Well, It Sure Seems Like Keynes Was Right

Henry Blodget | Dec. 17, 2011, 10:20 AM | 10,987 | 223

• A A A
•  
• inShare100

Henry Blodget

Email

Henry Blodget is CEO and Editor-in-Chief of Business Insider.

Recent Posts

• And Now There's Another Global Warming Problem To Freak Out About...
• There Is Something Fundamentally Wrong With AOL's Media Business
• DEAR HOWARD SCHULTZ: If You Really Want To Save America, Why Don't...

After the experience of the past five years, it certainly seems like John Maynard Keynes was right, doesn't it?

It seems hard to conclude anything else.

I'm not an economist, and I'm not born of a particular economic school that I've bet my life's work on, so I have observed the global economic events of the past five years with a fairly open mind.

I've listened to Keynesians like Paul Krugman argue that the way to fix the mess is to open the government spending spigot and invest like crazy.

And I've listened to Austerians like Niall Ferguson argue that the way to fix the mess is to cut spending radically, balance government budgets, and unleash the private sector.

And I've also looked back at history--namely, Reinhart and Rogoff's analysis of prior financial crises, the Great Depression, Japan, Germany after Weimar, and so forth.

And I have to say, the conclusion I keep coming back to is that Keynes was right.

In the aftermath of a massive debt binge like the one we went on from 1980-2007, when the private sector collapses and then retreats to lick its wounds and deleverage, the best way to help the economy work its way out of its hole is for the government to spend like crazy.

Or, rather, if not the "best way," at least the least-worst way.

Because, obviously, piling up even bigger mountains of debt is not a happy side-effect of such spending.

But let's face it: Austerity doesn't work.

At least, austerity doesn't work to quickly fix the problem.

The reason austerity doesn't work to quickly fix the problem is that, when the economy is already struggling, and you cut government spending, you also further damage the economy. And when you further damage the economy, you further reduce tax revenue, which has already been clobbered by the stumbling economy. And when you further reduce tax revenue, you increase the deficit and create the need for more austerity. And that even further clobbers the economy and tax revenue. And so on.

Image: Robert Johnson

Homeless tent city in Lakewood, New Jersey. Click for the photo essay >

Basically, austerity puts you into a death spiral in which you keep trying to cut your way to prosperity, but all you end up doing is digging a bigger hole. And in the meantime, tens of millions of people are out of work, the economy is retrenching, and everything is generally miserable.

And how about the alternative?

Well, die-hard anti-Keynesians will tell you that the alternative is what we're experiencing now. Obama did the big Keynesian stimulus thing a couple of years ago, and the economy is still lousy and the unemployment rate is still too high. And we have an absolutely massive debt pile that we need to work off.

Ergo, Keynesianism doesn't work.

But isn't that an unfair conclusion?

Most of the debt mountain we've piled up is the result of what we did before the crisis, not after it. In the years leading up to 2007, our absurdly undisciplined leaders took a nice big budget surplus and then squandered it. And they created absurdly loose lending standards and encouraged the whole country to lever up and buy stuff we couldn't afford. And they never said "no" to anything except tax increases, no matter what, and denied all the structural problems that were building up for decades.

And by 2007, they had put us in one hell of a hole. 

And, given that, it seems reasonable to think that, as Krugman has long argued, one of the problems with the economy now is that the original stimulus just wasn't big enough.

Image: AP The sign is correct. Click for details >

And it also seems reasonable to conclude that, given the mess we got ourselves into, there is just no quick fix, regardless of what anyone does. 

And that, in fact, is my real conclusion about our current situation--that, no matter what anyone does, we're going to be licking our wounds for years.

But I will also add this in defense of Keynesianism...

The Austerians love to point at the 1930s as "proof" that Keynes was wrong. Look at the huge "New Deal," they say. Look at all those expensive public works projects. Look at all the spending the government did to try to get us out of the Great Depression, and it never really worked. What got us out of the Depression, the Austerians smugly observe, was World War 2.

