Where Obama wants to take capitalism

WEEK IN REVIEW: "Obamanomics: Capitalism After The Fall," by Richard W. Stevenson, New York Times, 19 April 2009.

Well-written piece.

America has long had one model of consumption-oriented capitalism that was good for us and good for the world, but globalization's spread has advanced to the point where that philosophy has produced structural imbalances that are unsustainable for all involved.

Does that mean the preceding decades were all a lie? A sham? A fraud?

Hardly.

It simply means that our success in spreading our American System-cum-international liberal trade order-cum-globalization forces us into adaptation of a magnitude so significant as to constitute a new era in capitalism.

As always, the critics of capitalism will have their brief field day, as they have had throughout capitalism's oscillating-but-constantly-improving history. And those who err on the side of statism will be celebrated for their cautious wisdom during the tumult.

But real leadership in this timeframe consists of shaping the vision of that next stage of capitalism, not the sideline complaints of those who dream of capitalism's demise (long and often predicted over the decades) nor the timid visions of state bureaucrats who fantasize that--somehow--the "scientific methods" enabled by today's technology will place them in greater control of their fates than past versions did for the likes of the Soviets.

So what is Obama saying?

His goals include diminishing the consumerism that has long been the main source of growth in the United States, and encouraging more savings and investment. He would redistribute wealth toward the middle class and make the rest of the world less dependent on the American market for its prosperity. And he would seek a consensus recognizing that an activist government is an acceptable and necessary partner for a stable, market-based economy.

"We cannot rebuild this economy on the same pile of sand," he said last week.

How that equals a "war on the middle class" or a "war on the rich" or a "war on private business" or whatever the hysterics are peddling this minute, I haven't a clue.

To me, it seems like a reasonable description of the direction we'll simply need to move for the foreseeable future, because an America that isn't centered on a middle-class ideology isn't really America anymore.

Done well, we set the example for the global middle class as it emerges, exhibiting the same innovative and visionary global leadership that got the world to this place--a world no longer threatened by great power war and distressed primarily by a lack of sufficient rule sets to manage all the complexity created by globalization.

In short, we need to move onto the next, best set of problems and challenges.

Or we can pretend that real leadership consists of rerunning the mistakes of the first half of the 20th century, before we assumed leadership of this world.

Comments

[Seth Pillsbury]

While your direction of change seems appropriate, how does it differ from being "statist" which you also criticize? Will the middle class be the controlling influence or will government? The "pile of sand" comment also makes previous actions appear mistakes, which you say was not the case. Just seems contradictory.

[sailordude]

"Or we can pretend that real leadership consists of rerunning the mistakes of the first half of the 20th century"

Exactly which mistakes were those? The "mistakes" that propelled this country into the richest and most productive in human history?

Your so-called "leadership" is just another excuse for more government iinterference....that's what "led" us here.

[Tom Barnett]

The pile of sand, I am sure, refers to the debt leveraging that got out of hand.

Statist here refers to governments that have strong or full ownership across numerous sectors. Right now this is only a limited phenomenon in our banking/financial sector, which is defensible because of our leadership role globally in that industry.

But our government isn't intervening in mining, oil and gas, electricity, telecoms, etc., so some perspective in order.

Our advanced stage of development matters here: we seek to preserve a large middle class; places like China and Russia are simply trying to create one.

[large]

Robin Hood Economics (Redistribution) and pandering to the lowest common denominator is not good Economic Policy, nationwide or world wide . . and as Seth, above, has stated, this seems contradictory to many of the things you have stated elsewhere.

[Jeff J]

All sounds good to me. However I cannot quite reconcile the desire to have Americans spend less and save more while the government spends more and saves less. David Axelrod was bewildered by the recent tea party tax demonstrations stating that taxes have actually been cut for 95% of the American people. The problem is that when you are running huge deficits and have a huge debt you are not cutting taxes but merely deferring the taxes to a future time and most likely much increased rate. To be fair the Republicans did the same thing in Bush's first term.

[Walt Lips]

Tom, I wanted to be sure that you were aware of the Kondratieff Theory of the long economic wave. Nikolai Dmyitriyevich Kondratieff lived from 1892 - 1938 and developed his theory while working on the early Soviet Union 5-year plans in the 1920s. His research going back to the 18th century revealed that capitalism went through a series of repeating cycles (expansion/Spring, recession/summer, autumn/plateau, and winter/depression) which together constituted long waves lasting about 50-60 years. I first heard about it when investors and economists started speculating on whether the stock market crash in 1987 would usher in a depression.

Kondratieff found initial favor in the Kremlin when he predicted that the roaring 20s would be followed by a depression among the capitalist economies. But when Stalin saw that Kondratieff also forecasted that capitalism would ultimately advance to a higher level during the next inevitable long wave he was thrown into prison and then executed during a Stalin purge.

The current long wave appears to have started in the late 1940s (the post-WWII bull market started in 1949) and ended sometime during this decade. I recommend that you consider how these long waves fit in with your Grand Strategy and I hope that our current economic decision-makers don't listen too much to those who want to use this current crisis to end capitalism. Another more prosperous than ever long wave lies ahead if we avoid doing something drastically dumb.

