The president who has it both ways

| Staff Columnist

Who is President Barack Obama? Some characterize him as the champion of the Left. Others cast him as a shrewd moderate, cunningly attempting to implement practical policies that would work for America. The Krugmans among us regard him as too cautious and conservative to bring about the sort of change he preached ad nauseam during his campaign. There are also those who see Obama as a sort of Fabian socialist, gradually bringing serfdom to America like the great Roman general who battled Hannibal. The strange part is that everyone seems to be simultaneously correct.

The two economic schools that changed the world, Keynesian and Austrian, manifest themselves in perpetual conflict throughout Obama’s first year. Keynesians preach that the government must rise up to stimulate spending when consumers are failing to do so. They see depressions as a decline in demand that the government has the main responsibility to end. Modern-day Keynesians call on the government to become the “buyer of last resort,” a phrase used by Robert Reich several days ago on “Larry King Live.” To this end, Obama has been a champion of the stimulus, hoping to spend the economy into prosperity.

The Austrian theory poses a very different idea of how to end a recession. They see recessions as the result of cheap money being circulated by a reckless central banking system. The low-rate loans allow more projects to be started by producers than consumers have the savings to afford to purchase. Recessions are the inevitable wake-up call from rising interest rates that cause producers to retract their projects. Followers of the Austrian school call for allowing the bad debt to be liquidated, not to stimulate production of items that the economy should not be consuming in the first place.

An Austrian would love for the government to end deficit spending. Freeing up the credit markets from government demand means cheaper credit for the business sector to rebound from its previous state of indulgence. Obama also bought into this theory. He recently called for a bipartisan panel (which failed to materialize) to address the growing deficit. He also wants to freeze domestic spending starting in 2011. Both of these are uniquely conservative ideas, even though no conservatives really believe either will ever happen.

The problem is that these two ideas are completely contradictory. If one really believes that increased spending will help the economy rebound, then deficit spending is wonderful. Deficit spending should be encouraged until the recession is clearly over. If you really believe that reducing the deficit is good plan which frees up credit for entrepreneurs, then you typically do not go around suggesting that hundreds of billions be spent on bailouts and stimulus. Maybe one of these ideas works. Maybe they both do. But they sure as hell don’t work together.

Obama needs to realize that he cannot be all things to all people. Yes, a broad coalition decided to elect Obama over a bimbo and blowhard, but eventually you have to define what it is exactly that you stand for. You cannot be both a supporter of fat-cat bailouts and an ardent populist; you cannot be an anti-war candidate who expands the war in Afghanistan and into Pakistan; you cannot be both Keynes and von Mises.

If Obama does not want to go down in history as the biggest joke of a president ever, he needs to find a base and stick with it. He’s losing moderates with his bank tax, he lost conservatives with health care, and he’s going to lose liberals too if he keeps up his deficit attacks. The president’s approval ratings will stay up for a while; people are typically hesitant to admit they supported a loser (see: people who still think Bush was an awesome president). If, however, Obama does not find firm ground to stand on soon, he may discover that he’s fighting a war without an army, and that is no way to win a midterm election.

  • Philip Christofanelli

    Richard,
    I really did not make an Austrian argument in this article, I merely acknowledged that Austrian economics, much like Keynesianism, was the original basis for much of economic thought. This is simply a fact. The reason neo-classical economists are called “neo” is because they are drawing on theories of the Austrian school thinkers such as Hayek, Von Mises, Schumpeter, and Hazlitt. Neo-classicalism could be substituted for Austrianism throughout most of the article without changing the basic argument at all.

    Given that I only have 700 words, I felt it was unwise to address every economic theory to have ever existed. I’m sorry that I looked over your favorite, as they were completely taken off gaurd by the last two recessions, whereas Austrians had foreseen their imminent nature years prior.

    Your critique of this article, most like every thing you write, think, say and do, is completely off-base. You are simply blinded by your hatred of traditional economic theory. You mistake my attempt to demonstrate that conflicting economic theories are manifesting themselves throughout the Obama Administration for me making an attempt to advocate a particular economic system as superior. As I would love to take up your misguided views in this area on another occasion, this article simply isn’t the correct context, as would be clear had you actually read it instead of seeing the word “Austrian” and going into convulsions.

    In Liberty,
    Phil

  • Richard Jesse Markel

    While I’d agree that New-Keynesianism is a liberal ideology that (not-so-shockingly) falls on its face most of the time, Austrian business cycle theory has been completely debunked as not modeling the real economy’s movements in any meaningful way. You claim that there are two ideologies that “changed the world” and yet you completely overlook Neoclassical economics, the basis for economic thinking at UChicago, Carnegie Mellon, and, to some extent, Washington University. What you do to economic thinking is bastardize it into simplistic terms that ignores reality for the sake of pushing your Austrian argument. Your argument is akin to examining American history from the perspectives of the Democratic and Bull Moose parties – You’re leaving such an enormous hole in your analysis that it’s difficult if not impossible to take your argument seriously.