But what was World War 2 if not an absolutely gigantic Keynesian stimulus?

Seriously.

The Federal deficit in World War 2 was massive--much bigger than any time during the Great Depression. And we built up a huge Federal debt load. And... we set the stage for two decades of amazing prosperity, in which we worked off those debts.

Our current debt and deficit situation scares the bejeezus out of me.  We absolutely have to get our long-term budget problems under control, and doing so will involve both cutting spending and raising taxes. If we don't do that, we really will collapse, as Niall Ferguson et al have long been arguing.

Image: ASurroca on Flickr Companies like Starbucks could help stimulate the economy, too--by giving their low-wage employees a raise >

But getting the budget under control by radically chopping spending or increasing taxes this minute, as many Austerians want to do, won't help. In fact, it will likely make the problems vastly worse, because it will put that many more people out of work and reduce tax revenue that much further (just take a look at Europe).

Meanwhile, given that we've already racked up $15 trillion of debt, I certainly wouldn't be opposed to our spending another couple of trillion upgrading our piss-poor infrastructure. Incurring debt to build things that help all Americans, from unemployed folks to business leaders to children, is a tradeoff I'm willing to make. Especially if the jobs created by this "stimulus" spending help alleviate our massive unemployment and inequality problems.

And, by the way, I don't think this "stimulus" necessarily needs to come from just the government. Our corporations are as profitable now as they have ever been. So I'd like to see a lot of them voluntarily decide to invest more and pay their low-wage employees more and hire more employees. They can afford it, and "cash flow" isn't the sole objective or reward of running a business.

Anyway, based on the experience of the last five years, it seems to me that Keynes was right.

I still have an open mind, though, if any Austerians out there want to have another go.

NOW READ: Here's What's Wrong With The Economy (And How To Fix It)

Read more: http://www.businessinsider.com/keynes-was-right-2011-12#ixzz1gqA0e6BR

Here Are Occupy Wall Street's Plans For A National Convention That Could Change The Face Of America

Linette Lopez | Oct. 14, 2011, 1:40 PM |15,924 | 194

Image: Daniel Goodman / Business Insider

It's in the works. A massive Occupy Wall Street gathering with delegates from all over the country. And if these plans are carried out, Occupy Wall Street will be a major force to be reckoned with on Election Day 2012.

The date? July 4, 2012.

Put aside questions of whether or not the movement will survive that long. Imagine that they do, because they have no doubt.

If only our economy had that kind of confidence.

Discussions on how to proceed will begin tomorrow at a massive General Assembly at 7 PM. Here's how they describe what they're about to do:

....the election of delegates and holding of a national general assembly or convention on July 4, 2012 must be organized. No calls for violence. No calls for the violent overthrow of the government.

...Once organized and the delegates have been elected by direct ballot in all 435 districts. They must demand that our elected leaders take action. If they do not take action within one year of the demand, we will demand their mass resignations and that new elections be held so we can take back our democracy from the corporations and those who BUY power and influence with MONEY. Yes this includes unions and lobbyists.

The Citizens United case must be reversed...

More concrete, long-term measures can also be found on their website in a document called The Steps to Non-Violent Revolution and the Convening of a National General Assembly. There are ten of them, and the most amazing thing about them, is that they outline a democratic plan to decide on a platform of reforms supported by occupations across the entire country leading right up to the 2012 election.

Perhaps Occupy Wall Street only thought of doing this now, but I sincerely doubt it.

Basically, if this is carried out, Occupy Wall Street could shift the course of American politics at its highest levels.

Here are the steps:

1. The Occupy Wall Street movement, through the local general assembly, should elect an executive committee comprised of 11 people or some other odd number of people that is manageable for meetings. Ideally this committee should represent each city in the U.S. that is being occupied.

2. The executive committee will then attend to local issues such as obtaining permits, paying for public sanitation and dealing with the media. More important, the executive committee shall plan and organize the election of the 870 delegates to a National General Assembly between now and July 4, 2012.

