Barack Obama is a symbol—a truly inspiring example of what a half-African, half-American man can achieve in the United States. He is also a gifted orator, if a little over-reliant on the teleprompter. Into the bargain, he is a streetwise Chicago politician who outsmarted Hillary Clinton in the battle for the Democratic presidential nomination. Above all, he is a master of the modern election campaign who ran rings round John McCain last year and deservedly won the presidency. We underestimate this man at our peril.But what kind of a President is Barack Obama proving to be? After 12 months, we can have a first stab at answering that question. In power, Barack Obama is a professor who likes to make policy in seminars, relying on his considerable intellect rather than his gut. And why not? For eight years gut ruled over intellect in the White House, and the results were, to say the least, mixed. But Obama is also proving to be an inexperienced chief executive who has already ceded far too much power to his own party in Congress. Moreover, he appears to be a guileless statesman who believes that ingratiating speeches abroad are a substitute for a foreign policy.It is not too late for him to change. His learning curve may yet prove to be steep. But the difficulty is that the plentiful political capital with which he began his presidency last January has been severely depleted precisely because of these defects of leadership. On the domestic policy side there are those who would credit Obama with having averted a second Great Depression. It is certainly true that he inherited as dire an economic situation as the United States has seen since 1931. A subprime crisis had become a credit crunch, which in turn had turned into a banking crisis. With the failure of Lehman Brothers, not only America but the entire world stared into an economic abyss. However, credit where credit’s due. The two key steps to avert a second Depression were not taken on Obama’s watch. The first—the more than doubling of the monetary base—was the work of Chairman of the Federal Reserve Ben Bernanke. The second—the Troubled Asset Relief Program, which bailed out the country’s biggest insolvent banks—was the work of Henry Paulson, President Bush’s last Treasury Secretary. Understandably concerned that these measures might not suffice—and it should be remembered that the economy declined most steeply in the first quarter of 2009—Professor Obama summoned around him an A-team of economists: Larry Summers, Christina Romer, Austan Goolsbee and others. Reasoning on Keynesian principles, the economists recommended additional fiscal stimulus: additional government borrowing on top of an already alarmingly large deficit, with the aim of boosting aggregate demand. They deliberated about the magnitude of the sum needed, and agreed on a figure of around $800 billion. At this point the President, in his innocence, turned to the Congress and asked that the nation’s legislators determine how the money be spent. I remember thinking at the time that this carte blanche was a mistake, and so it proved. Regardless of whether or not one believes in Keynesian fiscal policy as a theory, the idea that the members of the House of Representatives and the Senate would allocate $787 billion of public money in the manner best calculated to stimulate employment and income growth was never remotely plausible.Did it work? Perhaps, in the sense that stimulus-related programs like the “Cash for Clunkers” scheme and first-time home buyers’ tax credit accounted for nearly two-thirds of the 3.5 percent growth achieved by the economy in the third quarter. Perhaps not, in the sense that the Keynesian multiplier is likely very small in the U.S. economy today, and evidence of self-sustaining growth is still pretty hard to discern. What we do have, as a legacy not only of the financial crisis but also of eight years of Republican fiscal irresponsibility, is a looming fiscal crisis. It is not so much the $1.4 trillion deficit of the fiscal year just ended that should worry us. It is the fact that the Administration is on course to borrow at least a trillion dollars per year for the next nine years. The Congressional Budget Office’s extended projections reveal that U.S. fiscal policy is on a dangerously unsustainable course, with deficits projected to fall from 13 percent of GDP in 2009 to around 5 percent in 2012, but then rising inexorably after that.If the President and his advisers have a plan to put government finances onto a more credible path—returning the budget to balance over, say, a ten-year period—they are keeping it to themselves for now. If they do not have such a plan, then they are playing with fire. To see why, you need only consult a Nobel-prize winning economist. Consider the following:My prediction is that politicians will eventually be tempted to resolve the [fiscal] crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt. And as that temptation becomes obvious, interest rates will soar.
