Obama's Speech: The 'Vision Thing' vs. The Devil in the Details 14 comments
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The Obama speech to the Congress on Tuesday night was “well given” and, basically, “well received”. It has been criticized for, among other things, not being specific enough. But that was not the purpose of the speech. The speech was the first effort of the new President to lay out a vision for the near term and the future.
It was about the “vision” thing. A leader is, first and foremost, supposed to give us the “big picture” and not the details. The leader is supposed to provide us with something we can hold onto because we like the worldview it represents… or provide us with something to disagree with because it does not conform to our worldview. I think that President Obama did that.
In terms of the crises in the economy and the financial markets, the thing that does not seem to come through in the “big picture”, however, is that there are two categories of problems we face. These two sets of problems can be put into boxes that are labeled 'the problems of the past' and 'the problems of the future'.
These are different issues and must receive different attention if they are to be resolved. Too often we lump them together for a bastard “Keynesian” solution.
The first set of problems has to do with debt - too much of it, and inappropriately assumed. This is the box of problems from the past - the box labeled “Insolvency Crisis”.
Too much debt, inappropriately assumed is a burden. It can cause finance and commerce to slow down or stop, and this can lead to a cumulative result in which the burden of the debt gets heavier and heavier. This burden is exacerbated as insolvencies grow and deflation becomes the problem (not inflation).
It has been argued that the only thing government can do to counter this problem is to reflate (Irving Fisher) or inflate (Keynes). That is, the only way government can lessen the burden of this excessive load of debt is to reduce the “real” value of the debt by causing prices to rise rapidly. But this only recreates the environment in which the excessive debt was created. And, the consequence of this is just more and more leverage - which, in the longer run only makes the situation that much worse.
The excessive debt was created within the asset bubble world of the last decade or so. This world of asset price inflation resulted in a greater assumption of riskier assets and an overly aggressive assumption of leverage.
Financial and economic positions were taken that could only be justified within the rarefied world of the bubble.The valuations from that time cannot stand up outside the bubble.
In the case of the “Insolvency Crisis”, I believe that the only three choices are:
- Let the economy adjust to more realistic valuations by itself and just accept that we have to bear the burden of this adjustment;
- Help to smooth out the adjustment to more realistic valuations;
- Inflate our way out of the crisis - which, of course, would mean that we were just postponing the resolution of the foundation of the crisis.
The third of these choices is often attributed to Keynes and it is, I believe, an inappropriate application of Keynesian thinking, because it does not really resolve the situation.
President Obama is opting for choice number two- a choice I think most of us agree with. He is saying that choice number one is just too painful for the country and its people to go through. Hence, government must play a role in helping people and institutions work through the “debt problem” and that is going to cost - how much, we just don’t know.
That is the vision; the devil is in the details. And, that, I believe, is the problem right now. Most of us can agree with the vision; we just haven’t received sufficient information on how this is going to be done and how much it might cost. And, without greater certainty, markets will drop.
The second set of problems has to do with the future. The box containing this set of problems is labeled “What We Want To Be.” President Obama stated in his speech Tuesday evening that in his vision of the future, he sees America as energy independent…he sees Americans protected with some form of universal healthcare…he sees Americans as among the best educated in the world. President Obama sees an America that is energetic and innovative…a continuation of what America has been in the past.
This, to me, is the stimulative part of the President’s program- the part of the program that is not focused on the consolidation of past ills, as is the part of the program discussed above. This part of the program is an effort to provide incentives to create the next era and not “bail out” the old.
That is the vision; again, the devil is in the details. A first look at some of the specifics came in the stimulus package recently passed. More will be coming in the near future. Again, more details will help us get over the grey areas of uncertainty that constrain our willingness to commit.
We need to keep these two sets of problems separate as we go forward. The first set of problems is going to take time, and not everything that is done to resolve these issues is going to be “fair”. As I have said before, once one has created this set of problems, one finds that all the choices available for solving the problems are not happy ones. But, “inflating” our way out of these problems is not the solution; it can only, ultimately, make more pain for the future.
The second set of problems must be looked upon in terms of the opportunities that are available to us. In my view, no serious economic crisis has ever been resolved without the creation of new innovations and new technological platforms. In the Great Depression, the innovations and the new technologies didn't really come about until the end of the 1930s and into the 1940s and were related to war. Earlier stimulus efforts in the 1930s tended to support what existed in the past.
