Wednesday, November 26, 2008

Obama's Steady Ship

The following is an excerpt, somewhat edited, from an email I sent to a friend in Manhattan who strongly supported John McCain but has since warmed somewhat to the idea of an Obama administration as the president-elect has rolled out his team. I know I am inflicting this on mainly people who are interested in the Japanese scene, its politics in particular. Sorry about that; I’ll try to come back to that, to find out if I think I have anything meaningful to say.
The people Obama is naming to administrative oversight positions are to the best of my knowledge all even-keeled, steady figures. True, Clinton lurched from one pitch to another toward the end of her campaign, but she made the switches perfectly, like a polished actor. (So did Romney, in a reprogrammable robot sort of way. McCain on the other hand was visibly uncomfortable when he had to say things he didn't believe in.)

That—plus competence—appears to be what the no-drama Obama has been looking for. That is surely a big reason why Robert Gates is an odds-on favorite to stay on, at least for awhile, as Defense Secretary. Note that Obama made the notorious Rahm Emanuel Chief of Staff and the brilliant but gauche Larry Summers the National Economic Council chief instead of Treasury Secretary. These two don't have to run bureaucracies; they run (more politely, coordinate) the people who run them—on behalf of Obama. I also like the way Obama has been rolling out his team.

The thing about Obama is, when people compare him to JFK, they mention his intelligence and wit, youth, physical grace, attractive family, and breaking the political barrier (his race to Kennedy's Catholicism), but they don't talk about the aura of detachment and the pragmatic ruthlessness that the two have in common. But how else could he have severed his ties with his church after Rev. Wright had retired? Of course Kennedy took horrible chances—apparently it runs in the family—whereas Obama is cautious—until he makes up his mind—and methodical.

All in all, I think Obama's going to be as effective as anyone else can be, given the circumstances. But he's going to need some luck to be a two-term president, and a lot of luck to be remembered as a great one.


Matt Dioguardi said...

Hank Paulson was an Goldman Sach's alumni, as was Robert Rubin. So how fundamentally different can they be?

I say this because clearly we're getting all of Robert Rubin's protégé's, but does that represent *change*? Clinton, Bush, and Obama all seem to draw from the same reservoir of financial assistants. Bush was radical, I guess, in that he actually attacked Iraq as opposed to just bombing for years and starving the children. But I don't think anyone blames the current financial woes solely on Iraq.

In the area of finance, I just see more continuity than I do change.

A really good analysis of the economic situation is here by Christopher Wood, you might want to read it:

Jun Okumura said...

Timothy Geithner and Larry Summers’ careers certainly took off under Treasury Secretary Rubin. But they have very different backgrounds and working experiences in contrast to Rubin and Paulson. Besides, public finance in a narrow sense (as opposed to broader questions of equity in taxation and expenditures) and the financial sector never came across as areas where Obama was promising change. I suspect that independents who threw their votes to Obama and the otherwise sober professionals who dropped whatever they were doing and volunteered for the Obama campaign tend not to really care about these appointments.

Having said that, I do believe that such people as who swear by Daily Kos are right to be disappointed across the board. And I’m sure that opposition to John Brennan as a possible CIA Director reached far beyond the left. (Obama’s long association with Reverend Wright as well as his choice to give Brennan a prominent place in his transition team may indicate the existence of a blind spot created by his relative lack of the passion and emotional intensity that for better or worse often rule the acts of mere mortals.) Moreover, Obama will come to disappoint more of his supporters as changes in social and education policies do not change as quickly as they might have imagined. I don’t think he’ll agonize over that, though, as a brooding Nixon or LBJ surely would.

And thanks for the link.

Matt Dioguardi said...

"Besides, public finance in a narrow sense (as opposed to broader questions of equity in taxation and expenditures) and the financial sector never came across as areas where Obama was promising change."

