Politics of the Bottom Up

This morning on the NDN Blog and the Huffington Post, Simon laid out an argument, to which he urged me to respond, concluding that, due to the rapidly changing nature of the global landscape, the “rise of the rest,” and the ability of America’s very unique new president to speak directly to the world’s peoples, Barack Obama will not be able to be a realist, and will instead have to base his foreign policy on the politics of global aspiration.

Simon’s argument is powerful, and the points he makes about the changing global landscape are on the mark. Obama does indeed have a unique ability to communicate to the world’s peoples, both from a personal and technological standpoint, that is unparalleled. But if Obama is not a realist, what is he?

I would argue that he is certainly not a foreign policy liberal and certainly not a neo-liberal (indisputably the ideological predecessor to neo-conservatism). We will not see an emphasis on democracy promotion as a panacea, and I doubt very much that Obama advisers will be heard calling America “the indispensible nation.”

Rather, much like his domestic policy, Obama’s foreign policy defies labels.

In his almost six months in office, Obama has crafted a middle road, one that has America’s interests at heart, but defines American interests more broadly. It rejects the easily caricatured cynical realism of Kissinger and the narrow realism of Scowcroft/Baker. As Simon argues, he embraces the so called “rise of the rest,” which is not necessarily contrary to American interests – more markets for our goods, greater stability, and fewer failed states all work in our favor.

While Obama often speaks about ideals, we have not seen him subordinate them to interests. In this, Obama has already been the consummate realist – avoiding Carter-esque handwringing about human rights in China, rebuffing Israel – our democratic ally – on settlements, and, most recently, offering very cautious comments on Iran that have sought to avoid pro-democracy pontificating, while still noting that self-determination is a universal value.

The moment that Obama faces and the challenges that come with it, from terrorism, to global poverty, to the rise of new powers, demand this middle road that Obama is walking. America will use diplomacy, alleviate poverty, disease, and strife, and build international institutions all because these serve the American interests that Obama will redefine. He can talk about values, but it will come with the historical knowledge that some of our most disastrous foreign policy moments have come out of liberalism, and that blindly insisting on liberal ideals will, in many cases, backfire.

I’d imagine that, over the next few years, we will find that Obama’s foreign policy will be something that looks like a realism of a more liberal variety, just as Obama’s brand of pragmatism is progressive. And just as a term like pragmatic progressive barely serves as a good descriptor of the Obama domestic policy, nor will whatever term emerges like “liberal realist” be a good descriptor of Obama’s foreign policy. Suffice it to say that the great challenge for this man, in this moment, is to bring America closer to the rest of the world, and the world closer to America, than either has been in a long time – in a manner that serves America’s interests. And he might just be able to do it.

Today President Obama is conducting a town hall meeting in New Mexico focusing on the issue of credit card debt.  This is a welcome turn in the national economic conversation from the plight of big institutions and the financial system to what is perhaps the most important part of the story of the Great Recession still not adequately understood - the weakened state of the American consumer prior to the recent recession and financial collapse. 

We've told this story many times - despite robust growth in the Bush Era, incomes for a typical family fell.  Most measures of consumer health during the Bush went in the wrong direction.  We saw an increase in those without health insurance, in poverty, incomes fell.  The lack of income growth - coupled with a flood of cheap money - helped drive increased consumer indebtedness - mortgages themselves, credit cards, home equity loans.   People borrowed to maintain their lifestyles, and to keep up with the Jones.  The continued consumption and borrowing was justified in the minds of consumers by the power of the wealth effect brought about the rapidly increasing value of homes and stocks.  But we know what happened next.  Assets fell.  Incomes did not appreciably rise.  The debt remained.  People lost jobs.  The already very weakened balance sheet of a typical family grew much much worse. 

And then the inevitable happened - consumption plummeted.  Repeatedly throughout this crisis the "experts" have been surprised by the weakness of the typical American consumer.  They are not acting like consumers in a typical recession because for consumers the recovery they just experienced was not a typical recovery.  Typical Americans have been in their own "recession" for almost a decade.  Look at the Post headlines today: "More Homeowners Getting Aid, But Demand Keeps Rising," and "Weak Retail Sales Dash Recovery Hopes."

The reason that this matters so much is that consumer spending in the US is 70 percent of GDP, and it has been the mighty American consumer who has been fueling the recent global expansion.  The length and depth of the current Great Recession will be driven to a great degree by the ability of consumers to start buying things again.  We maintain that given their weakened home balance sheet that this could be a while.  Which is why the next stage of our recovery will not be so much about liquidity or confidence.  It will be about actually improving the financial position of the typical American consumer, which inevitably lead us to discussions of "deleveraging," or reducing the amount of debt on the balance sheets of American families.

Which is why what the President is doing today is so important.  He is beginning a conversation now about what is happening with American families.  What is best for American families now - to spend or save?  Do we really want, as a matter of national policy, Americans to spend, to take on more debt? Or is it best for them to save, pull back, spend less, pay down their debts, get their own balance sheets in order?  The answer to this question - being put on the table by the President today - will have a lot to do with how the current global recession ends. 

