President Obama's Ambitions
By any account, these are tough times. The economy has been plunging for at least 8 months and possibly as many as 15 months, depending on what measure you look at. The Federal Government is headed towards the highest deficit since World War II. It would seem like a logical time for the President to be dampening expectations. Not President Obama.
First a comment on the speech itself. It was an amazingly well put together and delivered speech, as we have come to expect. Even by his high standards, it was strong -- better than both his convention speech and innaugural speech, in my opinion and on par with the 2004 Democratic convention speech that vaulted him to the national stage.
Now, on to the content. Talk about an ambitious agenda! By my tally, Obama committed to:
(1) Universal Health Care in the first year of his administration
(2) Cap and Trade, also in year one
(3) Increased investments in Green Energy
(4) Increased investments in Education
(5) Tax increases on those making over $250K / year
(6) Cutting the deficit in half by the end of his first term
Oh yeah -- and we are going to cure cancer!! (no joke!!)
Can he possibly get all of this done? #1, #3 and #4 will be very costly, particularly #1. Cap and Trade could be structured to be a big gainer in revenue if it is structured as a government auction for carbon credits. Clearly tax increases on those making over $250K per year will also raise revenue. But these two things will be insufficient to fund the just-passed stimulus bill, the next phase of TARP and do #1, #3 and #4. Very insufficient. More cuts or taxes will be needed.
To that end, Obama talked of:
(1) Reducing farm subsidies
(2) Reducing military spending on Iraq and cold war-era weapons
He stated in his speech that his team has already identified $2 trillion in potential cuts although it was unclear over what time period that number referred. If Obama is serious about taking on farm subsidies, one of the worst forms of corporate welfare in existance, I'm all for it. But he'll run into a buzzsaw from rural Senators of both parties. He can allow the Bush tax cuts to simply expire in the 2010 tax year. Sources indicate he plans to present a plan to be out of Iraq by mid to late 2010. But I still am having trouble with the math. I will need to see the details of his plan.
Regardless, President Obama has set a high standard against which he will be measured in year 1 and the balance of his term.
A great speech, an ambitious agenda -- now he must deliver. Oh yeah, and a Health and Human Services Secretary would help if the President is serious about getting Universal Health Care done this year.
Jindal Falls Flat
Clearly Gov. Bobby Jindal (R-LA) was given the role of response to President Obama's speech by the Republican Party because he is a rising star, a potential 2012 candidate and a successful Republican Governor, the only area where Republicans have been succeeding as of late.
Gov. Jindal had a very tough task. Following one of the great orators of our time, who had a live audience and the trappings of the office of President was going to be a very tough task to meet.
Even in that context, I found most of Gov. Jindal's speech very flat. Hurricane Katrina is an example of private industry trumping government intervention? Can we have the $50 billion that the Feds have spent in your state? How exactly would Katrina reconstruction have looked like funded from private industry?
Stylistically, I also felt a little for the first half of the speech like I was being treated like a 5-year-old.
I don't mean to be too tough -- Gov. Jindal has a very compelling personal story, has been a successful governor and is probably the closest thing the Republicans have to a true star that they could run in 2012. But he has a long way to go to hold the stage with Obama. This falls well short of many politicans national "coming out" -- think Sarah Palin's convention speech last year or Obama's 2004 speech.
Solis Confirmed
Down to 2 cabinet vacancies (Commerce and HHS.) Hilda Solis was finally confirmed yesterday. The vote was right in the range I had predicted (I've been doing pretty well of late in reading the likely vote totals) with a strong 80-17 margin supporting approval. Voting for Solis were all the Democrats, both Independents and about half of the Republicans (including both moderates like Sen. Collins and Sen. Specter and conservatives like Sen. Cochran, Sen. Grassley and Sen. McCain.) Conservatives had some abrehension about Solis' liberal views on labor and had raised questions about back taxes from her husband's business. But this was a fairly resounding vote of confidence.
Gary Locke for Commerce
Third times the charm at Commerce? After having both Bill Richardson (for ethics investigation concerns) and Judd Gregg (for philosophical differences) withdraw from the Commerce seat, President Obama is hoping former Washington Gov. Gary Locke for the seat.
Locke is not a well-known national figure. He was the first Chinese-American Governor in the US, who had a largely moderate record on fiscal matters during his terms from 1997-2005. He is a Yale-educated lawyer with little private industry experience.
Locke appears to be a qualified candidate who will have a clean and quick nomination. But I wish that President Obama had selected someone with more of a private industry background for this key post.
No word yet on an HHS pick. Sebelius still appears to be the lead pick, although I don't believe an internal decision has yet been made in the administration.
What Does the Stock Market Mean?
The stock market hasn't been doing so well lately, as anyone who has opened a 401K statement or watches the news knows.
Since last May, the S&P 500, the measure of the market value of the 500 largest companies in the US and broadly considered the bellweather of the overall market, is down 47%. The market had been declining since May and hit a low point last November before slightly rebounding. That rebound has been lost again and the S&P is down again near its November lows.
So what does all this mean about the economy?
Contrary to common belief, the stock market is not a measure of current economic conditions. It is a measure of the market's collective belief about present AND future economic conditions. It is what traders believe is the future earnings that will come from the companies traded. Therefore, it tends to be forward looking.
In December, when the market rallied back some, it showed some hope on the part of Wall Street that the recession would be relatively short and the economy would rebound. Of late, those hopes appear to have faded and the pessimism of last fall has returned. The stock market generally leads the economy out of recovery, so this means the collective wisdom is that we are more than 6 months away from the start of the recession recovery.
The good news is that the market can be wrong. Let's hope it is. But brace yourself for things to get worse before they get better. But get better they will. Fundamentally, the US still has the world's most productive workers and a well-functioning currency system. We are just paying the debts we ran up over the last 20 years and it may be painful for a while.
Incidentally, because it is a forward-looking measure, stock market changes over a President's term are actually a good gauge of a President's economic performance. It is imperfect, because, as I said, the market can be wrong, but it is more accurate than looking at economic growth figures as those include things set in motion before a President takes office and excludes the impact of things a President sets in motion after he leaves.
In a future blog, I'll examine the stock market performance of the Post-World War II President's. President Obama's performance so far on this measure? Not good so far -- but it is too early to tell -- his policies haven't taken hold yet and the market is guessing at this point.
Let's hope great speeches translate into bold and successful action.
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