3. As stated in the 99% declaration, each of the 435 congressional districts will form an election committee to prepare ballots and invite citizens in those districts to run as delegates to a National General Assembly in Philadelphia beginning on July 4, 2012 and convening until October 2012.

4. Each of the 435 congressional districts will elect one man and one woman to attend the National General Assembly. The vote will be by direct democratic ballot regardless of voter registration status as long as the voter has reached the age of 18 and is a US citizen. This is not a sexist provision. Women are dramatically under-represented in politics even though they comprise more than 50% of the U.S. population.

5. The executive committee will act as a central point to solve problems, raise money to pay for the expenses of the election of the National General Assembly and make sure all 870 delegates are elected prior to the meeting on July 4th.

6. The executive committee would also arrange a venue in Philadelphia to accommodate the delegates attending the National General Assembly where the declaration of values, petition of grievances and platform would be proposed, debated, voted on and approved. The delegates would also elect a chair from their own ranks to run the meetings of the congress and break any tie votes. We will also need the expertise of a gifted parliamentarian to keep the meetings moving smoothly and efficiently.

7. The final declaration, platform and petition of grievances, after being voted upon by the 870 delegates to the National General Assembly would be formally presented by the 870 delegates to all three branches of government and all candidates running for federal public office in November 2012. Thus, the delegates would meet from July 4, 2012 to sometime in early to late October 2012.

8. The delegates to the National General Assembly would then vote on a time period, presently suggested as one year, to give the newly elected government in November an opportunity to redress the petition of grievances. This is our right as a People under the First Amendment.

9. If the government fails to redress the petition of grievances and drastically change the path this country is on, the delegates will demand the resignation and recall of all members of congress, the president and even the Supreme Court and call for new elections by, of and for the PEOPLE with 99 days of the resignation demand.

10. There will NEVER be any call for violence by the delegates even if the government refuses to redress the grievances and new elections are called for by the delegates. Nor will any delegate agree to take any money, job promise, or gifts from corporations, unions or any other private source. Any money donated or raised by the executive committee may only be used for publicizing the vote, the National General Assembly, and for travel expenses and accommodation at the National General Assembly ONLY. All books and records will be published openly online so that everyone may see how much money is raised and how the money is spent each month. There will be no money allowed to "purchase" delegate votes as we have in the current government. No corporate "sponsorship".

Very ambitious, we'll see how it goes.

Read more: http://www.businessinsider.com/occupy-wall-street-has-plans-for-a-coordinated-national-gathering-2011-10.html#ixzz1atKpzbFR

Early criticism of Obama: Obama Stimulus Op-Ed in Washington Post Was Partisan and Not Presidential

By Mary Kate Cary, Thomas Jefferson Street blog

In the White House Office of Media Relations—where I once worked—staffers like me used to line up third-party advocates to support Administration policies. "Surrogates," they're called, such as Congressmen, Governors and the like and they are persuaded to to sign op-eds pieces in local newspapers. Longer magazine profiles and think pieces by the president can serve a strategic purpose, but short hits in newspapers on specific bills are "not Presidential." Leave the street-fighting over legislation to the surrogates, it goes, and keep the president above it all. But in a world of Twitters, YouTube and Blackberries, that has all changed.

President Obama signed an op-ed this morning in the Washington Post, and it's a quick hit that would have been better left unwritten. In it, he overpromises results from a bill that hasn't been finalized and is still having amendments added in the Senate as I write this. But he says the stimulus bill will be "swift, bold and wise enough for us to climb out of this crisis." How does he know that? Maybe it will, but none of us really knows yet what is going to happen.

The president promises more than a fix for housing, jobs and banks—he guarantees massive government involvement in many sectors of our economy—from energy to healthcare to schools to access to the internet. He goes on to promise "unprecedented transparency and accountability, so Americans know where their tax dollars are going and how they are being spent." That's a big deal if he can deliver it. We've been waiting for that for years.

