obama’s mix of sobriety and optimism really has worked like magic. Eventually, though, the magic will run out, and I’m guessing it will run out before the next presidential election.
We’re only three months into the Obama era, and it’s worth remembering that the president’s Himalayan approval rating is hardly unprecedented. At 65 percent, the president’s approval rating is nowhere near the bizarrely high 83 percent Ronald Reagan reached after his first 100 days. Granted, Obama has the added advantage of facing a self-immolating opposition party. It’s extremely hard to imagine the Republicans getting their act together in the near future, and by the near future I mean “the next decade.” Yet Republicans don’t actually need to get their act together to defeat Obama in 2012. The coming economic apocalypse will do the job for them.
The Establishment is more invested in Obama than they’ve been in any president in decades. If Obama fails, a whole system will go down with him.
Despite my congenital optimism, I increasingly get the sense—a sense that’s reinforced by my conversations with economic pointy-heads—that the economic crisis is actually accelerating, and that the latest round of good news represents the beginning of a pseudo-recovery that might actually make matters worse over the long run. You might say that President Obama has the distinct misfortune of having taken office a few years too early.
When FDR took office in 1933, the economy had already been in a spiral of decline for years, and his first term saw a fairly dramatic fall in the unemployment rate. There’s no doubt that Roosevelt’s New Deal policies helped generate jobs, yet it’s not clear that his policies would have worked as well right after the Crash. And Obama isn’t taking office in 1933. Rather, he’s taking office in 1929, right after another massive financial collapse. Chances are that the sharp increase in unemployment has just begun.
In January, when Obama took office, the unemployment rate was 7.6 percent and it has increased in the two months since. Few observers doubt that the unemployment rate will soon reach double digits, and there’s reason to believe that it won’t stop there. FDR could honestly tell his battered and bruised Republican rivals that the unemployment rate was never as high as it was when he took office. Obama, in contrast, might be placed in the awkward position of acknowledging that the unemployment rate has never been as low as it was when he first took office.
Obama’s challenge is to carefully calibrate his rhetoric, to avoid sounding too sunnily glib or too wrist-slashingly dour. When he was selling the stimulus bill, Obama talked about creating and preserving jobs. The beauty of this formulation is that it’s totally unfalsifiable. “Mr. President, job losses are mounting!” “Yes, my son—but how many jobs have I preserved!” Ronald Reagan did an excellent job of riding out a monster recession, which was popularly known as “the Carter recession.” Obama and the Democrats will absolutely blame the deepening economic crisis on George W. Bush. There is a big difference, however. Reagan managed to kick-start a recovery before he ran for re-election. It looks very unlikely that Obama will manage the same feat.
Together with then-Fed chairman and ruthless bastard (I mean that as a compliment) Paul Volcker, Reagan imposed economic pain that no self-respecting Democrat would tolerate in the Age of Obama. Reagan’s attitude was, basically, “You’re going out of business? What do you want, a cookie?” He softened his stance later in his presidency, but not when he was trying to beat back stagflation. Obama’s attitude is very different: If the nation’s biggest banks face the prospect of going under, they’ll be bailed out. The same goes for the Big Three automakers, and the list will go on. There may well be good reasons for Obama’s itchy intervention finger, but there’s a real danger that we’ll be left with zombie banks, zombie industries, and a zombie economy that limps along, bleeding jobs and growth for years. Think of this as removing a Band-Aid really, really, really slowly.
What happens next? Honestly, what happens next is even scarier. The Establishment—the academic and policy elite, Wall Street, famous sexy people—are more invested in Obama than they’ve been in any president in decades. If Obama fails, a whole system will go down with him. The Republicans will win by default, and they’ll have learned nothing from over a decade of borderline-imbecilic unforced errors.
Trust me, I hope I’m wrong about all of this.
Reihan Salam is a fellow at the New America Foundation and the co-author of Grand New Party.
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CWCoulter
I hope he is wrong, too. There is the very real added danger that, if Obama is not successful, my wandering in the wilderness party will not have wandered long enough to acknowledge its role in the current - to borrow a phrase from the Carter era - malaise.
We need both parties to make smart choices. We need problem solving and real dialogue.
tiotom77
How about a third party? Of course, corrupt campaign finance practices allow only matching federal funds to the Reps and Dems... Ross Perot, Steve Forbes and Ralph Nader paid for their campaigns out of pocket..Even Teddy Roosevelt couldn't win as a third party candidate..and he was already President for two terms...We need Campaign finance reform.
