2009

Sam linked to it this morning, but this new essay by Martin Wolf, the first in a new series about the future of capitalism in the FT, is worth revisiting (and reading):

In the west, the pro-market ideology of the past three decades was a reaction to the perceived failure of the mixed-economy, Keynesian model of the 1950s, 1960s and 1970s. The move to the market was associated with the election of Reagan as US president in 1980 and the ascent to the British prime ministership of Margaret Thatcher the year before. Little less important was the role of Paul Volcker, then chairman of the Federal Reserve, in crushing inflation.

Yet bigger events shaped this epoch: the shift of China from the plan to the market under Deng Xiaoping, the collapse of Soviet communism between 1989 and 1991 and the end of India's inward-looking economic policies after 1991. The death of central planning, the end of the cold war and, above all, the entry of billions of new participants into the rapidly globalising world economy were the high points of this era.

Today, with a huge global financial crisis and a synchronised slump in economic activity, the world is changing again. The financial system is the brain of the market economy. If it needs so expensive a rescue, what is left of Reagan's dismissal of governments? If the financial system has failed, what remains of confidence in markets?

It is impossible at such a turning point to know where we are going. In the chaotic 1970s, few guessed that the next epoch would see the taming of inflation, the unleashing of capitalism and the death of communism. What will happen now depends on choices unmade and shocks unknown. Yet the combination of a financial collapse with a huge recession, if not something worse, will surely change the world. The legitimacy of the market will weaken. The credibility of the US will be damaged. The authority of China will rise. Globalisation itself may founder. This is a time of upheaval.

From his Washington Post column today:

Suddenly there seem to be lots of people who think our biggest economic problem is that President Obama and the Democratic Congress are about to saddle our grandchildren with a mountain of government debt so high that they -- and the U.S. economy -- will never be able to get out from under it.

Before we get to the substance of the complaint, allow me to bring a bit of old-fashioned journalistic skepticism to the rants of Republican politicians and talk-radio bullies who are trying to pass themselves off as born-again deficit hawks. These are many of the same folks who saw no problem running up record deficits in the middle of an economic boom by pushing through the biggest tax cut in history, increasing entitlement spending, and waging a terribly long and costly war. Their recent moralizing about the evils of government debt has the distinct odor of hypocrisy and political opportunism.

That's not to say there isn't good reason for people of good will to worry about the federal debt. Largely because of the profligacy of the Bush years, the debt is already too big and will only get worse unless we begin to slow the growth in spending for Social Security, Medicare and Medicaid. Let's keep our eye on that big problem -- the $66 trillion unfunded liability -- not the $2 trillion or so in additional borrowing that the government is about to take on to rescue the financial system and stimulate the economy.

What's missing in all this sudden hand-wringing over the deficit is any sense of perspective. Two trillion dollars sounds like a lot of money, but in a pinch we could pay it all back in just one year if we were willing to reduce household and government spending by about 15 percent. It would require temporary sacrifice on everyone's part but would hardly be the death of the American dream.

The more important point, however, is that by having the government borrow this extra $2 trillion, our grandchildren will be better off financially than if we did nothing and let economic nature take its course.

In anticipation of his visit to the White House today, British Prime Minister Gordon Brown offered the following op-ed in the Sunday Times of London:

Historians will look back and say this was no ordinary time but a defining moment: an unprecedented period of global change, and a time when one chapter ended and another began.

The scale and the speed of the global banking crisis has at times been almost overwhelming, and I know that in countries everywhere people who rely on their banks for savings have been feeling powerless and afraid. But it is when times become harder and challenges greater that across the world countries must show vision, leadership and courage - and, while we can do a great deal nationally, we can do even more working together internationally.

So now is the time for leaders of every country in the world to work together to agree the action that will see us through the current crisis and ensure we come out stronger. And there is no international partnership in recent history that has served the world better than the special relationship between Britain and the United States.

It is a relationship that has endured and flourished because it is based not simply on our shared history but on the enduring values that bind us together - our countries founded upon liberty, our histories forged through democracy and an unshakeable belief in the power of enterprise and opportunity.

