Populism, as decried in the New Yorker article below, is not the problem…. Perhaps, populism is sometimes, a little misguided, yes, but in fact, it’s the solution.  As usual the instincts of the American people are, in fact, highly accurate.   And any politician, who wants to survive and navigate these troubled times would do well to heed, get out in front of, and attempt to steer public opinion.   Such is the calling of President Obama, the second coming of the Great Communicator, leading up to these mid-term elections!

As for the populist rallying cry of the Tea-Bag crowd, “cut taxes,” this originates from the public’s inherent fear of big government and rising fiscal deficits.  Obama was elected on a platform of change, and what his administration gave the nation was not change, but a redux of the Clinton’s first years in office.   The bill that was about to be passed by congress, was NOT healthcare reform (or healthcare cost management), but rather, a serious power grab and an expansion of the welfare state.  

And hence, the Massachusetts’s miracle, or debacle, depending upon one’s views!

What Mr. Obama really should have spent his first year doing, instead, was giving the nation real change, by addressing the public’s need for jobs, and shearing Wall Street, and cutting it down to size, via the Volcker Rule and much, much more.  In brief, the tax-payer owned banks should have already been broken up, which – allegedly (per the banks anyway) - creates diseconomies of scale, and hence, by definition, more jobs, via greater inefficiencies.   Breaking up the banks into their core constituent parts would also go a very long way towards eliminating systematic risk; and breaking them up would help prevent the next financial melt-down…. A financial meltdown that this nation can ill afford.

President Obama would have been perceived as a real agent of change had he taken on Wall Street, and given government support to the people, instead of government support/welfare to Wall Street.  Instead enormous piles of the President’s political capital were wasted on millionaires and billionaires.  

And what has it got the President?  

The banks, are now lobbying against real reform, and they are planning Obama’s overthrow, by biding their time, and NOT lending to small and mid-sized businesses.   As we read in today's NY Times, the banks are in fact getting ready to back the very same Republican party that ran this nation into the ground.  That’s right, the Republican Party that has ran record, annual, budget deficits, since Reagan, and unleashed today’s financial crisis, via soft money policies and bank deregulation.  Okay, the Democrats were not exactly absent for the last thirty years – but rarely were they in charge of the executive branch, except for Clinton – who actually ran budget surpluses.  

In fairness to President Obama, Mr. Paulson, Goldman Sachs Alum, did set up the President, by attaching little or no strings to TARP lending.   But I digress…. It was Mr. Obama who brought Tim Geithner on board.

Had this administration spent its first year reining in Wall Street’s worst tendencies, and had the President done more to stimulate the economy and create jobs (instead of giving hand outs, on top of hand outs, to the banks)…. One wonders if the Tea-Bag movement would have ever gotten off the ground?  But what we got instead was not change, but business as usual in Washington: finger pointing, half measures, and stale mate.   Exactly, what the Republican Party delivered for the last eight years.

As for the populist….it’s important for all of us to remember that tax cuts are always nice, but unless they are coupled with reductions in government spending, they are no better than government spending that is not supported by tax revenue.   In short, tax cuts w/out corresponding reductions in government spending (Republicans) are no better than increased government spending which is unsupported by an increase in government tax receipts (Democrats), because they both lead to …What?.... greater government borrowing, greater dependence upon our enemy, China, and an ever rising national debt to GDP ratio. 

It would be grand to emulate the great supply-siders of the 20^th Century:

Kennedy and Reagan!

However, our National Debt no longer allows such extravagances.  Instead, it is this President’s challenge, to create jobs and spur economic growth through means other than government spending.  And what better way to create jobs than to break up the banks, and insist that any foreign banks – operating on U.S. soil – also adhere to U.S. bank law (Volcker Rule, Et Al.), and also be cut down to their proper size.  Otherwise, foreign banks who do not adhere – good-bye.

President Obama was very wise to embrace Messrs. Volcker and King’ counsel, post Massachusetts.   Healthcare reform – real cost containment - can wait for another day, like when unemployment is below 6% again (for two consecutive quarters), and the banks are made to heel!

The President has to do this with both governmental arms tied behind his back, that would be the House of Representatives and the Senate.   Let us all pray for President Obama’s success!  Obama’s success is our country’s success.   Given the incompetence of the U.S. Congress, the President truly will need divine intervention, and truly deserves our best wishes.   Time for Obama to channel, not only Reagan optimism, but the trust busting courage of Teddy Roosevelt.

