Monday, February 18, 2013

Obama and Bernanke: Perfect Together?

Republicans have more than a few reasons to be confused. They can begin to solve their political problems by understanding the greatest political paradox of our time.

The American people have elected a president who supposedly represents the best interests of hard working middle class Americans. Yet, this group that has suffered the most under Obama’s policies.

In addition, Joel Kotkin points out, even though those who voted for Obama thought that they were voting against the big money interests of Wall Street, the administration and the Federal Reserve are managing the financial system to favor Wall Street at the expense of Main Street.

Perhaps the Lord will forgive Americans for not knowing what they are doing, but it is difficult for a politician to explain to vast numbers of citizens that they have been duped.

In a recent column, Kotkin argued that the real maestro of the supposed economic recovery is the Chairman of the Federal Reserve, Ben Bernanke. Obama’s progressive rhetoric is, Kotkin says, Bernanke’s “beard.”

Bernanke’s policies have been a boon for the largest financial institutions, but they have hurt smaller community banks and small businesses.

In Kotkin’s words:

To many presidential idolaters, this era will be known as the Age of Obama. But, in reality, we live in what may best be called the Age of Bernanke. Essentially, Obamaism increasingly serves as a front for the big-money interests who benefit from the Federal Reserve's largesse and interest rate policies; progressive rhetoric serves as the beard for royalist results.

Overall, the impacts of ultralow interest rate, cash-machine policies of Fed Chairman Ben Bernanke trump everything else. The presidential stimulus was, at best, modestly effectively, and certainly did little to turn around the fortunes of most Americans or spark much economic growth. Unemployment remains stuck at around 8 percent and 8.5 million workers have exited the labor force.

But the Bernanke policies have succeeded in reshaping the economic landscape in ways that, while good for the plutocracy and Wall Street, are not particularly positive for the vast majority of Americans.

Who has lost out in the Obama-Bernanke Era? The poor, minorities, small business, the middle class and the young. They have lost jobs, opportunities and  wealth. Did they vote for Obama because they were afraid that Mitt Romney would fire Ben Bernanke?

For small business the outlook is bleak. Kotkin explains:

With demand and growth still weak, small business enters the new year with among the lowest expectations of any large economic sector. As Gallup points out, one in five small companies expects to lower its employee count, one in three expect to decrease capital spending and almost as many expect to be in more severe cash-flow troubles by the end of the year.

This decline of small-business sentiment constitutes arguably the biggest reason for our poor job-creation numbers. If small business had come out of the recession maintaining just the rate of start-ups generated in 2007, notes McKinsey, the U.S. economy would today have almost 2.5 million more jobs than it does.

Big banks can afford to comply with the blizzard of new regulations coming out of Washington.  Small community banks, the ones that lend to small local businesses, are suffering the most under the new regime.

Kotkin writes:

One source for this decline lies in the difficulties faced by smaller community banks, which tend to be those most likely to lend to entrepreneurial firms. Jeff Ball, chairman-elect of the California Bankers Association and founder of Whittier-based Friendly Hills Bank, suggests the Fed's policies – as well as growing regulatory policies – has led to an unprecedented concentration of financial assets in the hands of a few large "too big to fail banks" while the number of smaller community banks has been shrinking.

"Everywhere you turn there's a 'gotcha' from the regulators," Ball notes. "The big banks can deal with the regulations far more easily than the community banks. And because some banks are perceived as 'too big to fail,' there's easier access to credit, and they are perceived to be better to invest in."

Who has gotten rich off the new policies? The big banks and the major financial institutions. Remember all of those Occupy Wall Street protesters; they should have been demonstrating at the White House and the Federal Reserve. If they had a clue, they would have been.

Under the Bernanke-Obama regime Wall Street has done just fine, thank you:

The very people who were supposed to be the bĂȘte noires of the age of Obama: the large financial institutions. In 2013, the top four banks controlled more than 40 percent of the credit markets in the top 10 states, up by 10 percent from 2009 and roughly twice their share in 2000. At the same time, since the passage of the Dodd-Frank financial regulations, there are some 330 fewer small banks. Under the current regime, the oligopolization of the credit markets will continue apace, as much, or even more, than if Mitt Romney had won the presidency.

