Oct
28
By Paolo von Schirach
October 28, 2011
WASHINGTON – Barack Obama has had the bad luck of becoming US president as America was trapped in the worst recession since the Great Depression. The economic devastation he encountered was obviuoulsy not his fault. But it is his fault that he failed to appreciate the severity of this historic disaster early enough. It is also his fault that in the first two years of his presidency he decided to focus on his health care reform plan, at best an important issue, but not a priority, given the conditions of the US economy. Bad judgement, Mr. President.
No Obama economic growth strategy
And it gets worse. All in all, beyond expanding the financial rescue plan that was started in the last months of the Bush administration and adding to it the auto makers bail out, Obama has not opened any new economic vistas for America. He had some ideas about a green economy. But the plan was and still is nebulous. There is a mix of mandates and requirements to add renewable energy to the mix. But there is no “Big Vision”. Besides, subsidies go to existing systems instead of new research. So, the US Government pays to roll out stuff that is not cost effective, instead of supporting real innovation.
No help from a stalled US innovation engine
We should also add that the American economy at this time gets no help from the normally vibrant innovation engine. While many new technological ideas may be brewing somewhere at this time, we do not know them. There is no new “big thing” out there. No commercially viable breakthrough on anything major. Sure enough we have Apple. But that is not enough. We need more than iPhones to power this economy.
Bill Clinton was president during the IT boom
In the 1990s, when Bill Clinton was president, the information technology revolution was just taking off and booming. The Internet was still a novelty. The “new economy” was taking over everything. Of course there was also too much hype and wishful thinking that brought about the “dot.com” bubble that conveniently burst after Clinton left office. (Have we forgotten the glorious days when the NASDAQ was at 5,000?)
But, bubble aside, there is no doubt that America benefited enormously from the productivity increases due to large scale introduction of new IT solutions into most established economic activities. All this innovation created a fantastic lift. The US was leading the world and the US economy benefited greatly. 23 million jobs were created.
No such luck for President Obama. He inherited a banking bust, plus an enormous federal deficit and debt. And, worst of all, he’s got tens of millions of bleeding consumers who have spent everything and then some in the preceding years, including most of the equity in their now devalued homes.
No breakthroughs, in energy, medicine, civil aviation
How different an American economy today if someone in 2009 had come up with a truly viable, low consumption and low cost battery for electric vehicles. Now there would be hundreds of billions invested in a new generation of electric cars.
Or think about a cheap and easy to use technology to have clean coal, at the same time producing more and cheaper electricity from it. Or a new generation of miniature, ultra safe and easy to build nuclear power plants that produce no waste. And how about really cost effective photovoltaic electricity, so cheap and so easy to install, that you would go to The Home Depot, buy the panels, install them yourself and have your own domestic power plant a few hours later. You pay a few hundred bucks and you are off the grid. No more utility bills. Or may be an affordable, cost effective civilian supersonic aircraft that would revolutionize air travel. Or imagine a simple, cheap AIDS vaccine and a cure for some of the most common forms of cancer.
We know that major efforts are underway in all these sectors. And sooner or later these and other breakthroughs are bound to happen. But not now, it seems. And this lack of game changing innovation that would attract massive investments while creating new jobs contributes to the prolonged stagnation of the US economy.
The crushing weight of the ongoing housing crisis
In the meantime, as the economy stays flat, the American people are slowly emerging from under a pile of personal debt, while millions of families keep paying “under water” mortgages, much higher than the market value of their homes.
And here –underwater mortgages– is another key area in which Obama’s policies have not made even a small dent. Clearly there is no easy solution. But it is absurd to observe that, while mortgage interest rates are now at a historic low, millions of people do not qualify for refinancing their mortgages at lower rates because of much more stringent eligibility criteria enacted in the aftermath of the sub prime crisis.
And here is another classic case of the pendulum swinging too much in the other direction. We have switched from the absurdity of giving mortgages to anybody, no questions asked, to denying better conditions to worthy borrowers.
Offer refinancing to all under water borrowers with a good payment history
A happy medium would be to offer easy, expedited refinancing to all mortgage holders who are current with their payments and who have a clean history of fulfilling their obligations. Forget about all the other requirements. If people managed to pay a relatively high mortgage until now, it would stand to reason that they would also manage to pay a lower mortgage resulting from lower interest rates.
The Obama administration just announced some steps in this direction. But various estimates indicate that only one million borrowers would qualify under the new plan. And yet we know that there are at least 11 million of “under water” borrowers who could benefit from a more extended rules relaxation.
The broad economic advantages of offering refinincing to millions are obvious. People with lower mortgages all of a sudden have more disposable income. At the same time, lower house payments will reduce the chances of default, thus containing the devastating tide of foreclosures. None of this would bring about a housing boom. But lower housing costs would help family budgets for millions, while they would reduce foreclosures, this way stabilizing housing prices.
Obama: He made things worse”
As I said, the economic disaster Obama found in January 2009 was not his fault. But it became his problem, in fact the central problem of his presidency. Even with limited tools, he had choices. And he chose to do health care, (a social policy issue), instead of energy, (an economic growth driver). And certainly his timidity in tackling the now chronic housing crisis has no good excuse. As somebody has written: Obama found a really bad situation –and he made it worse.
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