The president would have been wise to invite the loyal opposition to join him in supporting the bill, or at least to acknowledge that reasonable minds can disagree on the road to compromise. But instead, he rejects criticism of the stimulus plan and reminds readers that his side won. He seems to blame Republicans for everything causing our country to fall apart:

I reject these theories [criticizing the stimulus], and so did the American people when they went to the polls in November and voted resoundingly for change. They know that we have tried it those ways for too long. And because we have, our health-care costs still rise faster than inflation. Our dependence on foreign oil still threatens our economy and our security. Our children still study in schools that put them at a disadvantage. We've seen the tragic consequences when our bridges crumble and our levees fail.

Anyone opposing the current stimulus package is engaging in "old ideological battles," "narrow partisanship," "bad habits," and "the same old partisan gridlock that stands in the way of action," he writes. I guess that includes not only the House Republicans, but economic experts Martin Feldstein and Alice Rivlin, the other 250 economists who have publicly stated their reservations.

Most of Washington is engaged in a battle of ideas, for the first time in a long time, about the meaning of capitalism and free markets and government intervention. The future of our economy is at stake, and the president would have been better off not engaging in overblown rhetoric and name-calling on the op-ed page. He came across as partisan and strident about the future, instead of inclusive and thoughtful. Someone else should have signed that op-ed.

Related articles:

Persecution of the Right and the Washington Post Op-Ed page ...

www.salon.com/news/opinion/glenn_greenwald/.../washington_postCached - Similar

You +1'd this publicly. Undo

Jun 19, 2009 – Neocon Charles Krauthammer: attacking Obama for indifference to Freedom in Iran ... The Purpose of The Washington Post Op-Ed Page and The ... and "A Tragic Legacy" (June, 2007), which examines the Bush legacy. ...

http://www.washingtonpost.com/wp-dyn/content/article/2009/02/04/AR2009020403174.html?hpid=opinionsbox1
Obama's Feb 5, '09 op-ed - his first partisan attack.

Health Care: Americans Want Change While Keeping Status Quo

Washington Post op-ed

By Michael Kinsley

Friday, August 28, 2009

The reason Americans have turned against health-care reform, after electing President Obama in part for promising it, is simple: Despite protestations to the contrary, Americans don't like change. You wouldn't know it, of course, if you listen to politicians in high-pander mode, or to talk radio hosts of the right or TV pundits of the left. Or, for that matter, if you listened to the president of the United States. You would think that while we might disagree about what kind of change we want, Americans are in total agreement that the current situation is intolerable in all areas and that change -- big, immediate change -- is essential. Americans do agree about this -- in the abstract. But as soon as it seems that change might actually happen -- as soon as we leave the abstract for the particular -- we panic. We suddenly develop nostalgia for the comforts of the status quo. Sure, we want change -- as long as everything can stay just as it is.

Yes, of course, the opposition party has gotten away with some grotesque misrepresentations. But that will always be true as you move from the abstract to the particular. There will always be a Betsy McCaughey sharpening her pencils and cackling as she underlines promising sub-clauses. And she will always find something. Obama thought he could avoid this by not supplying the document. He thought -- hell, we all thought -- that Hillary Clinton's big mistake in the 1990s was too much detail. Obama said he would leave all that up to Congress. But at some point, you've got to show your hand. All Obama seems to have achieved in the end was a shift in timing -- and not an advantageous one. Instead of being in trouble almost from the beginning, his reform remained popular until it was time for Congress to vote.

The similarities to the last time we tried health-care reform are striking. Bill Clinton had campaigned on a call for change in general and health-care reform in particular. Rising costs and increasing numbers of uninsured made the system seem intolerable. There were deep disagreements about what change was needed, but whether change was needed appeared beyond dispute. Afraid of being tagged the party that prevented change, Republicans were about to give up and compromise. Then GOP apparatchik extraordinaire Bill Kristol blew the whistle. He said, better to be thought of as against all change than to be tarred as in favor of any particular change. It seemed like a lunatic idea at first, but Kristol turned out to be right -- politically. He was wrong about the actual substance of the issue. As a result, in the 14 years since, millions more are uninsured, and here we are trying reform again. I'd like to think that if it goes down this time -- when even the insurance companies are on board, promising to eliminate their odious policies about preexisting conditions -- Republicans will pay for having killed it, if indeed they do kill it. But they didn't pay the last time.

