Mounting Impatience With Obama

March 30, 2009

In its pre-U.S. election issue entitled “It’s time,” The Economist ran a cover photo of Barack Obama looking somewhat downward but striding confidently forward.  The picture and black-lettered message are set against a white backdrop.  That issue endorsed the Obama candidacy, conceding some risk in the choice but explaining that he had “campaigned with more style, intelligence, and discipline than his opponent” and therefore “deserves the presidency.”  Five months later and as a bookend to that issue, The Economist this week again shows the president against a white background with a black-lettered caption and again glancing downward.  But the message is very different this time (Learning the hard way”),  and Obama’s expression is ambivalent with left thumb and forefinger to the mouth.  The cover story expresses considerable disappointment, stating that “the biggest surprise…has been a certain lack of competence,” and later observes a vicious cycle of behavior in which “the more Mr Obama fails, the more he resorts to the permanent campaign, and the more he resorts to the permanent campaign, the more he becomes just like any other president.”

Other things happened this weekend to send stocks reeling today all over the world and in the United States.  However, the Economist’s depictions of Obama five months apart, first as the great hope and now as the same old stuff, captures a mounting impatience that refuses to cut policymakers much slack.  The shortcomings up to this early point in the Obama presidency bear too much resemblance to ones that came before, only with different style and ideology.  At center is the question of competence, avoiding gaffes, own goals or whatever else the critics want to call it.

As recently as last week, market participants and commentators were hopeful about the U.S. economy playing the role of the one-eyed man in the land of the blind.   Some signs in released data  had arisen that the U.S. recession might be abating and transforming into recovery sooner than imagined a month or two ago.  Analysts found little such comfort in the trends of Europe and Non-China Asia, however.  Differences could be observed also in the aggressiveness of U.S. policy initiatives and the plodding pace of Japan, Germany, and elsewhere.

None of last week’s optimism will matter much if U.S. stocks suffer a renewed relapse.  In the long run, U.S. growth is going to have to rotate away from domestic demand and toward greater dependence on net exports, but government spending and consumption hold the keys in the all-important near term.  Congress is balking at the Obama budget.  Foreign demand is going to stay very sick.  Japanese industrial production plunged 70% at an annual rate in the four months to February, while its Euroland counterpart dived 27% at an annual pace over the five months to January.  Business investment is not going to fire up again without livelier consumption, and meeting that condition will depend critically on the equity market conditions and the labor market.  Despite rallying earlier this month, the DOW remains 34% below its average level in 3Q08 of 11,333.  The Nasdaq’s value has been similarly crushed.  That’s a massive loss of wealth.  Over in the labor market, unemployment is likely to have jumped 2.4 percentage points between September and March, and the cumulative loss of jobs since end-2007 is likely to catapult above 5 million, which represents a pace of about 3% per annum.  The labor market lags the business cycle, so chances are remote that consumers will find any support from that direction.  It all comes down to whether wealth stabilizes.  Do house prices and equity prices establish any foundation?  If the answer is no, a U.S. recovery will be delayed.

Political leadership will be critical to this process, shaping whether the feedback loop between the stock market and real consumption works for or against recovery.  That’s why Thursday’s G-20 summit in London is so important.  The quality of leadership has not appeared up the standards of prior major moments in history, and that’s true everywhere.  Brown isn’t Churchill, and Sarkozy cannot be compared to de Gaulle. Nor do Merkel or Berlusconi meet such standards.  Obama hasn’t filled the shoes of Roosevelt or his idol, Lincoln.  The betting on Thursday’s summit is that officials may speak of shared purpose but will kick the can down the road when it comes to action.  One litmus test to watch is what gets done to avert the world’s drift toward protectionism.  Obama needs to take the high road there and not continue a “yes but” attitude in that critical area.

Copyright 2009 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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