President Obama has invited Republican leaders to the White House today for an “economic summit.” But it won’t be a “summit” at all: Obama plans to lay out his ideas for huge tax increases, massive reductions in defense spending — including in Iraq and possibly Afghanistan — and won’t seek Republican input to change his agenda.
Obama’s leadership failed its first two important tests, and is about to fail again. Last October, then running mate Joe Biden prophesied that Obama would be tested by a foreign crisis quickly. Biden told a Seattle audience that they’d need to stick with him and Obama because their decisions wouldn’t seem correct initially. He begged for time.
But the economic crisis challenged Obama’s leadership before our foreign enemies could. Obama has failed twice and there is little reason to believe his leadership will improve. His political character isn’t built on leadership skills. In the first two tests he hasn’t demonstrated it.
First, instead of crafting a stimulus bill himself — or even actively participating in it — Obama let the Pelosi Democrats run off with it. And their product was so bad — so full of pork and costly liberal nostrums that pass enormous fiscal burdens to the states — that several Democrats joined the unified House Republicans in voting against it. Now Obama is facing off with almost a dozen state governments that want to reject the money because of the strings attached.
The second failure was in building expectations about the new bank bailout plan that was announced last week by serial tax evader and Treasury Secretary Tim Geithner. Before Geithner unveiled the plan, Obama said, “He’s going to be terrific.” Again and again, Obama raised expectations, saying Geithner would be “clear and specific.”
Obama led the financial markets to believe that there would be a plan specific enough for them to rely on in making investments. But he defaulted to Geithner, apparently letting the supposed economic maestro devise and then describe a plan that was comprehensively vague.
Obama didn’t lead: he let Geithner go ahead with a plan so lacking in details that the spurred the markets to continue their panic. Geithner said, “We will have to adapt it as conditions change. We will have to try things we’ve never tried before. We will make mistakes. We will go through periods in which things get worse and progress is uneven or interrupted.”
Geithner promised instability in policy. As a direct result, the market slid even while Geithner was speaking, falling 382 points that day. The Dow Jones fell about 500 points from February 10, when the plan was announced, to Friday’s close at 7365, the lowest close in about six years.
Tomorrow night, Obama will deliver a speech to a joint session of Congress — his first, a “state of the union” speech without the label — promising higher taxes and cuts in some government spending, especially on the war in Iraq. He apparently plans to claim that his budget initiatives will cut the trillion-dollar deficit by two-thirds by the end of his first term.
According to press reports based on leaks of the speech (and the budget plan to be delivered to Congress Thursday) Obama will seek a hike in the capital gains tax, which is the surest way to depress investment in the economy. He will also propose spending cuts in defense as well as new spending programs on global warming and such. If ever there were a recipe for continuing our economic slide into a depression, this is it.
Obama is selling our economy short, and the stock markets will take that hint today and tomorrow. It is their form of rebellion, mirroring the states that are refusing the stimulus money.
Obama’s speech tomorrow night may be his last chance to assert leadership on the economic issue. In it, he can do three things to begin the process of recovering from the economy’s equivalent of an aircraft’s flat spin. He can work the engines and the rudder pedals. Or he can pull the ejection seat handles and — again — abandon the controls to the Congressional Democrats who have all but flamed out the economic engines.
To recover from this economic crisis, the principal job of the president is to restore confidence in the markets both among the investors and the markets themselves. Leaders inspire confidence in those he wants to follow. They do that by earning that confidence with specific ideas and following through on them.
First, President Obama has to end his doom and gloom descriptions of our economic crisis. Obama’s Dr. Doom rhetoric compares poorly to that of the last president facing such challenges. Franklin Roosevelt — in his 1933 inaugural address — took an entirely different approach.
Roosevelt in 1933 said there was nothing to fear but fear itself, and called upon Americans to unite to restore our economy. Obama has, so far, embraced fear and used it to stampede Congress to act quickly even at the risk of getting it wrong. Obama has to reject fear and give us reason to hope that his policies will help our economy recover. Those reasons cannot be things such as capital gains tax hikes which even liberal economists admit will reduce the amount of taxes the government collects.
Second, Obama’s speech can do what Geithner failed to do in explaining his bank bailout plan and his later explanation of the $75 billion the administration plans to spend to help defaulting mortgage holders. Obama — if he has any hope of stopping the market’s panic — has to give details on how the credit markets will be revived. He needs to say specifically whether banks will be nationalized or not, or bank stocks will continue to tumble. And — to prevent the Chicago Tea Party protest by market traders promised by CNBC’s Rick Santelli — he can demand that the mortgage support program won’t reward bad behavior.
Third, Obama has to demonstrate that his policies are not going to continue to be nothing more than trial and error. He has to call for stability that industry and investors — the millions of Americans who invest their savings and pensions in the stock markets — can rely on for at least the remainder of his presidency. If stability in policy cannot be reached, investors both domestic and foreign will continue to run away from American equities.
The world is not flat, as New York Times columnist Thomas Friedman wrote in his book by that title. The world is curved, as David M. Smick proves in his book so titled. Neither taxpayers — most of whom are investors — nor industry leaders can see beyond the horizon of time. Only stable government policy — taxing and spending policy — can extend the horizon. Obama has to extend it as far as the next presidential election.
Louisiana Gov. Bobby Jindal has been chosen to give the Republican response to Obama’s Tuesday night speech. The best thing he can do in preparation would be to read Smick and understand this: there are taxpayers who are literally invested in America’s economic future. And there are others — those who don’t pay taxes and those who want to use the American economy as test bed for liberal experiments — who are not. It is the former, not the latter, whose confidence must be regained.
American taxpayers have lost confidence in government for many good reasons, not the least of which is the instability of policy — going back to the Bush-Paulson bailout debacle — and reinforced by the failure of Geithner’s plan to say more than Churchill said of the Chamberlain government: we won’t make the same mistakes, we’ll make a whole new set of them. Geithner’s statement of his “plan” wasn’t leadership: it was a confession of incompetence.
Barack Obama is not a leader by nature. But can he find in himself the qualities of leadership necessary to end the financial panic? What he doesn’t do, Jindal must.
*Cartoon by Brett Noel.