All this is similar to those polls about attitudes toward Congress that show that most people find Congress absolutely loathsome, yet are extremely fond of their own representative. Once again it's the difference between the abstract and the particular. Congress in the abstract is greedy, stupid and corrupt. It will do anything to get reelected. Your own representative, though, is Congress in the particular. And he or she is not so bad, even though he or she actually does get reelected.

Why does this happen? Some people (including me) say the voters are immature. Politicians (and those talk radio fellows again) are always telling them that they are wise and those folks in Washington are fools. Pollsters seek and validate their opinions on subjects they haven't bothered to learn anything about. Politicians drown them in benefits with no thought of how the bills will be paid. No wonder that citizens turn out like spoiled children. But "immature" is a label, not an explanation. It's just a guess, but my own suspicion is that the raucous town hall meetings that blindsided pols and press alike reflect the voters' true feelings -- misinformed, perhaps, but sincere -- and their previous passionate demands for what they now passionately oppose -- in a word, "change" -- were empty ritual. Discontent verging on anger is almost the price of admission to our political culture these days. You're nobody if you're not furious at Congress and/or the media and/or your health care and/or the president. To believe in your country's institutions is virtually unpatriotic.

This is only as long as your discontent can remain abstract, of course. When you are asked to approve of even moderate but genuine change, the status quo starts to look pretty good.

kinsleym@washpost.com

Tax cut data and statements

Did the Bush tax cuts reduce revenue? Of course.

The Heritage Foundation's Brian Riedl accuses me of committing economic malpractice and cherry-picking data on a column that argued against permanently extending the Bush tax cuts. Okay, I’ll engage on that.

First, he says I picked “highly misleading” years to look at tax revenue as a percentage of GDP. (The context was Senate Minority Leader Mitch McConnell’s assertion that "there's no evidence whatsoever that the Bush tax cuts actually diminished revenue. They increased revenue, because of the vibrancy of these tax cuts in the economy.") The first year I chose was 2000, and the reason was simple: it was the year before the tax cuts were enacted.

Riedl is correct that this was a post-World War II high. But since I was responding to McConnell’s assertion about the impact of the Bush tax cuts, that seemed the sensible place to start. And I ended with 2008 precisely to avoid the suggestion of cherry-picking. As I noted, the real recession-induced plunge has come in the last two years, with revenue falling below 15 percent of GDP.

Riedl notes that tax revenue has historically averaged 18 percent of GDP. Yes -- and in only three of the ten years the tax cuts have been in place has revenue exceeded that share. The average from 2000 to 2007 -- I’m being sporting here by lopping off the last two years, and including the year 2000 high point -- was 17.6 percent. By contrast, the average during the 1990's was 18.5 percent. Brian, who’s cherry-picking now?

Indeed, Riedl acknowledges, “Yes, the 2001/2003 tax cuts played some role in keeping revenues below their historical average for most of the 2000s, but the country was also recovering from a recession at that time, too.” This makes my point: that McConnell is wrong in contending “there’s no evidence whatsoever” that the tax cuts diminished revenue.

“To blame that entire revenue drop on the 2001/2003 tax cuts completely ignores the bursting of the stock market bubble as well as the recession,” Riedl says. But, of course, I did not blame the entire revenue drop on the tax cuts. I was simply responding to McConnell’s mischaracterization.

Some readers have pointed out, entirely accurately, that the gross amount of tax revenue rose in the aftermath of the tax cuts, although there was some decline through 2004. The government took in $2 trillion in 2000; $2.6 trillion in 2007. (I’m using Riedl’s preferred high-point year here.) This increase barely keeps up with inflation.

