A Serious Thought or Two on the Inauguration, from Half-Way Around the World

Ulan Bator, Mongolia -- I'd rather be spending this week in Washington, celebrating with friends and my country the politically and spiritually invigorating elevation of Barack Obama to our presidency. These feelings lie very close to the heart of patriotism, and they are an exquisite pleasure to feel again without reserve.

Instead, I find myself in one of the coldest places on earth, Mongolia's capital city of Ulan Bator, giving advice on the process of economic and social modernization. On the way, I stopped off in Beijing, where the extravagant new bones of that ancient city, from the Olympic Village to the new Ritz Carlton on Financial Street (no joke), have the signature taint of the very recent time when money was no object, prosperity seemed unending, and architectural glitz was the national emblem of conspicuous consumption. Here in Mongolia, a country perched atop huge mineral deposits, people are adjusting with difficulty to the end of ballooning commodity prices and an accompanying overconfidence that led to tax and regulatory changes for extracting as much as imaginable from the foreign mining companies developing the resources. Now that those prices have sunk, those changes could force the companies to pull up stakes from Mongolia and head for Africa's mineral deposits. So the global crisis leaves Mongolia wrestling with how to give up its most recent hopes for itself and settle for a slower route to modernization that will cost a lot more.

On this wondrous day of the inauguration of a serious, intelligent and deep-valued person -- all things relatively new for us and for the world to be looking to us again -- the question is how rude our own awakening will be. Like the Mongolians with their mineral deposits, President Obama has enormous resources. And much as the Mongolians could squander their assets by holding fast to a narrow-minded view that doesn't take into account new conditions, we could squander our own historic moment of extraordinary unity of purpose and faith in our new leader's capacities.

To avoid this trap, we all have to recognize not only the real nature of our deep and dangerous economic and geopolitical problems, but also the pitfalls in our own system that could divert our new leadership from the tasks history will ultimately remember them for.

President Obama's signature governing act in his first year will almost certainly be the paths he charts for the $350 billion bailout fund and the trillion dollar stimulus. The pitfall for both is politics-as-usual, while the path to meaningful, productive change will rest on transparency, accountability, and innovation. The change we need here is an end to giving the most well-connected financial institutions and interest groups whatever they ask for. The change we need for both the bailout and the stimulus are openness about who gets what and under what conditions; accountability that requires those who receive bounties from the taxpayers to actually use them for those taxpayers' benefit, by extending more credit and advancing a 21st century economy and society; and innovations that can address the underlying forces driving our problems, especially the rising foreclosure rates for the financial crisis and the stagnation of incomes that laid part of the foundation for the current Great Recession.

The other pitfall for our new president and the rest of us to begin to think about is the hangover that will hit us from the extraordinary steps we're being forced to take now. Several years of deficits topping $1 trillion, on top of what looks to be a doubling of our monetary base over just six to eight months, could ultimately produce the greatest underground, domestic inflationary pressures in more than a half-century. Moreover, they are likely to come to the surface a few years from now, just as our boomers' demands on government spending begin to add up exponentially. This could create an acute financing crisis for American government, on top of rising inflation, and the second economic crisis of the Obama presidency. Recalling John Kennedy, what we can do for our country is to be prepared to support serious entitlement reforms that will mean less for all of us and even, yes, new taxes on top of it.

But today, wherever we are, let's celebrate our own good judgment and good fortune in Barack Obama.