Wall Street has enjoyed the new regime:

Unlike smaller firms, or the middle class, the big financial institutions have feasted like pigs at the trough, with the six largest banks borrowing almost a half-trillion dollars from Uncle Ben Bernanke's printing press. While millions of Americans have lost homes and much of their net worth, there has been not a single high-level prosecution by the Obama administration of the grandees of the very financial giants at the heart of the mass misery.

Who else has gotten rich off of Obama-Bernanke? Why, federal government employees. As long as Bernanke keeps interest rates low, the federal government’s borrowing costs remain unnaturally low. That frees up more money to pay government employees higher salaries.

Kotkin is reminded of the last days of the Roman Empire:

All this is reminiscent of something out of the declining days of the Roman Empire. The masses get bread (food stamps) and circuses, with virtually all of Hollywood and much of the media ready to perform on cue. The majority, losers in the Bernanke economy, lack the will and, maybe, the attention span to realize what is happening to them.

"The Roman people are dying and laughing," the fifth-century Christian writer Salvian wrote. Like America today, entertainment-mad Rome suffered from a declining middle class, mass poverty and domination by a few wealthy patricians, propped up by a compliant government. Unless Americans of both left and right wake up to reality, our civilization could suffer a similar inexorable decline in the Age or Bernanke.

Let’s keep in mind, Joel Kotkin is a Democrat. 


Anonymous said...

Stuart, I don't know if you've read the book "The Forgotten Man" by Amity Schlaes. If you have not, you must. It's a markets-based critique of the Great Depression. An excellent read, very accessible. One of her main points is that New Deal policies made the Depression last longer, and that's because of the incessant political, regulatory and legal meddling in the economy. It was intrusive and pervasive, leaving capital on the sidelines because there was no visibility about where resources could be effectively allocated. Washington was a substantial part of the problem because there was all this activity, with no end. This activity was championed at all levels by idealists who thought they were acting in the public interest, but were deaf and blind to the real impact on private sector behavior. For the first time, it elevated the government as a powerful actor in the economy in its own right, challenging the private sector for power and influence. Government was no longer a referee for all, but an interest of its own, targeted at specific constituencies for benefit or ill. It subjectively picked winners and losers, with no mind to consequence. This was new in U.S. politics. It stole hope from the "Forgotten Man," the citizen who sought to get by without relief, who in the end got screwed for an entire decade.

Sound familiar?

I fear we are living through this all again. The impact of government activity is very elusive an complex, because the interference is running in the background. Obama is a vindictive Chicago thug, so business leaders are wary to voice a position. Instead of investing in what's next, industry silently sits on a huge cash hoard (held mostly offshore), waiting to see how things pan out, reducing our economic future to a big game of chicken.

The other piece few are talking about is how the law has ceased to be a tool of a stable, civil society and is now becoming a tool of megalomaniacs and plutocrats. Lawyers supposedly venerate the law, but this emerging corruption of the law will increasingly erode respect for the law. It's become a tool of the clever interests rather than a structure for a stable, functioning society. Laws, regulations and rules have become so Byzantine in their complexity and they are arbitrarily applied. That's why small banks and businesses are screwed... they can't dedicate resources to an army of lawyers like Citi and GE can.

Kotkin sees what I wish more journalists would: an insular, decadent Washington. It's out of control, and is consuming more and more of our national output. At the head of it is Obama, an elitist and inexperienced leader who is fundamentally dishonest about his operating philosophy. It doesn't work, and never has.


Stuart Schneiderman said...

Thanks, Tip. I have read Amity Shlaes. It is a powerful antidote to the commonly held myth about the New Deal. Since BHO seems to have modeled his policies on the New Deal, mistakenly assuming that it worked, it is relevant.

I admire Kotkin because he is a Democrat with intellectual integrity. So many political commentators are, as you say, completely dishonest. No wonder nothing gets done.

Anonymous said...

I actually like it when nothing gets done. It's when things get done by these self-proclaimed polymaths in Washington that things go awry. No ones freedom is safe when Congress is in session, or with any of the other shenanigans that pass for policy-making in the District of Columbia, given all the executive orders and unchecked bureaucratic initiatives.

I'm glad to hear you've read Schlaes' work. Her timing with that book was amazing.

You know my feelings about the Fourth Estate and its failure to function. Again, all I ask is that journalists be skeptics about everyone and everything. Show some curiosity, for goodness sake! It is embarrassing to watch them in their vainglorious sanctimony.