We don’t want government providing stimulus to the economy that will just result in the old world being “re-created”- we do not want the “old” products or the “old” managements renewed and rewarded. We must move on to the future.
By providing his “vision” of this future, President Obama has changed the field of engagement. President Obama is not just talking “stimulus"; he is talking about the world we want to live in. We may not agree with him on everything. We may not agree with him on most things. But, we must accept the challenge, and while we are attempting to resolve the debt problems from the past, we must enter the dialogue and debate about what the shape of the future will be.
In this sense, what President Obama has put forth is a stimulus plan…but with more than just one meaning of the word stimulus.
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As the gas station attendants say when you buy a lotto ticket, "Good luck to us."
As to innovative vision, my idea would be like JFK's. JFK insipred by saying we would be on the moon in a decade. That inspired the whole world. There was many prominent scientists stating it was impossible to meet the timeframe. But America did do the impossible. We inspired the world while creating new industries out of space exploration that created jobs.
So here is my mega idea to inspire the world and create industry at the same time: It would be called Operation Eternity. The goal would be to complete testing of anti-aging drugs that double the lifespan of every human being on earth by 2020. This is not medical fiction and quite possible, considering the compound has proved successful using lab animals. The President's mention of cure for cancer failed to inspire. Americans have been hearing that for almost 75 years now. I don't disagree on the importance of better treatments for cancer and a few more additional cures, I am speaking of inspiration only.
Regarding some of those 'details' you mention in your analysis, I agree with your general tone, and would like to discuss this particular detail:
"It has been argued that the only thing government can do to counter this problem is to reflate (Irving Fisher) or inflate (Keynes). That is, the only way government can lessen the burden of this excessive load of debt is to reduce the “real” value of the debt by causing prices to rise rapidly. But this only recreates the environment in which the excessive debt was created. And, the consequence of this is just more and more leverage - which, in the longer run only makes the situation that much worse. "
One thing we need to realize, IMHO, that 'recreating the environment in which the excessive debt was created' is EXACTLY what we all want. We WANT stronger balance sheets that would give us the CHOICE to leverage or not to leverage, and if inflation is the only way to strengthen the balance sheets through debt attrition, then so be it.
The key detail would be in future legislation. I think regulating the derivatives markets to a much, much larger degree than present is warranted. Quants can do what they wish, but their products should go through some sort of approval process, and should NEVER burgeon into the situation we find ourselves in - where derivatives of exotic securities that no one understands brings down the financial capital of the world and causes trillions of dollars of desperate stimulus in an attempt to contain the damage. Such legislation would help to prevent recreating the massive debt that got us here, while still recreating the fertile ground that allowed the debt to flourish (remember, that is what we want - fertile ground).
The key is restraint...not salting the earth.
Wall Street waited to see what he'd say, gave him a chance, then immediately issued the man a failing grade when he was done with his speech.
What he failed to do was obvious.
Wall Street wanted pledges to make concrete intrastructure spending commitments, but none were made.
Wall Street wanted pledges to support doctors and protect healthcare providers and drug companies with tort reform, lowering the cost of healthcare by >50% by protecting providers from the current standard of ridiculous torts, but Oama failed to offer that concession.
Speaking of eductation, Obama offered what amounts to a bribe to teachers for their continued indoctrination into liberal dogma of our impressionable students, and continued voting and legislative support from teachers' unions for the democratic party. There was nothing about challenging our brightest and best students, just slowing all students up so the slowest aren't embarrassed.
What Obama is concentrating on, and what I believe you also advocate, is to stimulate real investment. But what does that have to do with Wall Street?
On Feb 25 01:45 PM User 224899 wrote:
> Stop making excuses for the incompetent Obama and his feckless cabinet
> of Clintonista retreads.
>
> Wall Street waited to see what he'd say, gave him a chance, then
> immediately issued the man a failing grade when he was done with
> his speech.
>
> What he failed to do was obvious.
>
> Wall Street wanted pledges to make concrete intrastructure spending
> commitments, but none were made.