Well, it's where most his attention will be needed. He's hiring people who are perceived as being the type of people who will be very competent in running the current system. Let's presume he's getting the best of the bunch. But what if the problem is the system, itself? Then, none of these people will be of any use. In fact, as they are all adherents of the system, they'll be less than useful. This is my main point.

I pointed out the Christopher Wood editorial, because that seems to be his opinion, and not only that but he's a specialist in what happened in Japan after the bubble. He argues monetarists and Keynesians are in for some unpleasant surprises.

"I suspect that independents who threw their votes to Obama and the otherwise sober professionals who dropped whatever they were doing and volunteered for the Obama campaign tend not to really care about these appointments."

I don't spend a lot of time in that crowd, but listening to an interview with Naomi Wolf on the Lew Rockwell Show, it sounded like this is beginning to change. If Obama doesn't fix the economy, and I'm not optimistic he can, then I think you will see some interesting bed fellows coming together from what has been misperceived as being right and left leaning people.

Here's the Naomi Wolf interview:

Jun Okumura said...


I listened to the whole interview for your sake. (Okay, I was cooking dinner the whole time, and some of it got lost in the noise, but I tried.) My impression, as always, was that conspiracy theorists always overestimate the intelligence and trustworthiness of their nemeses. Incidentally, I also don’t get the WSJ obsession with the gold standard, but maybe that’s just me.

My money is on the global economy going through a few lean years adjusting to new consumer spending patterns around the world, especially the United States. I don’t expect any of the liberal democracies to do a Hitler, but I’ll keep my fingers crossed nevertheless.

Matt Dioguardi said...

First, neither of them is advocating conspiracy theories as far as I know. Most of what they do is analyze stuff that's pretty much already out in the open, but no one is paying attention to. I know that's the case for Lew Rockwell. (Ironically, his argument is precisely what you say, no one has the intelligence to centrally plan the money supply.) I agree, rhetorically they both try to push the envelope a bit, but that's their job I think.

Second, it's the hardcore believers who do most of the heavy lifting. If it could somehow be anticipated that Obama would be reappointing Secretary Gates, I can tell you for sure, those heavy lifters wouldn't have been there to support him when he needed them most at the beginning of his campaign. What you are beginning to see is an attraction between anti-fed, free marketers on the one side and progressives who are very concerned about human right, war, and rampant corporatism on the other side. This is something new, so it'll be interesting to see if it continues. I personally hope something comes of this.

Third, certainly nobel laureate F. A. Hayek was no conspiracy nut. I can't really sum up his arguments for gold concisely, but the main argument is that it creates fiscal responsible. Government can't say or do anything about the amount of gold. So it limits them in a positive manner. It has nothing to do with any type of gold fetish.

Finally, I would challenge you to go back and take a look at Hayek, especially if your predictions don't pan out. You might want to try and get ahead of the curve, or you'll be playing catch up later. Because gold is going to be discussed much more frequently, once the deflation ends and the inflation sets in.

Jun Okumura said...

My bad, Matt, for implying that Ken Rockwell and Naomi Wolf were conspiracy theorists. They appear to believe that the domestic and foreign policies of the Bush administrations have been taking the United States down the road to Fascism, but they do not claim that Bush, Cheney, Wall Street, K Street, etc. (not their words, but I use these names as shorthand) have actually been “conspiring” amongst themselves to do so.

With all due respect to Hayek, Greenspan and the WSJ editorial board (to name three authority figures), gold is a commodity whose price, like that of most commodities, fluctuates widely against more general price indices. I don’t see how the price of any single commodity and prices in general can both be stabilized at the same time unless you take that commodity out of circulation altogether. And make sure that gold producers don’t have an opportunity to gain excessive rent. But then why does it have to be gold? Why not silver? Platinum? In any case I don’t see how that’s possible in the case of gold when it has so many industrial uses and is mutually substitutable with so many other substances in those uses? Even if that could be done, there’s the problem of putting Humpty Dumpty together again. Monetary and fiscal discipline is in principle a good thing; in an ideal world the gold (or silver or platinum or tin…) standard is one way to impose it. But in the real world, I think we’ll have to look to other means to do so.

