The Biggest Blunder of Obama and the Democrats in Year One …

Ever since you where a little kid you have probably heard the expression “put yourself in their shoes”. That is exactly what I have been doing over the last 12 months of the Obama administration. By putting myself in their shoes, what would I have done to serve the American people, enhance my party’s appeal to both Conservatives and Independents, and ensure the irrelevance of the Republican Party? WHAT?! Did I just say that? I sure did! Walking in their shoes, I am looking at it from the “other side” and what I think should have been the priorities and objectives of the Democratic Party. With that said, let’s talk.

 Coming off an election win over Senator McCain, Obama entered the White House in the later part of January, 2009 facing a rapidly deteriorating economy, an arterial flow of job looses, and two overseas wars; one in the early stages of success and the other in limbo. With him came a public approval rating of nearly 68% which included the less skeptical of critics outside of the liberal thinking. With his popularity and a campaign message of “Hope” and “Change”, the new president appeared to be in a position to rapidly move forward centrist agenda in an effort to strengthen America and lead her forward into the second decade of the young century. Then came …

• TARP II: The sequel of GWB’s approved emergency action plan to shore up the economy and halt the bleeding of huge commercial banks. Republicans hammered the plan “supposedly” since its inception by former Treasury Secretary Hank Paulson, but I don’t remember much criticism until Obama initiated a second wave of spending. To be fair, it seems like the Obama administration has taken the fall for the “bailout” mentality and Bush abandoning “conservative principles” but I see only two possibilities that could have occurred:

1. You do what the government did to avoid a depression and shore up the banking system slowing an out of control freight train but realizing the track towards recovery will be long, painful and tiresome.
2. You allow the systemic collapse of the financial sector to unfold as it almost certainly would have without government intervention (see Bear Sterns) in a matter of a couple of days on Wall Street but knowing in a depression, each day can only get better as the worst has passed.

Many people would not agree with the second option as the projected losses to US households would have been far worse than what we already suffered. And, what is to say would be out of immediate danger once the system collapsed? It is basically the theory “you have to make a mess in order to clean one”. I am usually in support of that philosophy but perhaps it was not the better option here. With a new wave of retirees coming, positions in the job market would be available to new workers and opportunities for advancement would become available to seasoned employees in every sector that comprises the US economy. The last thing you want is to keep older citizens at retirement ages in the workforce longer than necessary with a huge influx of new workers. It produces a situation where jobs become even scarcer and wages decline. So, as we all know, we went with option “A” and here we are today. I will concede, the economy has moved away from the brink as the Democrats would like to point out, but it was a program engineered by a Republican president and his appointee that deserve the credit. As unpopular as it was, you give credit where credit is due.

Here’s where it went wrong, IMHO …

What do you do about the Republicans who are trying to poke holes in the situation with cries of “socialism”? Well, in Obama’s shoes, I would have explained to the country the necessity of the TARP program, credited the previous administration with it’s devisement, and then told America to brace for impact as we move towards selling off divisions of corporations within AIG, Chase, and Bank of America to name a few. Driving home the message that if a company poses a systemic risk to the economy and is “too big to fail, then it is too big”. With so much government involvement in the public sector backed by hundreds of billions of taxpayer dollars, the only sane action I see would be to disarm the risk by consolidating divisions and selling off the successful branches and eliminating the toxic ones. This would have lowered their overall risk factor to the whole economy but at the same time recoup taxpayer money and provide another opportunity to investors to support a leaner, stronger, more efficient company. Finally, it would be a sign to the country and the world that the government has an exit plan and has no intent on running banks. Only then can regulations on the financial sector take place, not to limit the size of a corporation, but to lay the ground work targeted at massive corporations posing a substantial risk to the whole while others are playing legitimately.

• The Auto Industry: Towards the end of President Bush’s last couple of months in office, he stated he would defer a decision on taxpayer funds to rescue the American automotive industry to his successor. Some view this as a “cop out” but I believe it to be the right move considering how involved a process it would be and to start talks with an outgoing administration would potentially undermine additional options for the next. Obama came into office and after a few weeks, was able to work a deal with Chrysler and General Motors that would provide money to the broken companies with the main objective to keep over one million American workers employed. Certain criteria would have to be met in order for the companies to receive additional financing including a viable business plan from each corporation that paves the way towards reorganization and profitability.