SlaveRevolt
We need to take private money out of politics or else we will always end up with more of the same, just bought, plastic candidates responsive to the needs of the average Rockefeller instead of the average person.
section9
Third Parties are for Clydes. The best third party candidate was TR, and even he lost to the deeply racist and incompetent Woodrow Wilson, who got us buffaloed into WWI-the war that made the world safe for Adolf Hitler. Wilson was the Godfather of the modern Democratic Party, and a man who's hobby was to put peace activists and Quakers in prison for not accepting their draft call notices to go fight the Bloodthirsty Hun. In retrospect, Wilson made George W. Bush look like Maimonedes.
When you vote Third Party, you get Presidents like Wilson, his Klan Buddies, lynching, and a draft notice to go fight the Kaiser. Lefties could unload on Ralph Nader for similar reasons.
Friends don't let Friends vote Third Party. It's for Clydes.
tiotom77
Ross Perot was a good guy...but he was wealthy...and he had funny ears
Ritarita
tiotom-
Ross Perot
Is a tiny
Insane
Billionaire
Even as a Bush voter
You can't be seriously
Saying
He was Presidential
Material.
daevans34
Obviously, our country has needed a viable third party for years. Matching fund policies for only the Reps and Dems only insure a continuation of election corruption and jerrymandering. Special interest groups, lobbyists, corrupt politicians and extreme partisanship will continue to taint our political process. Indeed, we desperately need campaign finance reform but we also need term limits for all senators and congressmen. Indiscriminate, poorly informed, apathetic or uncaring constituancies continue to elect politicians who are of questionable or possess a proven lack of ethics and ability. Only term limits can address this serious national problem.
A viable third party, campaign reform and term limits can correct most of our national problems and 'right our ship of state'.It appears that only a ground swell of opinion, a non-violent grass roots uprising may be the only way to achieve these ends.
jeffzekas
The "third party" are all the voters who don't vote! By not voting, they are saying "no" to both candidates. And President Obama? He is brilliant, and he shall succeed... that is his destiny.
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vankuyk
So many Monday morning quarterbacks!
Banjo1
The trouble began with the convergence of Bush's idealistic but naive belief in an "ownership society: and the Democratic belief that that poor could somehow buy homes without having the money to pay for them. All it took, in this view, were a few government programs to paper over the shortfall. That along with granting unlimited credit to people who thought ever rising home values would cover the difference between their income and what they were buying resulted in a mess that will be years in cleaning up. Once the infatuation for Obama's fades, he will be in major trouble. The last golden boy the Democrats put into office was heading for a tough reelection battle when an assasin killed him. And JFK's plate of trouble was nothing compared to Obama's.
Potomac-Will
Banjo1: I've got a bridge in Brooklyn to sell you, if you really believe America's financial titans loaned uncreditworthy low and moderate income home buyers enough money to cause the current economic crisis. Cann't you see the money already spent propping up big monied interest is far greater than the total assets held by all U.S. low and moderate income households?
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Rico182
Well said. The band-aid analogy is spot on. And I can't wait for the continual blame of the Bush Administration. Coupled with the interrogation documents, its becoming a common theme.
Embers
More wishful thinking from the Daily Beast.
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jaymartin
"Few observers doubt that the unemployment rate will soon reach double digits, and there's reason to believe that it won't stop there."
So, what's after double digits? TRIPLE DIGITS!! That's right, every job in the US will evaporate.
FUD? Makes for a sensationalistic article doesn't it? Stick to your message and remove the hyperbole - it'll be more effective.
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AmiBlue
And bush's rehabilitation tour will be successful. The world will thank him for torturing people and for ruining the world's economy. The entire universe will beg forgiveness for ever thinking that he was hypocritical, immoral and incompetent.
petruglyphs
Nice to talk storm clouds, but why not discuss basics. What Salam is getting at is that treating symptoms is not good. The question he needs to look into is whether these fixes are part of a plan to restore integrity to our economic system. The previous administration hated regulation and therefore didn't steer the ship at all.
Toxic loans were not the invention of the poor. It was the financial industry as a whole grabbing for the profits that making those loans and reselling them generated. Too bad regulations weren't enforced. Credit default swaps are fraudulent transactions--guarantee huge transactions with inadequate security and take an even huger commission. Still no one watching.
Temporary breaks for large companies may make sense if we are restoring the integrity and forces of the marketplace. I would look at people like Larry Sommers to see if we are returning to the lack of principle Wall Street or whether he can change his stripes, work with transparency and, for the real change to occur, enforce laws and regulations.