Actually, I think Hayek’s point is that government should have as little power as possible and as little discretion as possible where it retains it. For him, freedom/liberty, not economic efficiency, is the ultimate goal. This takes us back to your original point. Yes, it is easy to see how libertarians and anarchists can have a meeting of minds in the era of even bigger government. But in fact, economic troubles are creating a labor-main street-wall street coalition that is taking the U.S. in the opposite direction.

Finally, I’m sure op-eds advocating the gold standard will multiply if and when inflation returns. But, leaving aside what I’ve already said, with monetary supply (in its multiple definitions) moving independent of the monetary base, engineering a shift back to the gold standard is not going to be the answer.

OperationNorthwoods said...


A "labor-main street-Wall Street" coalition? Really? Not an "anti-DC/Wall Street" coalition? I suspect the rise of populism may be the big story in the next couple of years.

On a recent trip to Portland, Oregon, a most Obama-friendly area, a lot of people I ran across seemed quite disappointed with his appointments of what they see as "elite insiders", and, for example, very few representatives of groups such as labor.

Matt Dioguardi said...

Just quickly ...

1. It's Lew Rockwell, not Ken Rockwell ... ;-)

2. Fascism is an integration of the state and business for the good of the state or society. Clearly, we already have some form of that in Japan and America. It's just not politically correct to acknowledge that because fascism has become a pejorative term. The idea that America is still some type of 18th century version of what the founding father's considered to be a liberal Republic is sheer fantasy.

3. Any type of commodity backed currency would be preferable to a fiat currency, whether that commodity be platinum, oil, or whatever. In fact, I'm open to the possibility of competing private currencies, each based on various bags of commodities. Currently, if I issue some type of paper redeemable in gold, in America, the FBI will move in, confiscate my gold and shut me down. I strongly favor allowing private currencies to compete with central banks. Hayek was also very interested in this idea.

4. You cite price instability, I think this is a far more difficult topic then we can get into here. But I hope we can agree this isn't an open and shut case. I've seen a lot of debate in this area, and it's one where I want to spend more time reviewing it in the future. In _Prices and Production_ Hayek actually argues that continuos deflation (of small proportions) would be good. (Kind of the reverse of Keynesians who think moderate inflation is good.)

5. Hayek absolutely did *not* see any type of trade off between economic efficiency and liberty. He never saw these goals as being mutually exclusive. In general the term economic efficiency seems problematic to me, because who gets to define efficient?

Jun Okumura said...

Operation Northwoods:

Sorry, I didn’t make myself clear. I meant that a “labor-main street-wall street coalition is taking the U.S. government in the opposite direction.” And the public opposition that you foresee is indeed already gathering to oppose the bailouts. It’ll be interesting to see what the price extracted from the Detroit Three in return for the money will wind up looking like.


According to the Merriam-Webster Dictionary, fascism is:

1 often capitalized : a political philosophy, movement, or regime (as that of the Fascisti) that exalts nation and often race above the individual and that stands for a centralized autocratic government headed by a dictatorial leader, severe economic and social regimentation, and forcible suppression of opposition

2: a tendency toward or actual exercise of strong autocratic or dictatorial control

Re your points 1 and 2: I think there’s quite a distance between that and “an integration of the state and business for the good of the state or society”. That’s not all. There’s a measure of linkage between the state and business in any nation, any time. Remember the East and West India Companies? They were, as far as their charters were concerned, the government. In fact, the state has usually taken a proprietary, often equity, interest in some parts of corporate society throughout the history of limited liability companies. As for the Detroit bailout—assuming something goes through—been there, done that, admittedly on a smaller scale.