But if it reflects our values and our histories, this special relationship is also a partnership of purpose, renewed by every generation to reflect the challenges we face. In the 1940s it found its full force defeating fascism and building the postwar international order; in the cold war era we fought the growth of nuclear weapons and when the Berlin Wall fell we saw the end of communism. In this new century, since the horrors visited on America in 2001, we have worked in partnership to defeat terrorism.

Now, in this generation, we must renew our work together once again. A new set of challenges faces the whole world, which summons forth the need for a partnership of purpose that must involve the whole world. Rebuilding global financial stability is a global challenge that needs global solutions. However, financial instability is but one of the challenges that globalisation brings. Our task in working together is to secure a high-growth, low-carbon recovery by taking seriously the global challenge of climate change. And our efforts must be to work for a more stable world where we defeat not only global terrorism but global poverty, hunger and disease.

Globalisation has brought great advances, lifting millions out of poverty as they reap the benefits of economic growth and trade. But it has also brought new insecurities, as this - the first truly global financial crisis - underlines. Globalisation is not an option, it is a fact, so the question is whether we manage it well or badly.

I believe there is no challenge so great or so difficult that it cannot be overcome by America, Britain and the world working together. That is why President Obama and I will discuss this week a global new deal, whose impact can stretch from the villages of Africa to reforming the financial institutions of London and New York- and giving security to the hard-working families in every country.

I see this global new deal as an agreement that every continent injects resources into its economy. I believe that central to this new investment is that every country backs a green recovery for the future, that every country that wishes to participate in the international financial system agrees common principles for financial regulation, coordinated internationally, and changes to their own banking system that will bring us shared prosperity once again. And that, together, we must agree to reform the mandate and governance of global institutions to recognise the changing shape of the world economy and the emergence of new players.

It is a global new deal that will lay the foundations not just fora sustainable economic recovery but for a genuinely new era of international partnership in which all countries have a part to play. This programme of internationally coordinated actions includes six elements:

First, universal action to prevent the crisis spreading, to stimulate the global economy and to help reduce the severity and length of the global recession. Second, action to kick-start lending so that families and businesses can borrow again. Third, all countries renouncing protectionism, with a transparent mechanism to monitor commitments. Fourth, reform of international regulation to close regulatory gaps so shadow banking systems have nowhere to hide. Fifth, reform of our international financial institutions and the creation of an international early warning system. And last, coordinated international action to build tomorrow today - putting the world economy on an economically, environmentally and socially sustainable path towards future growth and recovery.

I have always been an Atlanticist and a great admirer of the American spirit of enterprise and national purpose. I have visited America many times and have many friends there, and as prime minister I want to do more to strengthen even further our relationship with America.

Winston Churchill described the joint inheritance of Britain and America as not just a shared history but a shared belief in the great principles of freedom and the rights of man - what Barack Obama has described as the enduring power of our ideals - democracy, liberty, opportunity and unyielding hope. Britain and America may be separated by the thousands of miles of the Atlantic, but we are united by shared values that can never be broken. And as America stands at its own dawn of hope, I want that hope to be fulfilled through us all coming together to shape the 21st century as the first century of a truly global society.

I've been in Washington for 16 years now, coming as many did with President Clinton back in 1993.  I have seen a lot of changes in my time here, but the rate of change we are witnessing today is breathtaking.  Just take a look at a few of the headlines today from a vastly changed political and societal landscape:

Economy Shrinks at Staggering Pace

Obama Announces Iraq Withdrawal Plan

AIG Faces Possible Breakup

Part of Denver's Past, the Rocky Says Goodbye

Broadcast TV Struggles to Stay Viable 

Obama's Greenhouse Gamble

Top Officials Expand Dialogue on Race

Playing With Fire In Pakistan

'Great Society' Plans for the Middle Class

The Bill That Could Break Up Europe

There are large and systemic changes underway here in the US and around the world. 20th century challenges, institutions, ideologies, economics, media and even racial understanding are being swept away.   A new global political era is surely emerging now, unfolding in front of us, one that our new President is both responding to and attempting to shape.  The President's ambitious budget this week was itself the most powerful examples of how much our politics is in the process of changing.  