My own view is that just as we have tried to figure out how to get the debt off the balance sheet of the banks so they can resume their work, we will have to talk about how to reduce the indebtedness of American consumers, and encourage those nearing retirement to save much more to replenish the losses in their retirement savings.  This may mean a period of slower growth and less consumption of course - but what other choice do we have?

Update: Just found this Christina Romer quote from an interview earlier this week:

The economic recovery, Ms. Romer said, will be driven by business investment in sectors like renewable energy rather than consumer spending. She echoed the views of other economists who expect a long-term economic shift.

“The chance that consumers are ever going to go back to their high-spending ways is not very plausible, nor do I think they should,” she said. “We were a country that needed to start saving more.”

The New York Times has a must read article by Eric Dash and Andrew Martin this morning which looks at the crushing burden credit card debt has become for many American families, and how worsening financial conditions is driving many into credit card default.  The article once raises a fundamental question we've been raising for months - what is the best course for consumers now? should they borrow and spend, helping fuel a recovery, or should they pay down their debts and clean up their own balance sheets? The answer will help determine how deep and long the Great Recession will be:

It used to be easy to guess how many Americans would have problems paying their credit card bills. Banks just looked at unemployment: Fewer jobs meant more trouble ahead.

The unemployment rate has long mirrored banks’ loss rates on card balances. But Eddie Ward, 32 and jobless, may be one reason that rule of thumb no longer holds. For many lenders, losses are now starting to outpace layoffs.

Mr. Ward, of Arkansas, lost his job at a retail warehouse in April and so far has managed to make minimum payments on his credit card debt, which he estimates at $15,000 to $20,000. Asked whether he thinks he will be able to pay off his balance, he said, “Not unless I win the lottery.”

In the meantime, he said, “I’m just doing what I can.”

Experts predict that millions of Americans will not be able to pay off their debts, leaving a gaping hole at ailing banks still trying to recover from the housing bust.

The bank stress test results, released Thursday, suggested that the nation’s 19 biggest banks could expect nearly $82.4 billion in credit card losses by the end of 2010 under what federal regulators called a “worst case” economic situation.

But if unemployment breaches 10 percent, as many economists predict, the rate of uncollectible balances at some banks could far exceed that level. At American Express and Capital One Financial, around 20 percent of the credit card balances are expected to go bad over this year and next, according to stress test results. At Bank of America, Citigroup and JPMorgan Chase, about 23 percent of card loans are expected to sour.

Even the government’s grim projections may vastly understate the size of the banks’ credit card troubles. According to estimates by Oliver Wyman, a management consulting firm, card losses at the nation’s biggest banks could reach $141.5 billion by 2010 if the regulators’ loss rate was applied to their entire credit card business. It could top $186 billion for the entire credit card industry.

In the official stress test results, regulators published losses only on credit cards held on bank balance sheets. The $82.4 billion figure did not reflect another element in their analysis: tens of billions of dollars in losses tied to credit card loans that the banks packaged into bonds and held off their balance sheets. A portion of those losses, however, will be absorbed by outside investors.

What is more, the peak unemployment level that regulators used to drive their loss estimates is roughly what current rates are on track to reach. That suggests that if the unemployment rate gets much worse, credit card losses could be worse than what regulators projected.

And many economists expect the number of job losses to climb even higher. On Friday, the unemployment rate reached 8.9 percent as the economy shed 539,000 jobs. The unemployment rate and the rate of credit card charge-offs, or uncollectible balances, have been aligned because consumers who lose their jobs are more likely to miss payments.

Banks wrote off an average of 5.5 percent of their credit card balances in 2008, while the average unemployment rate was 5.8 percent. By the end of the year, the rate of credit-card write-offs was 6.3 percent; more recent data was not available.

Experts predict that the rate of credit-card losses could eventually surpass the jobless rate because of the compounding effects of the housing crisis and lackluster consumer confidence. Shortly after the technology bubble burst in 2001, credit card loss rates peaked at 7.9 percent.

“We will blow right through it,” said Inderpreet Batra, a consultant at Oliver Wyman, which specializes in financial services.

Unlike in prior recessions, cardholders who recently lost their jobs are unlikely to be able to extract equity from their homes or draw down retirement accounts to help pay off their debts. That means borrowers who fall behind on their bills are more likely to default, leading to higher losses.

Throughout this Great Recession analysts have been repeatedly suprised by the gravity of the economic decline.  But as this article points out, one of the central dynamics driving this downturn was the unusual economic circumstances of this decade prior to the Wall Street collapse and recession - that in a period of sustained growth incomes in America dropped.  The American consumer was in an already terribly weakened state prior to the slowdown, and this is why it is critical - as the President is doing with his new credit card initiative - to begin to focus much much more on getting the balance sheet of the battered American consumer in better shape.  

