AS Barack Obama prepared to deliver his speech to a joint session of Congress last week, his aides raced to television studios to deliver the official spin.
Evoking the cheerful optimism in tough times of a fondly remembered president, White House press secretary Robert Gibbs predicted his boss would be “Reaganesque”. No matter how dire the global meltdown, “there would always be better days ahead”.
The Great Communicator of the 1980s would have recognised his successor’s upbeat tone, but not his policies. When Obama unveiled his eye-popping $3.6 trillion (£2.5 trillion) budget proposal two days later, it was clear he had come not to praise Ronald Reagan, but to bury him.
“I don’t think we can continue on our current course,” Obama said. “I work for the American people and I’m determined to bring the change that the people voted for last November.” Democrats, who have been conditioned for years to expect their leaders to renege on their left-wing campaign promises, were jubilant.
The scale of Obama’s ambition has only just begun to sink in. If his budget for 2010 passes through Congress largely unscathed, it will represent the “the biggest redistribution of income from the wealthy to the middle class and poor this nation has seen in more than 40 years”, said Robert Reich, a former secretary of labour under Bill Clinton who has been advising Obama.
Reich told The Sunday Times: “It is the boldest budget we have seen since the Reagan administration, and drives a nail in the coffin of Reaganomics. We can basically say goodbye to the philosophy espoused by Ronald Reagan and Margaret Thatcher.”
Obama’s $3.6 trillion budget proposal includes $770 billion in tax cuts over 10 years for the “middle class”, America’s term for everyone from the moderately well-off to the working poor; $150 billion for funding “green” energy sources, and $634 billion towards the introduction of universal healthcare.
The numbers are almost beyond the power of imagination, but it is clear somebody will have to pick up the bill. A hefty $1 trillion or so will come from new taxes on the rich, paid for by families earning over $250,000 a year, increases in capital gains tax and limits on America’s generous tax deductions, including those for charitable contributions.
An extra $80 billion a year is predicted to come from auctioning off carbon permits under yet-to-be determined cap-and-trade legislation — if and when it actually happens.
None of this will be nearly enough to cover the gaping hole in America’s public finances. Even if the economy recovers at a clip over the next 10 years, America will still be running a deficit of 3% of GDP by 2019. The president’s daughters Malia, 10, and Sasha, 7, along with other members of their generation, are likely to emerge into adulthood saddled with debt.
The politics of “tax and spend” — or rather taxing the rich to spend on everyone else — is not only back in vogue, but has become an essential component of America’s economic recovery plan. Obama has seized on the “once in a generation” crisis to fulfil his campaign pledges on cutting taxes for lower wage earners, expanding education and health, and greening the economy with scant regard for the ballooning deficit — the largest, relative to the size of government, since the second world war.
Reagan once said: “The nine most terrifying words in the English language are, ‘I’m from the government and I’m here to help’.” Obama has made just such a promise to restore America’s fortunes, and the rest of the world, including Britain, can only pray that it works.
“So the revolution has come,” one US commentator noted. “Now, will it bring a new égalité? Or will we simply lose our heads?”
Republicans believe Obama has finally emerged in his true colours. Peter Wehner, a former White House aide to George W Bush and senior fellow at the Ethics and Public Policy Center in Washington, said the budget was “a frontal assault on every tenet of Reaganism from the size of government to taxes, the attitude towards entrepreneurs, small businesses and pro-growth policies”.
America “was on a glide path to European-style democracy”, Wehner said. Those who had wondered during the two-year election campaign who Obama really was — “a centrist throwing bones to the left or a leftist throwing bones to the right?” — now had their answer. He was an out-and-out leftist worthy of an “ism” of his own: Obamaism.
The economic crisis has given the Republicans a cause after their crushing electoral defeat, but not yet a politician to take on Obama. Bobby Jindal, 37, the much-hyped governor of Louisiana, embarrassed his own side with the lameness of his response to Obama’s speech.