ThePortuguee
Credit Default Swaps are not fraudulent transactions. They're exactly the same in principle as an insurance policy you buy on your car--we could call it an "Automobile Damage Risk Swap."
The trouble with Credit Default Swaps is that (a) you don't actually have to own the underlying asset to buy or sell them, and (b) there's not really any regulation to them. For an average insurance policy, the insurance company is required to have a certain amount of cash kept in trust and available to satisfy any and all claims. Also, you can't buy an insurance policy for yourself on someone else's car. This means that if some absurd percentage of people suddenly got into a car accident and made claims, the insurance company won't be insolvent because they're required to have cash on hand to pay out those claims.
The Credit Default Swaps, though, don't have that requirement attached. Also, I can decide to buy or sell a Credit Default Swap on some random person's mortgage, and can do it as many times over as I want. The idea of the credit default swap isn't intrinsically bad--it's absolutely reasonable that a bank might want to buy insurance against the possibility that one of their borrowers won't make good on their debt. It costs some cash up front, but you've put a floor on your potential downside. Again, this is exactly what you do when you buy insurance on your home or car--costs cash up front, but you're protected in the event of a calamity.
The whole system explodes, however, when banks everywhere (and, of course, AIG) are leveraging themselves to 30 times equity, in order to buy mountains of credit default swaps they shouldn't be associating with, based on ludicrously optimistic assumptions about the likelihood of a $35,000/year family making their mortgage payments on a $400,000 house. Then, when the mortgages go bad and the claims come due, they weren't required to have cash on hand to back their bets (every insurance policy is nothing more than a bet), and so we have the situation we observe today.
The transaction isn't fraudulent. The people who executed the transactions were just enormously stupid, and the system in place for regulating our markets is broken.
Grundy
Good analysis and well written - thank you.
Banjo1
I'll grant you "incompetent," but the rest is just standard left-wing boilerplate.
pkali77
What is it with you writers and constantly second guessing Obama. Look at the auto industry, he did take a tough stand and many of them will have to make hard choices. I am so sick and tired of people acting like this credit freeze is some kind of simple thing. The economy suffered major trauma and trauma patients dont just jump out of hospital beds and go for a jog. People do not trust the markets like they used to, they are losing jobs, they are not spending, banks are hoarding money because they are scared,retail stores are not seeing customers for weeks. Blame Obama all you want but something big had to be done. Look at where the world stands today after years of republican rule. China is a surplus nation, Brazil is a surplus nation, Canada that was ruled by social democrats has the most stable banks, the bastions of free markets, Japan,the UK, and the United States are in debt. The old way created a lot of problems accept it. You cant close your eyes and scream all day and expect to win and most Americans know this. Obama is popular because he is doing that thing that Americans all through history have done, acknowledge the problem, role up your sleeves and do something. If you fail, try something else, if that fails try something else, but keep trying till you get it right. You can sit on the side line and heckle all you want, but most Americans will cheer him on because they see a fighter trying his best against all odds.
peppermint
All of you keep saying all the great things the Bama has done. Just what has he done besides bring the word "torture" and "US" together so the world can make the assumption that we are evil. That'll help a lot among our enemies. You dems must be so proud.
SlaveRevolt
"Just what has he done besides bring the word "torture" and "US" together so the world can make the assumption that we are evil."
I love your insanely twisted logic. So if I murder my family then my neighbor who hears the noise and calls the cops is at fault instead of me because everybody knows that any act no matter how vile is never morally wrong, only those talking about it are the heinous ones, right? Are you sick in the head?
"So the world can make the assumption that we are evil"?
Sounds like a pretty safe assumption about some of you. Like those who try to justify war crimes and pawn the blame off on others.
gtartar
You republicans must be so proud that you are the reason why we are even having a discussion about torture.
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nummer1rhino
There's no second guessing of the big zero, we know what he's about, we are not brain numbed dolts like those that only listen to the left wing media with their mouths open & drooling out the sides of their mouths because they can't absorb the lies fast enough.
RRDRRD
First of all, it is journalism's job to second guess Presidents (not just Republican Presidents as the MSM apparently believes). Secondly, Obama warrants a lot of second guessing. You mentioned Japan as a bastion of the free market but its greatest problem was its failed response to a recession caused by a real estate bubble. What did they do? Propped up failing banks, and other institutions they thought were 'too big to fail." Does the phrase "lost decade" mean anything to you.
