Page 2 of 2 Obama not a ghost of Clinton past
By Julian Delasantellis
seemingly discredited liberal policy shibboleths that had led the party to
three straight presidential election thumpings, and that he would get the
economy moving forward again with a government stimulus program.
That budget deficits expand during times of economic contraction should not be
all that surprising. Unemployed workers pay little income tax, and the expense
of government countercyclical programs such as unemployment compensation and
food stamps drives up expenditures.
By 1992, the "reasonable" 1987 federal budget deficit of US$170
billion had ballooned to almost $350 billion. Clinton had campaigned on both a
government stimulus and a balanced budget, but, at least in the short term, the
two were contradictory. In the early months of 1993, in the first policy
discussions of the new administration, the issue would be decided.
On one side were the fiscal stimulus liberals, led by Clinton's first labor
secretary, Robert Reich. On the other were the centrist/moderates, Treasury
secretary Lloyd Bentsen and, especially, former co-chairman of Goldman Sachs
and then the assistant to the president for economic policy, Robert Rubin. They
argued for a different course.
What this group said the economy needed was not more government stimulus
spending, but lower long-term interest rates to spur private investment. This
could be accomplished by getting the budget deficit more under control, so that
the government would not be competing for funds with private borrowers in the
capital markets, thus causing interest rates to rise. That could not be done
with increased stimulus spending.
As described by the Washington Post's Bob Woodward in his 1994 book The Agenda:
Inside the Clinton White House, Clinton fought for a while over having
his policy options constrained by, as he put it, "bond traders in red
suspenders", but eventually threw his lot in with Bentsen, Rubin and the free
marketers. The economy recovered; surging government revenues by the end of his
second term put the budget in surplus for the first time in decades. On the
surface, it seemed like this was the template that Democrats would govern by
for the foreseeable future.
But to paraphrase Jedi master Yoda, once Clinton started down the free market
path, forever did it dominate his destiny.
For it was not only in budgetary matters that Clinton sided with the market.
Soon, Rubin, who became Treasury secretary on Bentsen's departure following the
Democrats' defeat in the 1994 mid-term Congressional elections, was bringing to
Clinton's desk all manner of market-friendly deregulation and liberalization
ideas, culminating with the 1999 repeal of the depression-era Glass-Steagall
act separating commercial and investment banking within financial institutions.
Clinton always consented to Rubin's schemes; it cemented his reputation as a
new, centrist Democrat, not to mention the added goodie of all that luscious
Wall Street campaign cash. It was here, in taking the brakes off the financial
system that had protected it for over 60 years, where the seeds of the current
worldwide financial calamity were implanted.
During the recent campaign, Democrats claimed that it was the policies of the
Bush Republicans that turbocharged the deregulation mania right up until the
leverage craze met its sorry end in the summer of 2007; Republicans contended
that Democrats should not be the ones to make accusations, since the
fingerprints of Rubin, Summers and other market-serving Democrats can be found
all across the wreckage of the crime scene.
It seems that Obama has learned from Clinton's mistakes. Over the weekend,
press leaks, undoubtedly from close Obama associates, revealed his intention to
seek early Congressional approval for a massive government stimulus package,
funding road, bridge and energy infrastructure investments.
Obama has now clearly staked his name on this initiative. To reverse course
after inauguration, as Clinton did with Reich's stimulus package, would risk
the new president losing much of his credibility. Obama's plans for new
government spending seem little affected by the massive fiscal budget deficit,
possibly approaching $1 trillion in fiscal year 2009, that he will inherit from
George W Bush.
There are other ways Obama is charting an economic course independent from
Clinton. At his Monday news conference, he pointedly re-affirmed his campaign
pledge to raise taxes on upper income taxpayers; Keynesian economics
injunctions not to raise taxes during economic contractions would have given
him an easy out on that promise. Perhaps most importantly, Obama has notably
not offered the effusive support to Fed chairman Ben Bernanke that early in his
term Clinton bestowed to then Fed chairman Alan Greenspan. Some press
speculation has Summers replacing Bernanke when Bernanke's first term expires
in January, 2010.
Of course, no two historical epochs are identical. Obama enters office with a
far broader and deeper electoral mandate than Clinton, winning just under 53%
of the popular vote, as opposed to Clinton's 43% of the vote in a
three-candidate field in 1992. Obama need not be concerned with fixing policy
around lower long-term interest rates; flight to quality buying away from stock
market chaos has driven interest rates on 30-year US Treasuries down to their
lowest levels since the early 1960s.
But the main difference between the era of Clinton in 1992 and that of Obama
today is the shifting perceptions and public view of the power and authority of
the markets. At Clinton's inauguration, the fall of the Berlin Wall, and the
dissolution of the Soviet empire, were only respectively, 39 and 13 months
previous. It is easy to understand that it in this environment of market
triumphalism, market-centered solutions would carry the day, and
government-based, statist advocates be shown the back of the hand.
Now, instead of market triumphalism, we look back at over a year of absolute
market chaos. Time and time again, governments, even conservative governments
such as that of the United States, have recently been called on to save the
markets with interventions of unprecedented size and scope, the most recent
being the rescue of Citigroup over the weekend.
The markets have both welcomed and rallied on all these interventions; ideology
be dammed when there's real money on the table. The American radical group of
the 1960s, the Weatherman, chose their name from a Bob Dylan song which stated
that "you don't need a weatherman to know which way the wind blows"; clearly,
Obama and company can well see and feel the howling gales of destruction the
financial markets have set on themselves.
On Sunday, on the CBS News program Face the Nation, Obama economic
advisor Austin Goolsbee said that "starting January 20, we're out with the
dithering; we're in with a bang". With such strong winds at their back, it's no
wonder they want to move fast.
Julian Delasantellis is a management consultant, private investor and
educator in international business in the US state of Washington. He can be
reached at juliandelasantellis@yahoo.com.
(Copyright 2008 Asia Times Online (Holdings) Ltd. All rights reserved. Please
contact us about
sales, syndication and
republishing.)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
