A January 17 commentary by David Gardner in the British Daily Mail reports that a poll taken before President Obama's inauguration found that Americans are very hopeful that he will fix the economy. Here is a selection:
According to a survey published last night, 71 per cent of Americans believe the economy will improve during the first year of the Obama presidency and 65 per cent said they think unemployment will drop.
Asked about cash-strapped Wall Street, 72 per cent said they thought the stock market would recover.
Some 63 per cent were confident that their personal financial situation would improve....
There was solid support for Mr. Obama's recovery plan in the Associated Press-Gfk survey, with 58 per cent saying they believe it will bring significant improvements to the economy....
His inaugural speech was eloquent and uplifting. I liked almost everything that he said, when he wasn't talking about the economy. However, when I looked closely at his comments about the economy, I didn't see any indication that he understands where Bush went wrong. There was no indication in his speech that he realizes that U.S. consumers are borrowed out and can no longer pay for continuing trade deficits. He assumes that our economic problems will be solved simply through infrastructure projects. He said:
For everywhere we look, there is work to be done. The state of the economy calls for action, bold and swift, and we will act - not only to create new jobs, but to lay a new foundation for growth. We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together. We will restore science to its rightful place, and wield technology's wonders to raise health care's quality and lower its cost. We will harness the sun and the winds and the soil to fuel our cars and run our factories. And we will transform our schools and colleges and universities to meet the demands of a new age. All this we can do. And all this we will do.
This all is very poetic. I haven't the faintest idea of what he means by restoring science to its rightful place. The idea of harnessing the sun and wind and soil is a great image. President Obama is so convinced that his metaphors will succeed that he is already making plans to give away some of America's wealth to the poor of the world:
To the people of poor nations, we pledge to work alongside you to make your farms flourish and let clean waters flow; to nourish starved bodies and feed hungry minds. And to those nations like ours that enjoy relative plenty, we say we can no longer afford indifference to suffering outside our borders; nor can we consume the world's resources without regard to effect. For the world has changed, and we must change with it....
There was one really discordant note. His speech was uplifting and positive until he criticized anybody who questions his plans for government expansion, specifically:
Now, there are some who question the scale of our ambitions -- who suggest that our system cannot tolerate too many big plans....
What the cynics fail to understand is that the ground has shifted beneath them - that the stale political arguments that have consumed us for so long no longer apply. The question we ask today is not whether our government is too big or too small, but whether it works - whether it helps families find jobs at a decent wage, care they can afford, a retirement that is dignified.
Obama seems to be saying that the solution to America's problems is bigger government and that anybody who challenges that fact is a cynic whose time has passed. But expanding government is not new. Throughout his presidency that's exactly what President Bush did, steadily expanding federal spending as a percentage of GDP. And during 2008, President Bush threw caution to the wind with his $150 billion stimulus package and his $850 billion TARP bill.
Bush's biggest mistake had nothing to do with his philosophical position about the size of government; it was that he tolerated the trade deficits. And Obama's economic advisors are urging that Obama do exactly the same. In fact, Obama's upcoming recovery plan is just a more poetic variation of the two Bush recovery plans that have already failed.
Maybe I was wrong to think that Obama might say something about trade during his speech. Maybe that will come when he starts to talk specifics. If Obama addresses the trade deficits, then his recovery plan should succeed. The hope generated by his presidency would be rewarded. And he would likely be considered one of the greatest economic presidents ever.
But if he doesn't take action to balance trade, his recovery plan will not work. He will need to borrow more and more for one stimulus package after another, just to keep unemployment low. Eventually this borrowing could destroy the U.S. government's credit rating and lead to a dollar collapse. That's when things would get really bad.
The mainstream media were completely positive about his speech. Their reporters were probably among those 71% of Americans who believe the economy will improve during the first year of the Obama presidency and the 65% who think that unemployment will drop and the 72% who think that the stock market will recover.
But the investors on Wall Street were hearing something very different in Obama's words. The one-day drop in the stock market yesterday was breathtaking:
- The Dow Jones industrial average fell 4%.
- The Standard & Poor's 500 index fell 5%.
- The Nasdaq composite index fell 6%.
Maybe investors don't think that bigger government is better than smaller government. Maybe they don't want the U.S. government to give away America's wealth to the world's poor. Maybe they don't think that Obama's recovery plan will work any better than Bush's recovery plans.
The American people and the mainstream media were inspired with hope yesterday, but stock market investors appeared to have a very different take.
Disclosure: no positions