Who said it? Why, none other than Paul Krugman, writing in the New York Times on March 11, 2003. Krugman has since changed his position, arguing that “deficits saved us” from another Great Depression and that today’s deficits are, if anything, too small. Yet the proposition remains a compelling one that, at ?some point before the President seeks re-election, we shall see upward pressure on real interest rates, either because nominal rates rise in anticipation of future inflation or because disappointing economic performance causes people to revise their expectations of inflation downward. Either way, the implications will be unpleasant for a still very highly leveraged economy.Under these dire circumstances, it was courageous—or perhaps foolhardy—of the President to press on with his promised expansion of health insurance coverage. Again, as with the stimulus bill, the devilish details were left to Congress. The result, at the time of this writing, is a plan that would insure 36 million Americans currently without insurance at an estimated cost of $1.1 trillion over ten years. The President having pledged that this reform would add not a dime to the deficit, legislators are now grappling with various creative accounting devices to keep the new measure in the black for the all-important ten-year time period, beyond which Congress very seldom looks.No one seriously doubts that the U.S. health care system needs to be reformed. It is the world’s most expensive and among its least efficient. But the parliamentary method of government favored by this President all but guarantees a “reform” that will barely improve matters. The core defects of the system will all remain: the long-run explosion of Medicare costs as the Baby Boomers retire, the “fee for service” model that drives health care inflation, the link from employment to insurance that explains why so many Americans lack coverage, and the excessive costs of the liability insurance that our doctors need to protect them from our lawyers. The third and, one might have thought, most important item on the President’s domestic agenda is the reform of financial regulation. Here, too, there is a wide gap between expectations and reality. After the President’s stern words in his Inaugural address about “greed and irresponsibility on the part of some” and the need for a “watchful eye” over financial markets, people not unreasonably anticipated radical reform of a system that had so manifestly failed. It is not going to happen. The problem David Einhorn has summed up as “concentrated benefit versus diffuse harm”—the conflict of interests between an over-mighty financial lobby and taxpayers—shows little sign of being resolved by this Administratio
n in favor of the latter group.On the contrary: The “reform” currently envisaged, if statements by Treasury Secretary Timothy Geithner are any guide, would effectively institutionalize the problem of “too big to fail” (TBTF) institutions by making them the responsibility of a new systemic regulator. Consumers—the same people who, as taxpayers, bailed out the TBTF institutions in 2008—will get their own Consumer Protection Agency, presumably to save them from loan sharks and mortgage fraudsters. And maybe there will be a move away from over-the-counter derivatives in favor of the exchange-traded variety. But that’s about it. There is no sign of the process, already begun in Europe, whereby the TBTF institutions are forcibly broken up. There is no sign that the President is heeding the calls from Paul Volcker for some kind of separation of the “casino” from the “utility”—an updated Glass-Steagall Act that would end the absurdity whereby, as a bank-holding company, Goldman Sachs enjoys all the privileges of being a commercial bank (access to the Fed’s free money), while generating most of its profits from trading like a giant hedge fund. And, again, the familiar pattern: The President proposes; Congress disposes. Heaven knows what legislative monstrosity will emerge when Barney Frank and his colleagues are done with their omnibus financial regulation bill. But the ideas currently making the rounds are eye-wateringly awful. Contributions by TBTF institutions toward the costs of big failures after they’ve happened (which is the very time that financial institutions are least likely to cough up)? Caps on executive pay at institutions that haven’t repaid their TARP money (allowing those that have paid to hire away their best people)? Increased congressional power over the Fed (which would put an end to central bank independence)? It’s brain(dead)-waves like these that explain the success of the Congressional Effect Fund, which buys U.S. stocks when Congress is out of session and sells them whenever our legislators get together. Still, let’s face it: The Constitution does give legislative power to Congress. The President shouldn’t really be drafting the small print of financial regulation. So let’s turn, finally, to foreign policy. How does Mr. Obama measure up as a statesman and commander-in-chief? Well, we already have a verdict in from Stockholm: The Swedes (and Norwegians) decided to award our man the Nobel Peace Prize before he had even held office for a year. But the job of the President is not to win prizes from foreigners. It is to uphold the national interest of the United States. Does President Obama have a foreign policy to defend the American interest? If making amiable speeches to foreigners is a foreign policy, then I suppose he does. But I am not convinced. Going from Berlin to Istanbul to Cairo to Tokyo and simply not being George W. Bush is certainly giving the rest of the world what it wanted. But there’s a painful discrepancy between what the President says and the way the world is. Here is the President speaking in Cairo on June 4: I’m also proud to carry with me the goodwill of the American people, and a greeting of peace from Muslim communities in my country: Assalaamu alaykum. . . . I’ve come here . . . to seek a new beginning between the United States and Muslims around the world, one based on mutual interest and mutual respect, and one based upon the truth that America and Islam are not exclusive and need not be in competition. Instead, they overlap, and share common principles—principles of justice and progress; tolerance and the dignity of all human beings. . . . As the Holy Koran tells us, ‘Be conscious of God and speak always the truth.’ . . . Throughout history, Islam has demonstrated through words and deeds the possibilities of religious tolerance and racial equality. . . . Let there be no doubt: Islam is a part of America.