It is not a problem for now, said Wehner. “Obama is a magnetic figure and tremendously charismatic. He is the dominant force in American politics. The Republicans are secondary actors. What they can do is to prepare themselves so that if this monstrosity fails, people can look to the Republicans and say, ‘They’re ready’.”
Ultimately, he predicted, it could “bring back Reaganomics quicker than one thinks”.
Obama has not only turned his back on Reaganomics but has ditched Clintonomics too. It was Bill Clinton who declared “the era of big government is over” when he lost Congress to the Republicans in 1994 and began to roll back welfare entitlements. Now almost any spending that can keep consumption going is viewed as a public good.
Some of Obama’s closest White House advisers, including Larry Summers, the head of the National Economic Council, were members of Clinton’s inner circle. They were among those who encouraged the roaring stock markets and multi-million-dollar bonuses for chief executives in the 1990s, but have been obliged to adjust their thinking.
“The idea of a self-regulating market seems quaint if not outright ludicrous in the wake of the biggest crash since the Great Depression,” said Reich.
Summers may not have had so much a change of heart, as a change of president, according to Reich. “It doesn’t really matter what anybody thinks. Obama is the boss and it is his budget,” he said.
There was a time on the campaign trail when Obama offended Clinton by suggesting he wanted to emulate Reagan’s “transformational” presidency rather than Clinton’s “incremental” changes. It was viewed as a conservative pitch for the votes of Republican moderates and independents, as well as a swipe at the Clinton legacy.
But the collapse of the economy has given Obama the chance to emulate the sweeping changes made by two earlier Democratic presidents: Franklin D Roosevelt’s New Deal in the 1930s and Lyndon Johnson’s Great Society measures in the 1960s.
This time, however, the transformation is aimed not at those at the bottom of society but at “middle-class” workers squeezed by rising health costs, diminishing pensions, the implosion of the housing market, unaffordable higher education and growing unemployment — who have seen the wealthiest in society enjoy the greatest gains in recent decades.
Obama is gambling he can extend his support among moderate Republicans and so-called Reagan Democrats, blue-collar workers who had begun to see government as a scam to take their hard-earned tax dollars and hand them to the underclass, and tap into their resentment towards the extravagance and incompetence of the super-rich.
A Gallup tracking poll showed Obama is winning the argument for now: his support rose from 27% to 42% among Republican voters after his televised address to Congress last week. And he was careful to retain the support of voters concerned with America’s national security by promising a slow but steady troop withdrawal from Iraq over 19 months that would still leave 50,000 US forces in the country.
In a victory for bipartisanship, John McCain, his Republican opponent for president, said he could go along with that.
The danger with Obamaism, however, is that the success or failure of his presidency is coming to rest entirely on the rise and fall of the economy.
There are worrying indications that Obama’s budget relies on a batch of false assumptions and the eternal politician’s temptress, known as “Rosy Scenario”. When confronted with rapidly rising deficits, it is all too easy for politicians to predict they will be resolved by rising growth and mythical savings.
Even as Obama was rolling out his budget proposal, new figures released by the commerce department last week showed the economy had contracted at the fastest pace in 25 years at the end of 2008. GDP shrank at an annualised rate of 6.2%. The crisis is spreading more quickly than any stimulus package or budget thrown together by the White House.
Greg Mankiw, a professor of economics at Harvard University, noted on his blog that Obama was projecting about 6% higher GDP in 2013 than most “blue chip” private forecasters.
White House economist Christina Romer acknowledged that the economy was a “supertanker, and it doesn’t turn quickly”. “I’d reject the premise that we’re noticeably rosier,” she said. “We certainly are somewhat more optimistic, but nothing out of the ball park.”
If Obama’s arithmetic is fuzzy, then it will not only be the wealthy picking up the tab. Economists of almost every stripe predict that, if and when the recession ends, everyone’s taxes will have to rise — either on earned income or in the form of Vat. It will no longer be a question of soaking the rich, but socking the poor as well.
Source:the times
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