Here’s where it went wrong, IMHO …

As I pointed out, successful divisions of the corporations should have been sold off. We saw this taking place to a degree with GM. Saturn was up for sale along with Hummer and SAAB while underperforming brands such as Pontiac where scrapped. But, Chrysler was brokered in a sales agreement as a whole rather then in pieces. With the popularity of the JEEP and Dodge Truck divisions, certainly buyers for each could have been found. I would like to think most business professionals would agree that the smaller brand specific companies would have a better chance at survival free of other underperforming divisions making a mess of the corporation’s books. I can only imagine the results we would have seen with a separate JEEP corporation such as an expansion of diesel technology or even the entrance into cars where as Dodge Trucks could have received the funding needed to pick its self back up and return towards the top of the list bringing profits with it. To just think we can sell Chrysler to another buyer after that thinking failed with Daimler was naïve. Now, today we are hearing reports about Chrysler still in trouble and may renege on its obligation to pay back federal loans. As for GM, despite sales being down with the exception of the “Cash for Clunkers” months, management wants to reopen plants to meet increased demands although the company is still posting in the red. I would like to see Cadillac and Chevrolet be released as its own corporations. They are both proven brands that investors would sure flock towards and separate them from tainted GM. Once again, the government could have left with another successful intervention. Instead, we are auto shareholders and will most certainly take losses.

• The Stimulus Plan: What was supposed to “save and create 3.5 million jobs” has been a dud at the cost of $787 billion. With previous stimulus packages under the Bush administration in the form of two tax rebates, it was clear we would need something more than just a one time payout in order to grease the gears of the economy and get the machine as a whole moving again. However, the politicians had a field day.

Here’s where it went wrong. IMHO …

In August of 2007, the I-35 Bridge in Minneapolis, MN collapsed killing 13 people. Shortly after, reports started coming in from various federal agencies putting the price tag to repair America’s bridges at as much as $140 billion. That figure does not include road repavement and expansion projects across the country or projects consisting of the construction of new bridges and interchanges across the nation. So, for arguments sake, let’s consider it a $200 billion price tag. If you recall, a big push for a stimulus plan was funding for “shovel ready” infrastructure projects across the nation. However, the Democrats financed only a mere $27 billion out of the total package to fund their biggest talking point; bridges and roads ($81 billion in total infrastructure related programs was approved but in the case of bridges and roads, the amount I report of $27 billion pertains to this discussion). Republicans managed to come out with $288 billion in tax cuts and another $83 billion went toward assistance to the aid of low income workers, unemployed and retirees (including job training). Now, as a center-right conservative and a person whom I like to think have common sense, the argument for infrastructure spending is relevant. Afterall, one of Rome’s downfalls was its failure to maintain infrastructure as the Empire expanded. I also agree with the Republican sponsored tax cuts and assistance to the unemployed as jobs where bleeding at over 600,000 per month. But that is the extent of it and where the bill lost support with Americans carrying an approval as low as 34% at the time of its passage. If you add the three major categories together, you get a total of $452 billion. So, what makes up the rest of the $787 billion price tag? Well, mostly slop or “pork” as it is called. Granted some of the provisions in the final package where noble but it just was not the right time. I would have preferred to have seen more permanent or at least long term tax cuts as well as a complete funding of necessary infrastructure spending and of course, aid to the unemployed. That probably would have brought us to a final price tag to $600 billion. Still a huge cost but they are programs that have been proven to benefit us with bigger returns in the long run. I believe Republicans should have seen the value of the infrastructure spending and worked closer with Democrats (and vice-versa) to fund the projects that are vital to America’s commerce. Spending money in construction at this scale creates orders for materials and durable goods such as heavy equipment. In turn, the ripple effect through one of the largest sectors of our economy, construction, could have jump started a quicker economic recovery. Need proof? Just see what WWII did for the American manufacturing sector after the great Depression. Tax cuts should be self explanatory but for all you  doubters, the more income a person can keep, the more he/she can spend and invest, unless you trust the government who has an outstanding (sarcasm alert) record on efficient spending. Unemployment assistance is just a given. If people default on loans and household expense, you see an increase in bankruptcies and debt defaultment. That creates a domino effect and impacts the economy in a negative way. Afterall, floating the unemployed taxpayer until he/she can find work is a necessity to help launch and maintain a recovery. Eventually, you will collect the payouts in tax revenue again. But when the system leaves that worker hanging on for months without an unemployment check, progress slows. See my blog post “Another Broken Government Program Overlooked” for more information

• Fiscal Responsibility: Over the last 12 months, it has been anything but that! After the stimulus bill came the $410 omnibus bill, the potential $850 plus billion healthcare bill, and a potential $300 billion jobs bill that diverts unused TARP funds to job creation. In total, the administration is on a path to $2.4 trillion in expenditures.