I end my quick morning post with an excerpt from Joe Nocera's column from the New York Times today.  Nocera has been writing as intelligently as anyone about the financial and economic crisis, and this column, Propping Up A House of Cards, is an absolute required read: 

Next week, perhaps as early as Monday, the American International Group is going to report the largest quarterly loss in history. Rumors suggest it will be around $60 billion, which will affirm, yet again, A.I.G.'s sorry status as the most crippled of all the nation's wounded financial institutions. The recent quarterly losses suffered by Merrill Lynch and Citigroup - "only" $15.4 billion and $8.3 billion, respectively - pale by comparison.

At the same time A.I.G. reveals its loss, the federal government is also likely to announce - yet again! - a new plan to save A.I.G., the third since September. So far the government has thrown $150 billion at the company, in loans, investments and equity injections, to keep it afloat. It has softened the terms it set for the original $85 billion loan it made back in September. To ease the pressure even more, the Federal Reserve actually runs a facility that buys toxic assets that A.I.G. had insured. A.I.G. effectively has been nationalized, with the government owning a hair under 80 percent of the stock. Not that it's worth very much; A.I.G. shares closed Friday at 42 cents.

Donn Vickrey, who runs the independent research firm Gradient Analytics, predicts that A.I.G. is going to cost taxpayers at least $100 billion more before it finally stabilizes, by which time the company will almost surely have been broken into pieces, with the government owning large chunks of it. A quarter of a trillion dollars, if it comes to that, is an astounding amount of money to hand over to one company to prevent it from going bust. Yet the government feels it has no choice: because of A.I.G.'s dubious business practices during the housing bubble it pretty much has the world's financial system by the throat.

If we let A.I.G. fail, said Seamus P. McMahon, a banking expert at Booz & Company, other institutions, including pension funds and American and European banks "will face their own capital and liquidity crisis, and we could have a domino effect." A bailout of A.I.G. is really a bailout of its trading partners - which essentially constitutes the entire Western banking system. 

In keeping with our "new tools" theme, reporters in Mexico made use of our new live webstreaming capability and were able to watch our conversation on "Making the Case for Passage of Comprehensive Immigration Reform This Year."  Our case is crossing borders, as a journalist from one of Mexico's most respected newspapers, El Financiero, writes in this piece.  The article elaborates on the two key points made by the speakers: 1) Immigration reform is vital in order to help revive our economy, and 2) legalizing those currently outside of the protection of American labor law will only help bring them into the system and generate greater revenue for the U.S. Treasury.

The weekly Daily Kos poll is in.  The trends continued unchanged - Obama still very popular, Democrats significantly more popular than the GOP, Congressional Dems continue to tick up a bit, Congressional Republicans continue their free fall.   As of today the Congressional Republicans have an 18 percent approval rating - 18 percent!  Obama 69.  As DemFromCT writes

Tune in next week to see if John Boehner can make himself and his Republicans any less popular. He's -11 himself since the first poll 1/5-8, and the Congressional GOP is -12 (in contrast, Nancy Pelosi is +2 and Congressional Dems are +5.) 

The net-net on the battle over the Recovery Plan? Congressional Democrats gain 5 points, the Congressional GOP, in an already catastrophic position with the public, drop 11.  

It will be interesting to see how Bobby Jindal interprets these numbers in prepping for his Tuesday response to President Obama. Will he really carry the water of the wildly discredited and out of touch Washington GOP? Or distance himself from them, carving out a more constructive position in the national debate? Will be interesting to see. 

Each day you can feel the media and the public grow slightly more aware of the gravity of the economic problems facing America and the world.   We are all still getting our arms around this economic moment, and like Paul Krugman's column today, the emerging conventional wisdom is the recovery is going to be long and hard - longer and harder than any other recession since the Great Depression.  I feel, each day, that it is more and more apparent that we are living in no ordinary time - that the decisions made by our leaders in the days ahead here and across the world will be ones of great consequence.  Ones that will lead to a prosperous and peaceful 21st century; ones reinforcing the drift of the moment, the inability of our politics to face our challenges forthrightly; ones that could indeed make matters much much worse. 

Tuesday night the President will address the nation from the Capitol.  Once again the nation, and the world, wlll be watching.  It will be a critical opportunity for our new President to lay out the challenges we face and the solutions he envisions.  I hope he takes the opportunity to more clearly define the choice we face.  For I don't think the choice is between forward and backward any more, or between progress and failed old ideas.  I think it is a graver choice, a starker choice, a much more serious choice - one of recovery, global stability and national greatness versus continued drift, global chaos and national decline.  

