re: US: Obama One Year after Elections (Bienvenido Macario, Philippines/US)

Bienvenido Macario writes:

This is not exactly meant to defend Pres. Obama, but rather to present my understanding of the limits of the power of the US president. First, Pres. Obama was not sworn in until Jan 20, 2009. He was placed in office by nameless and faceless members of the electoral college, not by voters at large. This is the reality of American-style democracy that probably very few American voters are aware of. They do not elect the US President.

Whether we have a Democrat or a Republican in the White House, the US Congress dictates what the US President can and cannot do.

Pres. Obama should be credited with stopping the recession but at the cost of making Washinton DC the new financial capital of the US and at the expense of Wall St. Nothing really wrong there, except the US is has a market-based economy. When the financial and political capital of a country is one and the same there will soon be an inefficient economy.

Probably because of politics, after the recession was checked, Pres. Obama stopped stimulating the economy to recovery and work on how to spend the money that’s not even there yet–the health care reform bill.

In Pres. Kennedy’s “We Choose to Go to the Moon” speech at Rice University in Houston in 1962, he reaffirmed America’s commitment to landing a man on the moon before the end of the 1960s. Money was not a problem, so even though we were in a Cold War and an ongoing Vietnam War by July 1969 the US put two men on the moon and brought them back.

The $1 trillion plus in 10 yrs. Health Care Reform is an uphill struggle; why? Because there is no money! Why? Because of the economy is broken!

Unfortunately Pres. Obama and his cabinet will get the blame, not the members of the electoral college.

An example of Washington DC as the new financial capital of America:

Fannie and Freddie spent $200 million in the last ten years lobbying before the US Congress. Their executives could get huge bonuses and no one questioned them.

Freddie Mac’s CFO committed suicide last year.

Now who will lobby for the entire US economy? Fannie Mae, Freddie Mac, World Bank and the IMF are the worst examples of “too big to fail, too big to be wrong” corporations and institutions.

Treasury Secretary Tim Geithner is like a typical Filipino politician, who says one thing and does the opposite. He speaks of “strengthening the US Dollar” and then throws away billions of taxpayer money on hopeless cases like the “Gang of Four” (IMF, WB, Fannie and Freddie). He should explain this conflict between his goals and policies to US taxpayers. He should answer to his employer, the American people.

JE comments: I went to college with Timothy Geithner (he graduated three years before me; we never met). Tim: if you’re reading these lines, I vote for a strong dollar! And Go Green!

Bienvenido Macario writes that national economies become inefficient when their political and financial capitals are one and the same. This is the rule for the overwhelming majority of countries–Russia, France, Japan, Mexico, the UK. In Europe, Germany and Switzerland are the only two countries with separate financial and political capitals. Elsewhere in the world, we have the examples of Australia, Brazil, (possibly) China, India, and the US. Does either model necessarily lead to inefficiency? New York City, interestingly enough, isn’t the political capital of anything–not even the state of NY. But New Yorkers will be quick to tell you they are the center of the universe.

re: US: Obama One Year after Elections (Harry Papasotiriou, Greece)

Harry Papasotiriou writes regarding the economic crisis:

Politics aside, the response of the Bush and the Obama administrations to the colossal banking crisis of September 2008- February 2009 has been on a continuum. Now that the panic of those five months is over, people can revert to their usual ideological disagreements. But during those five months, when it was uncertain whether major banks would survive, companies and corporations were uncertain whether their cash in those banks would remain available. Thus they cut production below sales, selling from their inventories, in order to ensure cash flow for their survival. Now that their inventories have been exhausted, the banking system has been saved (due to massive federal government intervention by both administrations) and consumer demand has not collapsed, they are drastically increasing production–hence the V-shaped recovery in production. But they have also instituted labor-saving measures, increasing their productivity, which means that unemployment will not decline soon.

Let me state that I tend to be a pro-free market conservative (Liberal in European terms). But in the face of a massive banking crisis of the kind that the United States experienced during those five months, I do believe in government intervention (as did Bush, Bernanke and Paulson). When panic takes over in the markets, disrupting their orderly and rational function, government intervention is essential. This part of Keynes’s insight, regarding the herd behavior of investors in capital markets, is best captured by his disciple Shackle, who focused on the psychology of panic situations. But once the panic is over, government should in my view retreat to a limited regulatory role and let the markets allocate scarce resources efficiently.