For without the typical American family getting back in the game we could see this far-reaching global recession last much longer than of any of us would want.

In the now oft-quoted and talked about David Leonhardt interview of President Barack Obama in this weekend's edition of the New York Times Sunday Magazine, Obama made an argument about worker skills that we here at NDN quite enjoyed:

I think everybody needs enough post-high-school training that they are competent in fields that require technical expertise, because it’s very hard to imagine getting a job that pays a living wage without that — or it’s very hard at least to envision a steady job in the absence of that.

And so to the extent that we can upgrade not only our high schools but also our community colleges to provide a sound technical basis for being able to perform complicated tasks in a 21st-century economy, then I think that not only is that good for the individuals, but that’s going to be critical for the economy as a whole.

NDN couldn't agree more. In fact, just two weeks ago, House Democratic Caucus Chairman John Larson introduced H.R. 2060, The Community College Technology Access Act of 2009, which is based on a paper written in 2007 by NDN Globalization Initiative Chair Dr. Robert Shapiro called Tapping the Resources of America’s Community Colleges: A Modest Proposal to Provide Universal Computer Training. The legislation offers free computer training to all Americans through the already existing infrastructure of the nation's approximately 1,200 community colleges.

President Obama has a long track record of supporting such proposals. During the presidential campaign, then-Senator Obama endorsed the idea as part of his platform, and we're pleased to see that the idea of community colleges as a crucial resource for improving worker skills is in his agenda for creating economic prosperity.

This proposal is part of a broader argument that NDN has been making for some time, that in the globalized, interconnected, technology-dense 21st century economy, facility with and connectivity to the global communications network is central to the life success of any worker or child. The 21st century economy is idea-based, in that most of the value of the large companies at the center of U.S. economy is now determined not by their physical assets, but by their intellectual property. Thriving in such an economy requires 21st century skills.

This argument is expounded upon in a paper written by NDN President Simon Rosenberg and Alec Ross, then with the One Economy and now a Senior Advisor on Innovation to Secretary of State Hillary Clinton, that would put A Laptop in Every Backpack of American sixth graders. Additionally, Tom Kalil, now Associate Director for Policy of the White House Office of Science and Technology, continued this narrative, authoring a paper entitled, Harnessing the Mobile Revolution, for NDN’s affiliate, the New Policy Institute. This paper argued that the explosive growth of mobile communications can be a powerful tool for addressing some of the most critical economic, political, and social challenges of the 21st century.

Stay tuned to NDN's Globalization Initiative for additional work on 21st century skills and technology. We believe, just as President Obama started to spell out in his recent interview, that tapping the resources of America's community colleges, putting a laptop in every backpack, and ultimately connecting all Americans and the rest of the world to the global communications network can and must be a hallmark of the economic agenda going forward.

The Times has a wonderful piece today which takes a deep look into how the concept of race is evolving in America today:

MILWAUKEE — Although the civil rights movement gave Samuel Sallis equality under the law a long time ago, he was left wanting most of his life, he says, for the subtle courtesies and respect he thought would come with it. Being a working-class black man downtown here meant being mostly ignored, living a life invisible and unacknowledged in a larger white world.

Then Mr. Sallis, 69, noticed a change.

“I’ve been working downtown for 30 years, so I’ve got a good feeling for it,” Mr. Sallis said. “Since President Obama started campaigning, if I go almost anywhere, it’s: ‘Hi! Hello, how are you, sir?’ I’m talking about strangers. Calling me ‘sir.’ ”

He added: “It makes you feel different, like, hey — maybe we are all equals. I’m no different than before. It’s just that other people seem to be realizing these things all around me.”

As the readers of this blog know well we believe this nation is in the midst of perhaps its most profound demographic transformation since the arrival of the Europeans here in the 15th, 16th and 17th centuries.   Due to large waves of non-white immigration over the past 45 years, America has seen its minority population triple, ending what was America's longstanding white-black, majority-minority racial construct.  Current projections have American becoming a majority minority country in the next 30 years. 

It was inevitable, given how our population was changing, that the America of the 21st century would end up having a very different - and much more tolerant - attitude towards race than any America that had come before. But the election and early success of our remarkable President, Barack Hussein Obama, the self-described "mutt," has hastened this process, allowing this nation to begin to truly realize, perhaps more than any time in our history, the radical promise of equality of opportunity offered by our Founding Fathers.

I was born in 1963, the last years of an America before the changes brought about by the Civil Rights, Voting Rights and Immigration Acts of the mid 1960s.   The legacy of this period, of Lyndon Johnson and JFK, of Martin Luther King Jr. and so many others is so profound that sometimes I am literally overwhelmed by all this.  But this week, as we saw images of President Obama horsing around in the Oval Office with Caroline Kennedy, we are reminded that the two beautiful children of our President today are not John-John and Caroline but Malia and Sasha - and what a different, and better world, this is today.