More important, to get back to McConnell’s assertion about the absence of evidence that the tax cuts “actually diminished revenue,” the point is: compared to what? The only logical benchmark is whether the tax cuts diminished revenue compared to what they would have been in the absence of any change, and here the answer is indisputable: the tax cuts did their intended job of returning money to taxpayers. The government took in less than it would have otherwise.

How do I know? Brian Riedl said so. Riedl found that the 2001 and 2003 tax cuts were responsible for “just 14 percent of the swing from the projected cumulative $5.6 trillion surplus for 2002-2011 to an actual $6.1 trillion deficit.”

How much is just 14 percent? Riedl did the math so I don’t have to: $1.7 trillion. Throw in other tax costs -- primarily the annual patching of the Alternative Minimum Tax, made more expensive by the existence of the Bush tax cuts -- and you get another $400 billion. Throw in the extra interest payments caused by the increased debt -- a cost Riedl conveniently omitted -- and you have $377 billion more.

Readers have also suggested that looking at the ratio of revenues to GDP is misguided because the entire theory of the tax cuts is that they would spur economic growth -- “the vibrancy of these tax cuts in the economy,” in McConnell’s phrase. That would be a fair argument -- if in fact the economy had grown at a better-than-expected rate. But it didn’t. As the Center on Budget and Policy Priorities has shown, “the 2001-2007 economic expansion was among the weakest since World War II with regard to overall economic growth.” Even singling out the boomiest years -- 2003-2007 -- growth in GDP was below average.

Riedl says that in arguing against a permanent extension of the tax cuts, I am putting blame in the wrong place. “As a deficit hawk, Marcus should focus on the actual source of rising long-term deficits -- rising entitlement spending -- rather than blame the tax cuts for a spending problem,” he concludes. Well, my column was about the Republican insistence that taxes cannot be allowed to go in any direction but down; I’ve spent plenty of ink lamenting the entitlement problem.

But even this year, with the economy struggling, the tax cuts account for one-fourth of the deficit, according to estimates by the Center on Budget and Policy Priorities. By 2019, when the economy will presumably have improved, the tax cuts will account for almost three-fifths of the projected deficit.

Meanwhile, Riedl makes the role of tax cuts in future deficits look smaller by assuming -- contrary to the standard practice of the Congressional Budget Office and the Office of Management and Budget -- that spending will grow with GDP rather than with inflation. If you build more spending into your assumptions, you’re going to find that spending is a bigger share of the problem.

Brian, have a cherry. They’re in season.

What Obama has done with the hand dealt him.

By MICHAEL J. BOSKIN

When it comes to the economy, presidents, like quarterbacks, often get more credit or blame than they deserve. They inherit problems and policies that affect the economy well into their presidencies and beyond. Reagan inherited Carter's stagflation, George H.W. Bush twin financial crises (savings & loan and Third World debt), and their fixes certainly benefitted the Clinton economy.

President Obama inherited a deep recession and financial crisis resulting from problems that had been building for years. Those responsible include borrowers and lenders on Wall Street and Main Street, the Federal Reserve, regulatory agencies, ratings agencies, presidents and Congress.

Related Video

Editorial page editor Paul Gigot on President Obama's jobs plan.

Mr. Obama's successor will inherit his deficits and debt (i.e., pressure for higher taxes), inflation and dollar decline. But fairly or not, historians document what occurred on your watch and how you dealt with your in-box. Nearly three years since his election and more than two years since the economic recovery began, Mr. Obama has enacted myriad policies at great expense to American taxpayers and amid political rancor. An interim evaluation is in order.

And there's plenty to evaluate: an $825 billion stimulus package; the Public-Private Investment Partnership to buy toxic assets from the banks; "cash for clunkers"; the home-buyers credit; record spending and budget deficits and exploding debt; the auto bailouts; five versions of foreclosure relief; numerous lifelines to Fannie Mae and Freddie Mac; financial regulation and health-care reform; energy subsidies, mandates and moratoria; and constant demands for higher tax rates on "the rich" and businesses.