Actually, Lew Rockwell (thank you) and Naomi Wolf believe they see something more sinister, closer to the dictionary definition of fascism coming on during the Bush years. Here, I have a less ideological take on the decision-making tendencies of the Bush administration and their implications, but that’s another story.

Re 3: Actually, there is plenty of private money floating around; we don’t notice that because it’s usually denominated in your home currency. A line of credit at a bank is money. A credit card is money. They are fiat money, created by financial institution. The Quo Cards and Pasmo Cards in your wallet; that’s money created by JR, or whatever. The shohinken is money. Private money everywhere, much of which is counted by the authorities as money as in “monetary supply”. The only difference is that you cannot force your creditors to accept this private fiat money to discharge your debts. Unless, of course, you’re a powerful yakuza and can tell the other guy, “Kore de shakkin wo chokeshi ni shiro, iina?!”

Re4: I still fail to see the value of trying to impose monetary and fiscal discipline by connecting the volume of money to the volume of any specific commodity that the government happens to own. If anyone has anything to say about the points that I made in my previous comment (oddly,. I haven’t seen them being argued at all, although I’ve read very little specifically on the subject), I’d be more than happy to hear it, since I’m truly mystified by the allure of gold as a currency standard.

Re5: Let me rephrase that then: “For him, freedom/liberty, not maximizing economic benefits, is the ultimate goal. He is a philosopher before he is an economist.”

Matt Dioguardi said...

This has to be my last comment, thank you for the exchange. Rest assured, I'll be back!

1. I won't argue with you over the best definition for fascism. I do think that the tendency in America has been to move in that direction. A place where a lot of examples of this can be found in Andrew Napolitano's _A Nation of Sheep_. We can agree to disagree, I guess.

2. You discuss private money, but this seems to be mostly something along the lines of fractional reserve banking. This is denominated in the relevant nations currency and is a separate issue. A private currency would be me actually issuing my own notes that people could use to conduct transactions. This is completely different. Whether the number of those notes were "expanded" via fractional banking or not would be a separate issue.

3. Conversely to you, I'm mystified you don't see how gold or silver or something similar would impose fiscal discipline. It seems clear to me that governments tend to spend too much money (they borrow it), then they depend on central bank policy to sort of bail them out (via expansion of the money supply). Even under a gold backed currency (or something similar) this would still be possible to a certain extent, but not nearly as much.

4. Again, regarding Hayek, he did not see maximizing economic benefits and liberty as being mutually exclusive. And contrary to what you say, he was an economists first, a philosopher second. He was a professor of economics at the London School of Economics. His noble prize was for his work on showing how central banking policy creates the business cycle (our various booms and busts).

Jun Okumura said...

1. Yes, let’s agree to disagree.
2. I don’t think that the conceptual difference between having a VISA card to pay 10,000 Yen for a dinner and having a wad of private currencies that enables me to pay 10 Dioguardi d’Oros for the same are as big as that between these two means of payment and a Fukuzawa Yukichi. A private credit line is just as much “currency” as a privately issued document that asserts the issuer’s willingness to make good on its face value. Some communities do in fact issue local currencies, and what is the shohinken if not a private currency with limited circulation? In fact, when you keep pushing this line of thinking, you come to the conclusion that the difference between my promise to buy you a… 1000 Yen lunch and a piece of Noguchi Hideyo is only a matter of degree.
3. It would be an odd discipline of sorts though, since government expenditures would be divorced from the demand on government goods and services, which should be fairly stable from year to year and instead tied to the value of a commodity relative to the general price index, which should fluctuate quite dramatically from year to year. Fiscal discipline in the abstract is a desirable goal, but I find the side effects of a commodity standard too serious.
4. I do not claim that Hayek ever believed that the two would be of necessity mutually exclusive. I also do not deny that he was by profession an economist. There is no Nobel Prize—luckily—for Philosophy. With that, I hope we can agree to disagree on Hayek.

I’ve enjoyed this pointed yet most civil of exchanges immensely, Matt. You are welcome anytime.