Thursday, February 12

The Tragedy of Consensus Economics

It's pretty clear that Obama's current economic approach is "all hands on deck".  Exhibit 1 is the financial stability plan passed by Congress that splits the economic stimulus baby down the middle:  1/2 spend, 1/2 tax relief.  There isn't really anything wrong with that per se, but I think that a strong view one way or the other would actually be more helpful.  While Obama seeks to build consensus by keeping both camps happy, he is giving up greating a stronger foundation that the entire country can rely on.
I'm not a believer in Reaganomics, but the positive side of Reaganomics was that everyone knew what the underlying philosophy for the country was for the next 20-30 years.  Everyone understood that the key to success was to be a strong capitalist in the face of laizze faire regulation. You knew the rules of the game.  Even if you didn't like the rules, at least you knew why they were unfair.
The markets appear to be reacting to the fact that they don't know what the rules of the game are. While strong capitalism seems on its way out, it's not clear what is replacing it.  Liberals and long-suppressed Democrats hope we are dawning a new day of Strong Liberalism.  But I don't see it that way.  Based on everything I have seen from Obama, he seems to be walking the middle and will venture far into historically "conservative" efforts.  The amount of tax relief in the stimulus bill is a good indication of that.
The problem with this approach is that if Obama were clearly biased towards a single approach, everyone would know what to do.  Government regulations clearly going to increase?  If you're unemployed, then apply at the government.  If you're a business, investing in your government contracting business is a clear investment.  As a CEO, I would be building plans on how to manage and leverage the coming government tidal wave.  It was clear when Reagan said "government is the problem" that it was time to lessen spending on regulatory compliance.
Clearly Obama is changing the balance towards regulation, but I wouldn't call it a strong form of regulation.  And I shouldn't lay this all on Obama, it's clear that voters provided a mandate with a Democratic majority in Congress that they wanted change.  And Congress is delivering it.  So much so, that Obama's challenge is reining in the strongest liberal horses.
But that being said, Obama needs to set the rules of the game for businesses and entrepreneurship very clearly.  The more clarity on which philosophy (or even a new philosophy) drives our economy will allow people to invest.  Right now the rules are not clear at all.

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