The Obama Campaign

One of the driving forces behind Obama’s current failures is his inability to switch from being a campaigner to a leader. His foremost skill-set/tactic was that of being a great mobilizer and orator. He was able to latch-on to and stimulate the popular anger. He was able to inspire and incite new voting blocs- particularly the youth. Furthermore, he was successful in being able to point his finger at the establishment and pass blame. He was masterful at this and it pushed him straight into the White House. All of this is worth spending some time on and studying, especially if the new Republican establishment wants to be successful.

However, this seems to be the only amazing talent that Obama possesses. He has utterly failed to make the transition from campaigner to president. This can easily be seen in the AIG disaster, where rather than positioning himself as the President and leader of a failing economy, he jumped on the bandwagon of name calling and finger pointing. This tactic would have been potentially useful as a candidate, but as we have seen in the news, as President it has completely blown up in his face.

Likewise, we see this failed transition in his general management of the economy and his inability to be bipartisan. He has failed to draw Republicans across the aisle and has given near free reign to Congressional Democrats. He has failed to stand as a leader and offer the market strong ideas and confidence in our future.

This has hurt him deeply. Overall, America’s confidence in Obama has fallen. What America liked in him during his campaign was exactly his ability to campaign (this is also why he beat Clinton). America liked that he disparaged the past eight years. He is now showing that there really was no substance to this form. That, as most McCain supporters saw, there was no depth to his ideas. I liken him to a cocky college freshman, who struts onto campus, head filled with pride after having been a high school senior for a year. Just like the freshmen, Obama talks a big game, thinks he can take on the world no problem.

We are now entering those first finals- when the reality is beginning to sink in. Obama has fortunately pulled back in his campaign styled rhetoric and showing a little more presidential flair. Hopefully, this sticks. I don’t want any further damage done to this country. But I doubt that he has the abilities to serve as the leader this country needs. Maybe he’ll learn in the next few years- but I think he is more likely to be Jimmy Carter II than the Great Changer that he campaigned on.

Welfare Moms and Bailout Banks

Unfortunately, it has become far too acceptable, in modern American society, to expect government handouts. Through a long history of increased government assistance and programs, society has developed an inflated notion of entitlement. This problem is clearly seen in two nearly dichotomous phenomena in the news today- Nadya Suleman (the invitro-welfare mother of 14) and the economic bailout. In both instances, we see the excess of government “entitlements” run rampant.

The key parallel is that in both instances the government is serving as an enabler of poor behavior. By serving as an overinflated safety net, the government is encouraging future individuals or groups to behave in a similar fashion. Clearly, Suleman has seen no incentive to stop having children despite her past (and current) status of being on welfare (which she ironically denies is welfare). Likewise, what incentives will future investment bankers have to avoid taking on too much risk (or more properly, mispricing risk)? The government’s actions today essentially limit the downside risk an individual or group can face. This risk assessment is naturally a huge factor when an individual or group is making a decision. If they foresee less risk, because they know the government will bail them out, they will be more willing to make risky, poor decisions. This in turn spirals downward, increasing the role of the government and negating the individual’s personal responsibility.

Do not make the conclusion that I am calling for a complete end to social welfare or that I believe the government should completely be laissez-faire in dealing with the economic crisis. I don’t believe either. What I do believe is that government policies should be more principle-based (rather than rules-based). This is particularly true in the case of welfare. Abuse of the system should be punished harshly; thereby, precluding people from taking advantage. Welfare should only be available to those who absolutely need it AND who are taking steps not to need it any more. Abusers such as Suleman should not only be precluded from collecting any form of government aid but should be punished for their abuse. It would be worthwhile to consider charging her with child abuse (in regards to her current children and for purposefully and irresponsibly bringing 8 new children into the world when she does not have the means to support them). [The doctor who performed the procedure should at a minimum have a moral, if not a legal responsibility, not to perform elective procedures that will become a burden on the state- but this is a separate discussion]. Government resources should be used for the truly needy, in a more discretionary fashion that allows greater scrutiny in distinguishing between abusers and the truly disadvantaged.

Likewise, the economic bailout needs to be focused in more general fashions. I do believe that the government has a role to play in righting the economy. But, it does not mean just throwing away money to failing industries. The auto industry is a prime example. Giving a largely unrepentant, inflexible, and poorly structured industry a vast some of money only incentivizes it to continue its broken ways. What reason would GM have to make radical new changes if it gets money when it messes up? Furthermore, by supporting the old dinosaurs we squash the new upstart innovators that may have better and more efficient products and methodologies (and those we don’t squash will just set up shop in other countries). There will certainly be costs if the auto industry fails- but a few short term costs are much better if they enable a long term fix. We suffer more harm by building on a broken foundation rather than just tearing down the building and starting anew. (This is partially our own fault by having policies which encourage anticompetitive industries that are too heavily reliant on two or three companies).

