Thursday, January 06, 2011

Are You Ready for Four More Gloomy Years?

Here's my forecast. It's gloomy for the short run (next four years), but more optimistic for the longer term. The list below starts with observations about the recent past and present, then moves into the future.

  1. Rubinites are good guys.

    I'm referring to the followers of Robert Rubin, Treasury Secretary in the Clinton Administration. Clinton was very successful, thanks in part to Rubin and company. Larry Summers was another prominent Democratic economist in this era.

    Barack Obama has relied upon Rubinites to manage the economy thus far in his administration. Larry Summers was his chief economic adviser, before resigning recently. The most likely candidate to succeed Summers is Gene Sperling, who held the position of director of the National Economic Council during the Clinton Administration. Sperling is a good guy, but his experience and views seem to be in the Rubinite mold.

    The previous director of the Office of Management and Budget (OMB) in the Obama Administration, Peter Orszag, recently left the Obama team to become Vice Chairman of Global Banking at Citigroup. The new director of OMB is Jacob Lew. Lew previously served as managing director and chief operating officer of Citi Global Wealth Management and then Citi Alternative Investments (CAI). Did I mention that Robert Rubin worked at Citigroup, including a stint as Chairman, after leaving the Clinton Administration?

    Obama's newly appointed chief of staff, Bill Daley, served as U.S. Secretary of Commerce from 1997 to 2000 and is a lawyer and business executive. Currently, he is serving on the Executive Committee of J.P. Morgan Chase & Co.

    These are some of the good guys on Wall St. Other Wall Street players are rabid and greedy Republicans (but I repeat myself). The Rubinites are wealthy, but want to use their resources to level the playing field, not only within the U.S. but around the world. That may be an exaggeration, but there is no doubt that there is big difference between the Democrats and Republicans on Wall Street.

  2. The Rubinites have been wrong on a couple of the most important economic issues of our time.

    1. They understate the role that the federal government should play in addressing our economic problems. They worry excessively about the federal budget deficit.
    2. They have clearly misjudged the harm that would be done to the American middle class by opening up our economy to competition from countries such as China. Their vision of a fully employed knowledge-based economy is proving illusory.
    3. They failed to recognize the housing and finance bubbles that were propping up the U.S. economy during the aughts. In fact, they were participants in the financial bubble, though certainly not among the worst offenders.

  3. Obama is in trouble, because of his excessive reliance on the Rubinites. Under Obama's leadership, the Democrats suffered devasting defeats in the 2010 midterm elections.
  4. The Republicans are in even worse trouble. The Republicans are even more reliant on erroneous economic philosophies, and are less flexible. The Republicans were thrashed in 2008 for good reason, but show no signs of having learned any lessons and are headed even further in the wrong direction. Republicans are even more wedded to the status quo than are Democrats, and the public is becoming increasingly dissatisfied with that status quo.
  5. The economy remains sick and the stock market will relapse in 2012, if not before. Recent improvements are cosmetic. Economic stagnation in the aughts was masked by housing and finance bubbles. Those bubbles have popped and economic activity has fallen back considerably, with no replacment engines of economic growth in sight.
  6. The presidential election of 2012 will result in a Pyrrhic victory for the Republicans. Obama will be hobbled by the same general dissatisfaction with the status quo that clobbered the Democrats in 2010. Many progressives will jump ship and support a primary challenge, or just refuse to work for Obama's reelection. The Republican nominee will also be dogged by populist opposition from within his own party. Huckabee will probably be the most popular Republican, but the GOP runs on money and a corporatist such as Romney will probably get the nomination and win the election.
  7. The economy will slip into a depression as Republican policies leave tens of millions jobless, while deflation becomes entrenched.
  8. By 2014, Democratic progressives will be ascendant, with the Rubinomics practiced by Obama thoroughly discredited.
  9. Progressive Dems will rack up big victories in 2014 and 2016, and strong government policies will lead the nation out of depression in the latter teens...


  • Interesting and cogent analysis; chronologically speaking every point seems at least plausible. I think you're giving the Rubinites a little too much benefit of doubt -- the fact that they have a bit more broad minded view about the role of government shouldn't exonerate them from making such catastrophic errors in judgement. In fact, it was the supposedly "neo-liberal" denizens of wall-street that lent credibility to the underlying assumptions and oversights that led to the unsustainable economic model of the bast few decades; without them, the business friendly New Democrats may not have been able to crowd out the traditional populist left in redefining and reframing the agenda of the Democrats.

    One question though: you say that "strong government policies" would have prevented this decline, and will eventually get us out of a depression after a progressive resurgence...what exactly do you mean by this? Which policies do you think might reverse decades long domestic stagnation and the effects of globalization?

    By Blogger Jordan, at 11:47 AM  

  • Good comments. Thanks. I agree with your remarks on the neo-liberal Democrats.

    As for what specific government policies might reverse decades long stagnation and effects of globalization, here some suggestions:

    1. More and better health care reform.

    2. Increased taxes on investment income and other taxes on the wealthy.

    3. Continuation of the payroll tax cut and other breaks for the working poor.

    4. Government employer of last resort job programs for infrastructure and other public needs.

    In short, we need to put people to work, with greater fairness and balance in income distribution, an improved safety net, improve our infrastructure, and improve our automatic economic stabilizers.

    By Blogger Detroit Dan, at 8:25 PM  

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