The Promised Land

Charles Krauthammer gets to the heart of Barry’s agenda:

…At the very center of our economic near-depression is a credit bubble, a housing collapse and a systemic failure of the entire banking system. One can come up with a host of causes: Fannie Mae and Freddie Mac pushed by Washington (and greed) into improvident loans, corrupted bond-ratings agencies, insufficient regulation of new and exotic debt instruments, the easy money policy of Alan Greenspan’s Fed, irresponsible bankers pushing (and then unloading in packaged loan instruments) highly dubious mortgages, greedy house-flippers, deceitful homebuyers.

The list is long. But the list of causes of the collapse of the financial system does not include the absence of universal health care, let alone of computerized medical records. Nor the absence of an industry-killing cap-and-trade carbon levy. Nor the lack of college graduates. Indeed, one could perversely make the case that, if anything, the proliferation of overeducated, Gucci-wearing, smart-ass MBAs inventing ever more sophisticated and opaque mathematical models and debt instruments helped get us into this credit catastrophe in the first place.

And yet with our financial house on fire, Obama makes clear both in his speech and his budget that the essence of his presidency will be the transformation of health care, education and energy. Four months after winning the election, six weeks after his swearing in, Obama has yet to unveil a plan to deal with the banking crisis.

What’s going on? “You never want a serious crisis to go to waste,” said Chief of Staff Rahm Emanuel. “This crisis provides the opportunity for us to do things that you could not do before.”

Things. Now we know what they are. The markets’ recent precipitous decline is a reaction not just to the absence of any plausible bank rescue plan, but also to the suspicion that Obama sees the continuing financial crisis as usefully creating the psychological conditions — the sense of crisis bordering on fear-itself panic — for enacting his “Big Bang” agenda to federalize and/or socialize health care, education and energy, the commanding heights of post-industrial society.

Clever politics, but intellectually dishonest to the core. Health, education and energy — worthy and weighty as they may be — are not the cause of our financial collapse. And they are not the cure. The fraudulent claim that they are both cause and cure is the rhetorical device by which an ambitious president intends to enact the most radical agenda of social transformation seen in our lifetime.

Tim Reid, writing in the Times of London, concurs:

…Mr Obama is gambling not only his own presidency, but the future wellbeing of the country. If he pulls it off, they might find room for him on Mount Rushmore. If he fails, he could bankrupt the world’s largest economy…

…What he unveiled last week was one of the most audacious agendas announced by a new president. He declared his intention not just to pump trillions of dollars into a short-term rescue for the economy, but also to press ahead with enormously costly plans to trigger a green industrial revolution, transform education and provide health coverage to all Americans. These are issues that have bedevilled Congress and other presidents for decades. Achieving just one would be an extraordinary achievement. Mr Obama wants all three – and fast.

What was most striking about the budget – including that it will explode the federal deficit to $1.75trillion this year, its highest since the Second World War – was that it was a ruthless declaration of how Mr Obama intends fundamentally to change the American social contract, from Right to Left.

Its goal is not just to rescue the economy. It is to crush conservatism, end the age of anti-tax, anti-regulation policies that have been the guiding philosophies of US governance for a generation, and usher in a fresh “epoch”, as his aides call it, of New Deal-Great Society wealth redistribution and central intervention that were repudiated by Ronald Reagan 30 years ago. Much of his agenda will be paid for by a ten-year, $1 trillion tax increase on families earning more than $250,000 a year, beginning in 2011, a move that critics say risks stunting the economic recovery.

Mr Obama and his aides are particularly attracted to the notion, put forward by the Yale political scientist Stephen Skowronek, that most of the truly transformative US presidents – and there are only a handful – followed failed ones. They include Thomas Jefferson after John Adams, Lincoln after James Buchanan, FranklinD. Roosevelt after Herbert Hoover and Ronald Reagan after Jimmy Carter.

Their belief is that these presidents were able to reshape, for at least a generation, the governing philosophy and electoral alignment because the public rejected the era that preceded them. Yet presidents who believe that they are governing at such transformational moments – as Mr Obama does – take bigger risks to achieve momentous change. The stakes he has placed on the table with his budget are extraordinary.

What has begun to trouble some even within his own party is that Mr Obama’s pledge to spend the US out of recession, while slashing the budget deficit to $533 billion within four years, already looks recklessly optimistic. Few dispute, even among Republicans, the need for healthcare reform or to wean America off foreign oil. It is the scale of debt that Mr Obama is willing to incur to achieve these goals that is causing such heartburn.

And it is not just Americans who desperately need him to prevail. As Gordon Brown said in Washington this week, while pledging faith in the President’s plans, everyone is watching the US economy. The entire developed world is banking on Mr Obama to succeed.

But much of his promise to rein in the deficit rested on a projection that the recession will cease and the US economy grow next year, but nobody can clearly see an end to this slump. The central question – how to stop the banking sector from collapse – is still a work in progress. They prefer huge injections of cash to stop the banks dying – but stop short of nationalisation – while they try to work out how to rid them of at least $2 trillion of toxic assets. There is still a significant chance that the scale of debt involved could devour Mr Obama’s presidency.

The markets are so unnerved about Mr Obama’s ability to rescue the financial sector, and by the numerous bailouts that have had little effect, that wealth is being destroyed on Wall Street at a rate not seen since the 1930s. The President said on Tuesday that he does not worry about “the day-to-day gyrations of the stock market”, but investors have made it clear that his economic prescriptions have so far failed to reassure them.

Mr Obama also says that much of his programme will be paid for by reducing the cost of the wars in Iraq and Afghanistan. Yet he has just ordered 17,000 more troops to Afghanistan for a war that his Defence Secretary says will be a long and difficult slog, and he is still groping for a strategy in Pakistan…

And Michael Boskin, writing in the Wall Street Journal, identifies the “most pernicious feature” of Barry’s agenda:

…New and expanded refundable tax credits would raise the fraction of taxpayers paying no income taxes to almost 50% from 38%. This is potentially the most pernicious feature of the president’s budget, because it would cement a permanent voting majority with no stake in controlling the cost of general government…

That’s the Democratic Party’s promised land: where a majority of the voters receive more in government handouts and benefits than they pay in taxes.

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