It took U.S. Army Major Nidal Malik Hasan to give the lie to all that. Before he ran amok at Fort Hood, according to witnesses, Hasan bowed his head as if praying and said Allahu akbar— “God is Great.” Oh dear.But the President is nothing if not consistent in extending the hand of friendship. Here he is speaking in Tokyo on November 14: In the 21st century, the national security and economic growth of one country need not come at the expense of another. I know there are many who question how the United States perceives China’s emergence. But . . . in an interconnected world, power does not need to be a zero-sum game, and nations need not fear the success of another. Cultivating spheres of cooperation—not competing spheres of influence—will lead to progress in the Asia Pacific. . . . The United States does not seek to contain China, nor does a deeper relationship with China mean a weakening of our bilateral alliances. On the contrary, the rise of a strong, prosperous China can be a source of strength for the community of nations. It took the Chinese no time at all to respond. Liu Mingkang, chairman of the China Banking Regulatory Commission, was first. U.S. monetary policy, he declared (before the President had even arrived in Shanghai) was creating “massive speculation” and “unavoidable risks for the recovery of the global economy, especially emerging economies . . . seriously impacting global asset prices and encouraging speculation in stock and property markets.” He was followed by Yao Jian, spokesman for the Chinese Ministry of Commerce: “We’ve always known the U.S. and the West as free market economies”, Yao told reporters. “But now we’re seeing a protectionist side.” And so on. Note the similarity in these two speeches of Obama’s. There’s no need for competition between the United States and Islam. There’s no need for competition between the United States and China. We just need to recognize what we all have in common and cooperate. This is not a foreign policy. It is a paraphrase of John Lennon’s song “Imagine.”Here, Mr. President, is the reality. Radical Islam is in a very nasty kind of competition with the United States. It is not only at war with us in Iraq and Afghanistan. It is infiltrating our own society—even our own army. This is the biggest challenge to our values of individual freedom since the advance of Communism after 1917. And China is in competition with us, too: an economic competition. Right now China’s economy is growing at an annual rate of 10 percent. We have an unemployment rate of 10 percent. If you project trend growth-rates forward, China overtakes the United States in terms of GDP by about 2027. This is the biggest shift in the global balance of power in more than a hundred years, since the rise of Germany in the late 19th century. America badly needs a grand strategy to respond to these dual threats. There is no sign that this President has one. Nor is there any evidence that his close advisers do. His National Security Advisor, General James Jones, has many qualities, no doubt; but Henry Kissinger he ain’t. The interminable seminar on Afghanistan that dominated the Washington autumn exemplified the problem. It is indeed hard to make a decision about the deployment of 40,000 troops—even if the request comes from the general you charged with devising a plan to win what you yourself called a “war of necessity”—if you don’t have a grand strategy. Our predicament is grave. We face some dire scenarios. The Taliban could regain Kabul, or Afghanistan could descend into Somali-style anarchy. Pakistan could let nuclear weapons fall into the hands of al-Qaeda or other Islamists. Israel could elect to take unilateral action to halt Iran’s nuclear arms program. In each case, the consequences for U.S. security would be unforeseeable but certainly negative. Meanwhile, the resources we have available to resp
ond to such scenarios are bound to dwindle, as interest payments absorb an increasing proportion of Federal revenues. The White House’s budget document foresees a rise from 7 percent in 2010 to 16 percent in 2016, but the share will certainly rise faster and higher than that. Defense spending, because it is discretionary and not mandatory—an essential difference between national security and Social Security—will be the first casualty. From the Chinese point of view, therefore, the prospects are rosy. The American Colossus is aging, faltering. While the trouble spots of CENTCOM consume not only our treasure but also the blood of our relatively small volunteer army, hegemony in the Asia Pacific will soon be there for the taking.President Obama is a symbol, today, of the increased tolerance of Americans on the once-toxic matter of race. His election was an historic milestone, and a very welcome one indeed. But if he does not make the transition from campaigner to chief executive, and from speechmaker to statesman, then he risks becoming the symbol of something very different. It will be a tragedy of Shakespearean proportions if this admirable man ends up going down in history as a symbol of American decadence—of a political system in which the moneyed interests represented in Congress made bad laws, and of an international system in which naive appeals to universal brotherhood emboldened our foes. After one year that is not inevitable; it is, however, possible.