J.M. Hamilton

The Financial Page/The New Yorker

The Populism Problem

by James Surowiecki February 15, 2010

It’s been the political equivalent of an intervention: in recent weeks, Democrats have been bombarded with advice about how they should reinvent their economic agenda. The electorate, we hear, wants Barack Obama to be more of an economic populist but less of an ambitious reformer. He has to aggressively create jobs but also be less spendthrift. This advice may be contradictory, but then so are the economic opinions of the many angry voters who are animating what’s being called the new populism. Whereas the economic populism of the eighteen-nineties and the right-wing cultural populism of recent years represented reasonably coherent ideologies, this new populism has stitched together incompatible concerns and goals into one “I’m mad as hell” quilt. The people may have spoken. It’s just not clear that they’re making any sense.

One view of this new populist uprising is that it’s about Main Street versus Wall Street, and is grounded in voters’ fury at the bailout of irresponsible bankers. But that’s too simple. While the banks are public enemy No. 1, there’s a much wider-ranging anger out there, a sense that everyone except the ordinary middle-class person is getting some sort of handout. Big Business, Big Government, and Big Labor: voters don’t seem to like any of them. The bailout of the auto industry, after all, was as unpopular as the bailout of the banks, even though it was much tougher on the companies (G.M. and Chrysler went bankrupt; shareholders were wiped out, and C.E.O.s pushed out), and even though the biggest beneficiaries of the deal were ordinary autoworkers. You might have expected a deal that helped workers keep their jobs to play well in a country spooked by ballooning unemployment. Yet most voters hated it.

Similarly, the failure of free markets during the financial crisis might have led people to think that the government should be more involved in the economy. Instead, the percentage of Americans who think government is trying to do too much is higher than it’s been since the late nineties. Health-care reform offers a case study in this. The bills passed by Congress, whatever their flaws, would do things that voters overwhelmingly say they support: extend coverage to the uninsured, ban the worst practices of insurers, and guarantee insurance for people who lose their jobs. Yet more voters now oppose the bills than support them, with many saying that the government is overreaching. And, while voters routinely say that the rising cost of health care is a problem, it is the bills’ cost-control provisions—including a tax on expensive insurance plans and rules to restrain Medicare spending—that have proved especially unpopular. On top of this, many people are just annoyed with the whole process: a survey of voters who supported Obama in 2008 but voted for Scott Brown in the recent Massachusetts Senate race found that forty-one per cent of those who opposed health-care reform weren’t sure whether reform went too far or not far enough. In short, they don’t know why they’re against reform; they just are. It’s a bit like Marlon Brando in “The Wild One.” Asked what he’s rebelling against, he says, “Whaddya got?”

One thing voters do want is jobs. But even here populist sentiment is at odds with itself. People want the government to help provide jobs, but they also want it to cut the deficit. Of course, one can worry about rising long-term debt and still think that, right now, more deficit spending is crucial to the nascent recovery. But angry voters aren’t that nuanced in their thinking: they want the government to tighten its belt and fight unemployment at the same time. Not that they believe that the government’s efforts will do any good: three-quarters of Americans think that much of the money in the first stimulus program was wasted, perhaps because they can’t see all the jobs that the stimulus saved, only the nearly eight million jobs that the economy has lost.

The anger is understandable, and voters are under no obligation to be consistent. But that doesn’t make the new populism any less of a challenge politically, since, at the moment, voters will find something wrong whatever is done: if Democrats pass a stimulus package, they’ll be lambasted for increasing the deficit; if they don’t pass a stimulus, they’ll be attacked for not caring about jobs. On top of that, both history and theory suggest that tough economic times make people less interested in sharing burdens, not more. One recent study found that people who had been treated unfairly became more selfish. It’s hard to pass reform programs that depend on a sense of solidarity—like health-care reform or cap-and-trade—when voters are trying desperately to protect what they already have.

The temptation, then, is simply to abandon ambitious plans in an attempt to annoy no one. But a better approach would be to recognize that voters’ anger is less ideological than pragmatic: at heart, it’s the product of the weak economy and the poor job market. (The movement that today’s populism most closely resembles is Ross Perot’s, which arose, similarly, during a downturn.) And while that means that there’s no way to make voters happy without improving the economy, it also means that, if you start creating jobs, people will start to feel better. Obviously, small initiatives that nod to people’s concerns (like the deficit commission) can help. But what matters most is getting the economy moving again—even if doing so means handing out tax credits to businesses or magnifying voters’ frustration with government spending. It may bring some short-term political pain, but the only way out is through. ♦