The bottom line is that the government has to step back- let people and corporate entities fully assess the risk of a situation without the promise of bailout from Uncle Sam. If each actor knows they might have to fend for themselves, they’ll take the appropriate responsibility to make sure they are heading down the right path. Maybe it is simply tough love- after all, we would all ridicule a parent for doing their child’s homework because the child struggles. Sometimes failure is necessary to ensure that individuals learn the correct way to act, and thereby prevent future failure.

Cut off Our Nose to Spite Our Face

Today’s passage, in the House, of the 90% tax on bonuses received by employees of companies receiving bailout money is economically foolish and quite possibly unconstitutional. It stands as another testament of the failure of our government to think rationally and unselfishly in order to help this economy. The Democratic s, and unfortunately about half of Congressional Republicans, are quickly adding to a long series of failed policies.

While I am no Constitutional expert, this bill seems highly likely to be unconstitutional. The bill essentially violates Article 1, Section 9 of the constitution that forbids the legislature from passing bills of attainder or ex post laws. In other words, Congress does not have the right to punish individuals or groups without trial. This law serves as a direct, and ex post, punishment of anyone who happens to work at a company that accepts bailout money.

Along this line, it is also fair to note that this bill is indiscriminate in that it equally punishes those who have done well and poorly. Many of the people that made ruinous mistakes are long gone. Their replacements should not be punished for the misdeeds of their predecessors. Likewise, these companies are large and complex. One division could have performed poorly, while another was stellar. Is it fair to punish a division within AIG that had strong profits this year? It is not the government’s but management’s place to make these decisions.

Constitutionality aside, the proposed law is economically insane. This policy will only serve to further America’s economic plight. First, if anything, the bill will induce a huge flight of talent and make retention next to impossible at any bailout company. When these companies are at their most needy, we want to design policies that entice the most talented people to work on fixing the problem. What talented manager will continue (or start) to work at a bailout company if they not only have the risk of being on a sinking ship, but now have severely reduced opportunities of compensation. They’ll just as easily move to a competitor who can pay them more.

Furthermore, the companies that recognize this and want to avoid such a flight of talent will naturally change their compensation structures. Simply, they could increase salaries to offset potential bonuses. This makes the legislation ineffective. Simultaneously, it serves to divert management’s focus from fixing their business to finding creative ways to compensate their employees. This is a huge waste of time and money that we cannot afford right now. In addition, if employees are more heavily compensated with salary, instead of bonuses, their incentives to work long and hard hours are reduced. Finally, companies take on much greater risk with fixed salaries, rather than flexible bonuses which can be tailored based on personal and company performance. This detracts from the ultimate goal of fixing the economy.

Secondly, this proposed law will reduce incentives for companies to accept bailout money. This policy is clearly counterproductive when coupled with the bailout. If the Democrats think a huge bailout program is necessary, there is no better way to thwart that than by un-incentivizing companies from accepting the money. It is like extending a leprous hand, knowing you may help someone stand but ultimately kill them from the disease.

Furthermore, the policy only serves to destroy market confidence. It reeks of nationalization and excessive government involvement. Who will invest in companies that, as pointed out above, have even more reasons to fail? It is unnerving to think that the pompous fools in Congress think that this is going to help our market confidence- one of the main things that is needed in this environment. Also, it’ll continue to undermine consumer confidence and spending, creating yet another downward pressure on individuals’ desires to purchase goods (or even pay their mortgages).

It is all too clear why such a bill gained such traction; why half the Congressional Republicans voted for it. It is simple, unbridled populism. It is far too expedient and politically beneficial for these legislators to stoke the anger in the people and then come to ‘save the day’. Unfortunately, saving the day is the last thing that will happen here. Rather, these congressmen and women are using the angry masses and these proposed policies for political expediency. Barney Frank and Nancy Pelosi know they can get Joe-Six-Pack into a furor by blaming his plight on Wall Street, and then look like a hero when they punish Wall Street. Not only does this negate Joe’s, Barney’s and Nancy’s culpability, but it doesn’t just punish Wall Street, it punishes all of America.

People may feel a bit angry at Wall Street- and possibly rightly so. But the channeled rage that the President and Congress are creating is not constructive, but destructive. We need to be focusing on fixing problems, not pointing fingers. This is especially true, because, as I pointed out elsewhere, there is not one group of people responsible. We cannot start drawing lines and finding scapegoats, but come together to find real, smart, economic solutions to this mess.

[Just a note -I could care less if the management at AIG received bonuses. That isn’t the point. The point is that the government should not be getting involved in such issues. If the government deems it appropriate to give taxpayer dollars to companies than it has to accept that the money will be spent by the companies. The bigger the role it plays it deciding how a company spends this money the closer we slide down the slope of nationalization and state control- a place no one [hopefully] wants to go.]