Here’s where it went wrong, IMHO …

Acknowledging the validity of TARP and the need of a stimulus package above, for the remainder of FY2009 and all of FY2010, the Obama administration should have initiated a complete freeze on new government spending with the exception of the military. The freeze would continue in FY2011 unless the economy has posted six consecutive quarters of growth, inflation is in control with only gradual rate increases and jobs are posting gains of at least 200,000 per month over those six quarters. In the meantime, the federal budget would be subject to a line item audit with reports published by each federal agency recommending cuts in their spending. The objective is to work toward a balanced budget with a simple rule of “spend no more then 85% than you take in with the remainder going towards national debt repayment.” I am a firm believer that fiscal responsibility is the key to our national security and the last thing you want is to be in debt to other countries that don’t share our common principles and values and support of liberty. Being in debt to China and importing a vast majority of our oil from Venezuela is not a good formula for economic success and our ability to control our own future. With a balanced budget and debt fulfillment, investors both here and abroad can enter back into our markets propelling the economy on a path to sustainable economic growth.

• For those of you that know me I have said many times that the debate on healthcare is valid and urgent. However, in these times of economic uncertainty, now is not the right time for America but rather the right time for an administration that started off with stellar approval ratings and a same-party controlled Congress. Hence the rush to pass flawed, partisan legislation by cutting backroom deals and engaging in Mob-like tactics resulting in successfully dividing Americans further apart than ever. With that said, perhaps the biggest argument Republicans have on the Democrats is taxes. Liberals are generally students of the Keynesian model favoring spending as a way to prosperity especially in a time of recession. Conservatives, on the other hand, favor tax reductions and debt management as a way to stimulate investment and economic expansion. In these unprecedented times, I believe the argument for tax reform should have been the major agenda for the new administration. Many forms of tax legislation have been proposed over the years in an attempt to even the playing field amongst Americans and attempt to ensure all pay their “fair share”. A true dialog and passage of strong legislation amongst both parties could have sparked an economic revival never before seen since WWII. Finally, loopholes and such abuses can be closed and more money remain in the pockets of the citizens that better know how to spend it. But I often view this subject as the last line of control the power players in government have on us. With the middle class representing the majority of Americans, a broken tax system, IMHO, is basically a form of bondage. As long as we have to work long hours and run households that require two incomes (compared with up until the middle of the 20^th century when most households could function on one income), the middle class does not simply have the time or flexibility to demand the chains be removed from our “leaders”. The Obama administration has chosen to play party favorites and sell out the American middle class in an attempt to get healthcare for only 9% of Americans when the US tax system affects us all. Tax reformation could have dismantled the biggest Republican talking point in the last 100 years clearing the way for Democratic control for a generation.

• The Wars: Finally, the last part to the formula would have been a swift and harsh spin up to the war in Iraq and a campaign to project the good that has come in Iraq as the country rebuilds and moves forward and our need to be in Afghanistan from a humanitarian standpoint. First, there would come acknowledgement that Iraq, after all, was not a lost cause and is better off now than it was under Saddam Hussein. However, Obama and his party continue to deny the surge increase worked in Iraq despite authorizing one of their own in Afghanistan. War is an ugly site and no country wants to be in it any longer than needed. But I have often said the cost to live the way we do and enjoy the freedoms we have comes at an ever increasing price in terms of money and blood in this world. America must be prepared to defend herself at any cost to ensure we can continue with what was given to us now and with each and every generation. I support Obama’s troop surge (even though it is the Bush/Cheney playbook and they aren’t getting any credit for it) but do not support the move towards placing captured insurgents into the civil court system. Wars are wars and therefore must act as such. Ensuring proper treatment of inmates in US custody is one thing, but capturing brutal killers on the battlefield should be met with harsh consequences and the explicit intention of ending the battle with victory as the ultimate goal. Being tied down in two countries for years has rendered us useless in responding to trouble in Iran and North Korea. Many would argue we should not be a world police force, but I would point out to my case of freedom’s cost above in an effort to sober your mind. It should be a priority of this administration to swiftly dismantle the enemy and maintain order through a joint venture with the world. Aggressive cancers require aggressive treatments. Same goes for war. You have to be prepared to go in all or nothing. Hopefully a simple troop increase in Afghanistan will be the solution but I have my doubts thus far. 

So, in summary, the biggest blunder of the Obama administration in the first year was their failure in rendering the Republican Party useless. It could have been accomplished by a common sense approach to financial regulation, providing legislation for a stimulus package that would have actually created jobs, economic growth, and tangible benefits for all, fiscal responsibility and debt management, removing the middle class from tax “bondage”, and the distribution of information supporting positive results in Iraq and Afghanistan and a quick and effective conclusion in terms of a crushed enemy. Of course, the secret to the game is to work with the other party. As we now can see, playing the one party system, is not working nor has it for decades. History has shown us that Americans prefer the party in power in Congress that is opposite to the party in power in the Executive branch. It is the basics of checks and balances but I would argue had the Democrats focused more on working with Republicans a little harder rather than “we reached out our hand once and they didn’t take it” attitude, they would find themselves in a better position going into 2010 and Republicans could not have regained popularity on the simple action of “inaction”. But for now, we as Americans are the one’s suffering … thanks to those that reelect 95% of incumbents back into office during major elections. Just some food for thought.

Ed