Thursday, May 7, 2009

Obamanomics - Redefining Capitalism

  • This piece from the Times partly addresses Obama's pragmatism and questions whether he'll be able to achieve his broader goals, but in these excerpts, I've emphasized the goals themselves.

    • Mr. Obama has begun to sketch a vision of where he would like to drive the economy once this crisis is past. His goals include diminishing the consumerism that has long been the main source of growth in the United States, and encouraging more savings and investment. He would redistribute wealth toward the middle class and make the rest of the world less dependent on the American market for its prosperity. And he would seek a consensus recognizing that an activist government is an acceptable and necessary partner for a stable, market-based economy.
    • “We cannot rebuild this economy on the same pile of sand,” he said last week.
    • For the better part of half a century after World War II, democratic capitalism built its modern framework against the backdrop of its death match with totalitarian Communism. In the two decades since the fall of the Berlin Wall, the American model of capitalism, largely unchallenged by ideological alternatives and increasingly dominant around the world, drifted toward what conservatives viewed as a more pure form of economic liberty and what liberals came to view as misguided free-market fundamentalism.
    • But now, as the United States and other nations look for lessons in the wreckage from the excesses of that period, political leaders are confronting uncertainty about what economic structures and values should define capitalism’s next chapter. Even before the current crisis, there were calls to rethink basic assumptions about the economy. Growth during the Bush presidency was slower than in any decade since before World War II, and incomes for most families have been growing slowly for much of the last three decades.
    • Mr. Obama is stepping into the debate characteristically intent on avoiding polarizing labels, and his advisers describe his philosophy in terms of pragmatism rather than ideology.
    • They said that the president’s approach is based on a belief that recent economic cycles were driven too much by financial engineering; reserved most of the fruits of good times for the wealthy; relied excessively on foreign capital to finance domestic debt; and ultimately gave way to painful busts. Mr. Obama, they said, simply wants a more stable economic model.
    • "...the expansion is likely to be more secure and its benefits more widely shared,” said Lawrence H. Summers
    • Arthur C. Brooks, president of the American Enterprise Institute, the conservative research organization, said of the administration, “They want much more of a European-style social democracy in which people are far less exposed to the vicissitudes of a market economy, and they want to have much easier access to manipulating the private-market economy.”
    • Mr. Brooks said it was “overheated and silly” to suggest that Mr. Obama was leading the United States into socialism, but that even an effort by the administration to “file off the rough edges of capitalism” would no doubt prompt a continued strong backlash from people who object to the direction the president is heading. “Of course conservatives are overstating the case against him because they want to win again, just like the left massively overstated the case against Bush,” he said.
    • ...even liberals allied with him suggest that the risk is that his ambition will prove too limited rather than too expansive.
    • “Again and again, Obamanomics, as well as his instincts in other areas of domestic policy, has been animated by a bold vision of what we need to do but has been quite cautious in practice,” said Robert Reich, who was labor secretary under President Bill Clinton and advised Mr. Obama in the campaign.
    • He would be willing to use the usual liberal policy tools to redistribute wealth after a recent period in which the gains have gone primarily to a relative few at the top of the income scale. But he would stress personal responsibility rather than entitlement.
    • ...reduce the degree to which the United States is a consumer-driven economy — or at least to develop policies that recognize the likelihood that consumer demand cannot grow at the rates it has been without being accompanied by a growing and destabilizing mountain of debt.
    • “We must lay a new foundation for growth and prosperity — a foundation that will move us from an era of borrow and spend to one where we save and invest, where we consume less at home and send more exports abroad,” Mr. Obama said in his economic speech last week.
    • Embedded in that approach is a far-reaching implication: that the rest of the world should no longer count on the United States to snap up imported goods or run up large trade deficits.
    • It is by no means clear that Mr. Obama has the policy tools needed to bring about that kind of change; we are, after all, fundamentally a consumer society.
    • His advisers point to his support for innovative ways of increasing personal savings. To drive economic growth in the place of debt-fueled consumption, Mr. Obama is banking on the emergence of alternative fuels, pollution-limiting technology, health care technology and other new industries linked to broader policy goals.
I guess this begs the question, what "innovative ways of increasing personal savings" does President Obama have in mind? The phrase makes me think of behavioral economics--in particular, the recent popular books Predictably Irrational (Dan Ariely) and Nudges (Thaler & Sunstein). On that model, we need to trick ourselves into saving more and living within our means. It's not a bad idea. We trick ourselves into dieting, exercising, and yes, saving money (by having it diverted automatically from our paychecks, for instance).

The idea that American consumerism shouldn't drive the global economy has a lot of appeal.

Posted from Diigo.

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