Obama = Change?

There was a phenomenal op-ed in today’s Wall Street Journal. (http://online.wsj.com/article/SB123734209584965205.html#mod=djemEditorialPage). It really speaks to the divergence between Obama’s rhetoric and action; and to the blind, mob-like naïveté of the masses who elected Obama in the first place.

It is common knowledge that Obama ran and won on an anti-Bush campaign. “Change” was his moniker, and change was presumably what America wanted. But as many supporters of McCain knew, change was artificial. Not only was making any substantial changes going to be difficult, but more importantly it was just downright poor policy. Many of the Bush era policies were well thought-out, necessary and appropriate. Obama, however, knew that an anti-Bush campaign was a ticket to the White House. He therefore campaigned by using language that disparaged Bush’s policy. This was apparently done in contrast to Obama’s knowledge that such policies were beneficial. [It is possible that he didn’t know at the time that these policies were worthwhile and is only learning now. It is a much scarier thought; however, that the man did not have a basic understanding of how things worked when running for the office of President.]

While I must say that the supposed failure to change the enemy combatant policy, as the WSJ points out, is something that I am pleased with; however, the author’s point that Obama gets far less criticism than Bush for the very same policy is a bit scary. This speaks to a couple phenomena that are disheartening: 1) that Obama is willing to distort his message and use slogans and rhetoric in order to achieve his political goals; and 2) the fact that anti-Bushism (which has often been extended to anti-Republicanism) combined with the godlike aurora that surrounds Obama has blinded so much of America into giving Obama nearly free rein.

The bottom line is that Obama sold America an image, not substance, and unfortunately America bought it. He is quite easily proving this with his horrible management of the economy, as well as with his inability or unwillingness to make the changes he promised (of course often with much positive benefit for America). The scary thing is that America could be bought so easily.

The Fundamentals are Sound

Obama’s use of the recession for political expediency is despicable. Recently, Obama’s advisor stated that the ‘fundamentals of the economy are sound’ (see http://www.msnbc.msn.com/id/29706224) . This stands in stark contrast to Obama’s criticism of McCain’s identical statements during the election. Obama (successfully) criticized McCain’s comments, painting McCain as out of touch. McCain was correct all along, yet lost the election because Obama sowed fear by using the struggling economy to link a correct ideology to the unpopular (and perceived ‘out-of-touch) Bush era Republican policies.

The fact of the matter is that the fundamentals of the economy are absolutely sound. The ideals and mechanisms that drive the American capitalist system and ideology are in complete working order. There are certainly issues that need to be addressed, mistakes that were made, and gaps in the system; but this does not negate the fact that the fundamentals are sound. McCain knew it; Obama knew it- he just did not state it- so he could win an election.

Unfortunately, Obama’s behaviors were malicious and detrimental to the economy. Obama continues to paint a bleak picture and pass blame. While he struggles to try and right the economy, he is only shooting himself, and America, in the foot with his negativity. His consistent criticisms of Wall Street only serve to undermine market confidence. Obama’s attempt at appealing to Main Street is divisive and unhelpful. He speaks with the populist air that wrongly puts all the blame on Wall Street and lets the foolhardy behavior of Main Street off the hook. He angers America by throwing large chunks of money in a wasteful bailout plan and then criticizes the recipients. He is repeatedly drawing lines in the sand and trying way too hard to find a scapegoat.

The fact of the matter is, is that the economic failure was caused by a myriad of factors. No one party is uniquely culpable. In fact, nearly all are at fault. Homeowners and consumers were foolish to spend far beyond their means- taking out loans to buy houses and consumer goods that could never possibly afford. A Ponzi scheme at its worst- consumers took out massive amounts of debt to buy widescreen TVs and McMansions, betting on a refinancing down the line to make interest payments. Lenders and investment bankers offered loans to people they knew could not afford to pay them back, because they would just be able to pass the risk on to someone else. Everyone messed up. The truth is that when you build up a ton of debt and do not increase the real production you are putting a lot at risk. Ultimately, it will come crashing down.

Obama’s failure to make this point is furthering fear and the downward spiral of the economy. It is frighteningly convenient that Obama is using this fear to further expand the so-called economic stimulus packages to include mounds of pork and special interest projects. America is unfortunately giving Obama far too much leeway to spend. Much of Obama’s plan fails to address the problems with the economy. Rather it serves to create a giant spending bill aimed at pushing through Democratic policies that would be far too difficult to pass without a crisis. (And as for the bailout of Wall Street and Detroit- this is just short sighted, a pure dump of tax-payers’ money right down the drain).