Consider the direct results of the Obama programs. A few have performed better than expected—e.g., the auto bailouts, although a rapid private bankruptcy was preferable and GM and Chrysler are not yet denationalized successes. But the failed stimulus bill cost an astounding $280,000 per job—over five times median pay—by the administration's inflated estimates of jobs "created or saved," and much more using more realistic estimates.

Cash for clunkers cost $3 billion, just to shift car sales forward a few months. The Public-Private Investment Partnership, despite cheap federal loans, generated 3% of the $1 trillion claimed, and toxic assets still hobble some financial institutions. The Dodd-Frank financial reform law institutionalized "too big to fail" amid greater concentration of banking assets and mortgages in Fannie and Freddie. The foreclosure relief program permanently modified only a small percentage of the four million mortgages the president promised. And even Mr. Obama now admits that the shovels weren't ready in all those "shovel-ready" stimulus projects.

Perpetually overpromising and underdelivering is not remotely good enough, not even for government work. No corporate CEO could survive such a clear history of failure. The economic records set on Mr. Obama's watch really are historic (see nearby table). These include the first downgrade of sovereign U.S. debt in American history, and, relative to GDP, the highest federal spending in U.S. history save the peak years of World War II, plus the highest federal debt since just after World War II.

The employment picture doesn't look any better. The fraction of the population working is the lowest since 1983. Long-term unemployment is by far the highest since the Great Depression. Job growth during the first two years of recovery after a severe recession is the slowest in postwar history.

Moreover, the home-ownership rate is the lowest since 1965 and foreclosures are at a post-Depression high. And perhaps most ominously, the share of Americans paying income taxes is the lowest in the modern era, while dependency on government is the highest in U.S. history.

That's quite a record, although not what Mr. Obama and his supporters had in mind when they pronounced this presidency historic.

Enlarge Image

Close

President Obama constantly reminds us, with some justification, that he was dealt a difficult hand. But the evidence is overwhelming that he played it poorly. His big government spending, debt and regulation fix has clearly failed. Relative to previous recoveries from deep recessions, the results are disastrous. A considerable fraction of current joblessness, lower living standards, dependency on government and destroyed savings is the result. Worse, his debt explosion will be a drag on economic growth for years to come.

Mr. Obama was never going to enthusiastically embrace pro-market, pro-growth policies. But many of his business and Wall Street supporters (some now former supporters) believed he would govern more like President Clinton, post-1994. After a stunning midterm defeat, Mr. Clinton embarked on an "era of big government is over" collaboration with a Republican Congress to reform welfare, ratify the North American Free Trade Agreement and balance the budget. But Mr. Obama starts far further left than Mr. Clinton and hence has a much longer journey to the center.

The president still has time to rebound from his economic policy missteps by promoting permanent, predictable policies to strengthen forecasted anemic growth. But do Mr. Obama and his advisers realize their analysis of the economic crisis was flawed and their attempted solutions mostly misconceived? That vast spending, temporary tax rebates and social engineering did little of lasting value at immense cost? That the prospect of ever more regulation and taxation created widespread uncertainty and severely damaged incentives and confidence? That the repeated attempts to prevent markets (e.g., the housing market) from naturally bottoming and rebounding have created confusion and inhibited recovery?

Can Mr. Obama change course, given the evidence that the economy responded poorly to top-down direction from Washington rather than the bottom-up individual initiative that is the key to strong growth? Is he willing to rein in the entitlement state erected under radically different economic and demographic conditions? And will he reform the corporate and personal income taxes with much lower rates on a broader base? Or is he going to propose the same failed policies—more spending, social engineering, temporary tax cuts and permanent tax hikes?

On the answer to these questions, much of Mr. Obama's, and the nation's, future rests.

Obama, Tiger, Golf and Politics

By Tom Freidman, NYT, August 23,2011

Despite the carping by critics, I’m glad the president went on vacation because one of the most useful things he could do right now is play golf — a lot of golf — but not that friendly foursome thing with his aides that he usually does. No, real golf: Match play, head to head, with real money on the line. Match-play golf is a great teacher. As any good golfer will tell you, the first rule of match play is this: Never play not to lose. Do not wait and hope for your opponent to make a mistake. Always play the course, always play to win and always assume your opponent will do well — will make that long putt — so you have to do better.