As the saying goes times of crisis are also times of great opportunity.  It is increasingly clear the task of the Obama Presidency will be a great one - to prevent the world and the US from sliding into economic and political chaos, to chart a domestic and global path for recovery, and to update the successful but aging geopolitical architecture forged by FDR and Truman for a new day and a new century.  No small tasks these.  But these are the tasks that are in front of us now.  To put it simply - it is time to remake and renew the world, to offer a "new politics" on a global scale.  

If history is any guide creating this new global architecture that allows us to better manage the collective challenges in front of us won't be easy, or without pain.  Mistakes will be made, years and nations lost.  But it is now the great challenge facing our nation, whose role in the world is different from the rest.  And it will now be at the very center of our politics for perhaps decades to come.  I am anxious to see how the President talks about all this on Tuesday night, the most important night yet of his already historic Presidency.  

Michael Steele had a lot to overcome. One of his opponents, the sitting GOP Chair from South Carolina, had just resigned from an all white country club and admitted that he became a Republican in reaction to his personal experience with desegregation. Another opponent, Chip Saltsman, sent out a wildly racist CD to RNC Members which included the now infamous Magic Negro and Star Spanglish Banner songs. Saltsman was so battered by his out-of-touch comments that he withdrew from the race before the balloting began. But Katon Dawson, the SC Chair, went all the way to the final ballot before losing to Steele.

What a stark choice this was for the Republicans: an avowed disciple of the Southern Strategy era of racial politics vs. an African-American candidate from that awfully liberal, pretty far north state of Maryland. That Steele won, defeating Saltsman and Dawson, is a hopeful sign that the GOP has begun to confront its shameful exploitation of race as a national political strategy over the past 44 years. But the road back to power for the Party Mr. Steele has chosen to lead is a hard one. As I recently wrote:

Their recent success as a national Party was built on an approach towards race that spoke to a different racial reality in America, an American one where could get away with magic negro songs, and much much worse of course. But that America - a white/black, majority/minority America - is now an historic relic, and is in the process of being replaced by an America that has 3 times as many minorities as it did just 44 years ago, and is on track to be majority minority by 2042 (for more on this historic demographic transformation see here). But for many in the GOP, including ones who might become their Chairman, they know no other politics than this Southern Strategy era politics, a politics that has been rejected once and for all by the American people of today's America.

It is important that the leaders of the GOP have begun to confront its shameful racial past. But their problem has no simple or easy fix. It will require a complete refashioning of their politics around a very different set of 21st century demographics and a much more tolerant understanding of race in America - and a complete and utter repudiation of much of their domestic agenda for the past half century. Which is major reason why I think their road back is such a long one - many of their leaders came to power by becoming expert in this kind of politics; it is the core play in their playbook; it is the foundation of their domestic agenda; and they know little else. Their old Southern Strategy dogs aren't going to learn new tricks - for the GOP they will have to slowly, over time, replace their anachronistic leaders with ones schooled in the modern governing challenges, modern media and technology and modern demography of our day. The process of watching this generational replacement take place will be one of the most interesting political stories of the next 10-20 years, and of course has become all the more necessary in the age of Obama.

Recall that one of Mr. Steele's predecessors as RNC Chairman, Senator Mel Martinez of Florida, resigned in 2007 after less than a year on the job because of the lingering intolerance of the Party of Saltsman, Tancredo, Limbaugh and Dawson. So these tensions in the GOP - and the nation - will continue to play out for some time as old attitudes and people give way to new racial attitudes and a new America.

Just yesterday, Mr. Steele showed how hard this adjustment would be for the GOP. As Huffington Post's Sam Stein reported, Steele was asked on Fox News whether the GOP's position on immigration had alienated the Latino vote for a generation. His answer? No, of course. Hispanics really agree with our position calling for continued exploitation and demonization of Hispanics, but we just didn't message it very well. Score one for the nativists.

So, all in all, Mr. Steele's election is a hopeful sign for the GOP and the nation. His Party not only chose a new path in electing him their new Chair, they rejected candidates who would have sent a very bad signal about the values of the GOP in this new age of Obama. But as we saw with the irresponsible House stimulus vote last week, old ways die hard, and the choice of Steele alone does not a new Party make.