>
> Wall Street wanted pledges to support doctors and protect healthcare
> providers and drug companies with tort reform, lowering the cost
> of healthcare by >50% by protecting providers from the current standard
> of ridiculous torts, but Oama failed to offer that concession.<br/>
>
> Speaking of eductation, Obama offered what amounts to a bribe to
> teachers for their continued indoctrination into liberal dogma of
> our impressionable students, and continued voting and legislative
> support from teachers' unions for the democratic party. There was
> nothing about challenging our brightest and best students, just slowing
> all students up so the slowest aren't embarrassed.
You missed identifying the common thread that weaves through the current economic crisis, the stimulus package, any recovery plan success, and your two identified focuses, the Insolvency Crisis and What We Want To Be.
That golden thread is JOBS. More than anything else, we have to focus and marshall our resources to not only creating many jobs, but creating the right ones. I agree with your choice of intervention and guidance in the restructuring of the insolvency -- that has to be done. But where is the money going to come from to create at least 5 million jobs in the next 18 months?
A good example is the funding included for a "Smart Energy Grid" in the current stimulus package - $12 Billion. Which all experts agree may be jsut enough to determine the right systems and protocols to prepare for widespread implementation. Problem is, that implementation is estimated to cost $200 Billion more. This ratio of 10 to 20 times more to "get the job done"(What We Want To Be) prevails in other categories. So again, where is this money going to come from?
I would not ask the question if I did not beleive I have the answer. A detailed Monetary Policy prooposal, including a Tax Initiative based on applying a proven financial paradigm is available for review. The proposal accomplishes:
1. 5 Million jobs in 18 months
2. Is Budget Neutral
3. Does not require $1.00 of direct government funding
4. Provides for a $1 Trillion infusion of deposits into the banking system and forward into the economny
5. Funds a multiple of $1 Trillion in infrastructure, R & D, Energy, Vocational Training, Micro-Finance, and Low Income Housing
6. Is Sustainable and Renewable.
Mr.
Mason, your analysis of the speech and the situation was on point and well done. What do you think of this proposal for a new Monetary Policy?
theprosperitymandate.o...
You have a trillion dollars over the last two years of military spending that Donald Rumsfeld says is unaccounted for. The USA has 171 miliary bases alone operating outside its borders. That is 15 bases per state. That should keep you fairy well protected. those base transfers back to US soil alone would solve the biggest portion of the problem as far a housing and job spinoff from service man/ woman salaries. Let some once else protect the world for a while, until you get back on your feet.
My biggest fear is the hyperinflation that has to happen to the US currency. China has 2 trillion dollars, Russia 1 trillion, Saudi Arabia another 1 trillion of US treasuries debt not to mention other countries. With the dollar hyperinflating how long do you think they are going to hold that paper? The USA as a super finance/ world power days are over. The dollar is all but done as a world currency. Moodys has the USA and UK on rating watch from AAA.
Your president is wonderful and talks about vision. his vision is to cut only the budget deficit in half by 2013 not the national debt! You talk about leadership, true leadership would be to recongnize the true depth of the issues you are facing and implement a true plan that deals with your impending demise as will be ours as a country.
80% of everthing Canada produces goes stateside. This crash has crippled the whole world market.
Your leadership has charisma, oratory skills beyond belief, youth. But no economic experience. and he has surrounded himself with the same.
Good luck and God Bless to you all, we will need it this is long from over.
On Feb 25 04:37 PM conceptwizard wrote:
> Good luck and God Bless to you all, we will need it this is long
> from over.
But then as a Dutchman in NY I can be amazed everyday.
Most important, it was a speech for all of us; it was NOT a speech for the howling wolves of Wall Street!
In 2001 our President called for all Americans to set aside partisan bickering and unite to tackle a great crisis. In 2009, our President is calling for all Americans to set aside partisan bickering and unite to tackle a great crisis.
Constructive criticism and mutual support towards consensus is as American as apple pie; since when was partisan sniping a patriotic virtue?
You hit all the right buttons.
That's exactly what's wrong with this country.
California Universities will eliminate the SAT Scores as requirement.
Now use bunch of nonsense as admission. Even for Medical School.
So now you can see the future of the education system going down the drain while Asia's standard is moving up. Now you know why some companies are moving to India and China. Not good !!
With regard to the future box, there are still a lot of people who actually want to return to the previous status quo that they are familiar with and enjoyed in the early 2000s, rather than a new, rather idealistic, future that they are unfamiliar with. Again, they may not believe such a thing is possible and again, they need details as to how such a thing can be accomplished more than a "vision".