For months now, Obama has been playing not to lose, keeping his own plans for a “Grand Bargain” on debt, deficits, taxes, jobs and investment vague, while waiting for the Republicans to say crazier and crazier stuff — like promising the return of $2-a-gallon gasoline, or insisting that climate change was made up by scientists to get research grants (but politicians taking millions from oil companies can be trusted to tell us the truth on this issue), or that Texas has a right to secede. But while the G.O.P. candidates have been obliging the president with their nuttiness, it has not helped Obama’s poll ratings.

Many Americans can see that most of these G.O.P. candidates are closer to professional wrestlers than politicians — with their fake body slams and anti-Obama bluster. All they are missing are the Tarzan outfits. This is the silly season. But I would not assume that Republicans won’t come up with more serious candidates when it counts, or that some of these candidates won’t move to the center. I would definitely assume that they’ll do better.

That’s why the last few months have been so worrying to Obama supporters. Obama surprised everyone by broaching the idea during the debt negotiations of a “Grand Bargain” — roughly $3 trillion in spending cuts over the next decade and $1 trillion in tax increases — as a signal to the markets that we’re getting our fiscal house in order. It was absolutely the right idea — as long as it is coupled with investments in infrastructure, education and research — but House Speaker John Boehner could not deliver his Tea Party-led G.O.P. caucus.

Yet rather than flesh out his Grand Bargain in detail and take it on the road — and let every American everywhere understand and hear every day that he had a plan but the Republicans wouldn’t rise to it — Obama dropped it. Did he ever try to explain the specifics of his Grand Bargain and why it was the only way to go? No.

This left his allies wondering whether he was committed to it — and really did have his own party on board for it. And it left his opponents thrilled and setting the agenda themselves. It is why Obama’s recent bus tour fell flat. People don’t want to cheer just the man anymore. They want to cheer the man and his plan — a real plan, not just generalities and tactics to get him re-elected with 50.0001 percent and no real mandate to do what’s needed to fix the country now.

Without his own Grand Bargain on the table — imprinted on the mind of every American — Obama has been left playing defense, playing to get the least-bad deal, or playing not to lose. That’s what’s producing all the “What happened to Obama?” talk and its silly variants. (He’s a loser; he’s not very bright; he’s Jimmy Carter.)

It’s all nonsense. Obama is smart, decent and tough, with exactly the right instincts about where the country needs to go. He has accomplished a lot more than he’s gotten credit for — with an opposition dedicated to making him fail. But lately he is seriously off his game. He’s not Jimmy Carter. He’s Tiger Woods — a natural who’s lost his swing. He has so many different swing thoughts in his head, so many people whispering in his ear about what the polls say and how he needs to position himself to get re-elected, that he has lost all his natural instincts for the game. He needs to get back to basics.

It’s crazy what’s happening in America today: We’re having an economic crisis and the politicians are having an election — and there is almost no overlap between the two. The president needs to bring them together. But that can only happen if he stops playing not to lose and goes for broke himself. Our problems are not insoluble. We need a Grand Bargain — where each side gives something on spending, taxes and new investments — and we’re on our way out of this.

Run on that, Mr. President: At best you’ll generate enough public pressure (now totally missing) to shame sane Republicans into joining you, and we’ll get a deal, and at worst you can run in 2012 on a platform, which, if you win, will actually give you a mandate for the change the country needs.

Meanwhile, Mr. President, on a rainy day, rent the movie “Tin Cup.” There is a great scene where Dr. Molly Griswold is trying to help Roy “Tin Cup” McAvoy, the golf pro, rediscover his swing — and himself. She finally tells him: “Roy ... don’t try to be cool or smooth or whatever; just be honest and take a risk. And you know what, whatever happens, if you act from the heart, you can’t make a mistake.”