Obama inherited a recession but, compared to Japan in the 1990's or the US in the 20's (or even the 80's) the economic conditions in this country do not warrant the extremist economic policies he is advocating and implementing, especially since the history of his approach is dismal,
Grundy
The reason that alot of people do not 'trust' what is going on is because many of them are parents and like a parent you tell a stupid child that has overspent and constantly wants a 'bail out' that the end has come and that he must 'face the reality' of no more money.
Obama's idea of running the money presses at high livels 24/7 is just plain stupid and the end will be terrible for us all. Alot of people know that stupidity has a limit and so they are trying to prepare for the 'coming tide of red ink' when the financial carpet for the U.S. is pulled out from under us.
Calling in the notes on us held by some of the countries of the world, changing to a new money basis for the world other than the dollar or moving most of the companies and jobs out of the U.S. because of a 'cap and trade' bill will come as a shock to some but not to many of us shouting a warning voice like a parent to a wayward financially stupid out of control teenager.
Many complain about the last eight years of Bush but forget that the budget and money spent was controlled by the Democrats in Congress and now that they have all three areas of government the ability of spending is reaching a crescendo of financial insanity.
You don't spend your way out of a financial disaster - any attorney or Judge presiding over a bankruptsy case will tell you that - only a simpleton would think otherwise.
Grown-ups 'bite the bullet' and work their way out of the problem by cutting out the things that are not needed, cutting back on many things and eating crackers and water if necessary until the tide recedes.
"Cheering on the fighter" is insane if one can see that his plan is not only foolhearty but dangerous to the whole body as well.
wrightsrong54
@Grundy
Not so my friend. GOP had Congress from 1994 until 2006. The GOP had the Senate from 2001 until 2005 as well. Get these facts and rewrite your post.
When did the last admin "bite the bullet" on spending. More like buying the bullets!
gtartar
Spending is a buffer to keep more people from losing their jobs. If we had let all the banks, manufacturing companies, and small businesses "bite the bullet" then you would have seen a depression and unemployment rates that you can't even imagine. Why don't you tell all the small businesses receiving a tax cut, all the consumers applying for loans, and all the people that still have jobs because of the President's spending how "stupid" he is. And just so you know, there will never be an "end." There have always been recessions and there will always be recessions. All you can do is suck it up, admit your mistakes, learn from them, and then plow forward!
BlinkyMcChuck
I'm so tired of this kind of speculative fiction. Increasingly the news is cameras on people being asked "What do you think will happen?"
drkaza12
Banjo1; you over simplify the case. what took place was the slow erosion of a consumer base in America. what most were guilty of was ignorance of this as jobs were outsourced to meet the demand for a decrease in the corporate bottom line.
and while this was occurring the answer by the Bush administration was to change the credit card laws allowing them to flood the market with easy credit -- something the democrats signed off on also -- while the governments answer to consumer woes was to spend more money to compensate for the income gap, while unemployment kept increasing.
what people didn't see was the fact that as our trade deficit increased there was a huge transfer from a manufacturing to an investment base economy, and when we stopped making shit so went the middle class.
the evil is hayek and friedmanism and an economy that praises context over content, and the tipping point was when we allowed them to redefine us as consumers not people with merely an intake which rendered these incidentals a class issue not one of race and welfare as some like yourself suggest.
as for salam; he lost me when he finally tore his gaze from sarah palins breast. now there's content vs. contextual issues for you.
MrWest
I must say you eloquently explained a possible scenario president Obama may face down the road. This is very important to the people who are Obama enthusiast who seem to look through rose colored glasses in having a all is well attitude. I don't think America will trust any Republican now that's being showcased as you said it yourself "It's extremely hard to imagine the Republicans getting their act together in the near future, and by the near future I mean "the next decade." So I would think Obama will be fine going into the next election because of the glaring point you have made with the Republican party's disarray of image and message soul searching.
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allonfla
I am so sick and tired of people like you acting like you are so enlightened about Obama - acting as if you can see right through him while the rest of us worship at his feet. I can easily say that you are bitter, cynical or ignorant.
By the way, Obama is the President of the United States, YOUR President. He is not a celebrity, not a God and not a hobby. He doesn't have fans or enthusiasts.
MrDuffin
Obama is a racist and an idiot. He is also going to leave us broke and defenseless. This is my opinion and it is as good as any of yours. Plus I have one vote just like you do. He is gone in 2012!
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BlinkyMcChuck
One thing Obama and Bush have in common is that everyone underestimates both of them. It worked to Bush's advantage, and now it works to Obama's.
allonfla
Very true!
Thank you.
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