[stuart abrams]

There is one piece missing from Obama's vision: tax reform. We need a consumption-based tax like a VAT (although I'm still playing around with variations that might work better). Hopefully, after the recession is over (can't impose a new tax in the middle of a recession), he will address that.

[Tom Barnett]

Sailordude: I refer to our lack of global leadership up to 7 December 1941 and the economic nationalism that helped trigger and fuel the Great Depression. Pretty big mistakes that we spent decades fixing. Dial down your patriotism please. I make the case for American exceptionalism better than most, but it's not a brain-dead delivery from me: I see the bad along with the good.

Large: making your middle class happy is good economics and even better politics. The middle class has overwhelmingly missed out on economic advance over the past 20 years. That's a bad trend that needs mending. How we treat our middle class will influence how other states do, and as I have often noted, there is nothing more important than making the global middle class happy in coming decades. The lowest-common denominator stuff just doesn't compute. Your politics are narrowing your dialogue to just plain cantankerousness--not useful.

As for contradicting myself: if you think I'm going to stick to the same concepts and vision all the time and not make course corrections when circumstances change dramatically, then you've never understood my thinking in the first place.

My favorite bit in this regard is Larry Summers recently channelling Keynes:

"Keynes famously said of someone who accused him of inconsistency; 'When circumstances change, I change my opinion,' said Summers, raising his heavy-lidded eyes at the reporters as he quoted Keynes' kicker: "'What do you do?'"

Grand strategy that is completely un-reactive to global events and trends isn't strategy whatsoever. I make this point in Great Powers: extreme consistency is not just the hobgoblin of little minds, it kills grand strategy. I never signed some pledge that said deregulation-forever, nor would I sign one going in the other direction. Therefore I don't suffer course corrections to the same extent that you and sailordude (please, too much government regulation took us here?) do. I live in the middle, so the "betrayal" notions strike me as silly. What I have always said is that better rules are always welcome, and that crises tend to reveal rule-set gaps because economics outpaces politics and technology outpaces security. There is no right-v-left logic to those dynamics. Claiming one means that--we're simply too far out of synch to converse.

More to the point: if all such changes could have been stomached if only the right party was in the White House, then it's time to move on and find a blog more to your liking. As I have said many times, there are a lot of people who discovered me under Bush who won't be able to stand me under Obama because they have me in a neat pigeonhole and can only respect me if I stay there. So if I don't meet your demand because I haven't shifted into opposition with you, again, please move on to blogs that scratch your itch, because comments need to offer alternative analysis and not just bitching.

I have no intention of remaining static in these times.

Walt: taught Kondratieff in grad school. Fun stuff, but so malleable that I don't find it interesting or helpful. It's like End Times theories: they can always be adjusted to be proven correct.

You heard about it in the late 1980s because, if it held, the 1970s and 1980s would have been a long depression. Nothing happened, and now we're being told that Kondratieff still works, it's just taking longer this time.

Beyond that, I've given up arguing with its fans. If it makes you happy, then enjoy, but I don't find it useful.

Stuart: I agree.

[Christopher Thompson]

I check in regularly and it is interesting to see the same group of posters in a tizzy over the current tip of their spear -- apparently taxes. Dr. Barnett, thankfully, seems keeps his eyes on the horizon, providing his interpretation of reality as it approaches. That's what keeps me coming back to this blog (and buying the books).

It is interesting, but you could consider Capitalism to be a system that allows unfair redistribution of wealth to the rich. Since the rich cannot be depended upon to act in their own or the countries best interests, one of government's jobs has long been stability. So it makes some sense for the government to get the rich to reinvest some of their wealth in the major source of that very wealth -- the middle class. But I suppose taxes will always be a convenient whipping boy.

[Louis Heberlein]

An American globalization role of consumer of first (and last) resort and a wealth based on 'creative' intangible assets could not be sustained. It did motivate other nations to risk globalization investments of $, education and labor.

So, now we move America toward managed capital, education and labor investments that can have modern tangible products and services even if most of media and public don't understand the technologies and ideas.

The old game plan is finished. The coach sends in Obama with the new game plan. Who is the coach?

[Seth Pillsbury]

Re: Pile of sand, etc.

You make good points, but sould like you are back briefing for PONTUS..."What the President meant to say..."

[David Sutton]

As someone sitting on the far side of the planet all I can say is that if Obama wishes to reduce the impact of negative events in the American economy on the rest of the world then let him do the good work and hush up.

Securing a globalised economy needs to be the watchword of any American government regardless of which animal masthead your following.

Grand strategy – either Toms or Obama’s needs to be as flexible as circumstances allow.

Governments have no right to remain fixated on past solutions or past operating systems. They must be the foremost learning organisations on the plant, those of us in far flung corners – Core as in Australia or Gap as in the Sudan will demand nothing less of you if you are to begin to claw back the respect that you have lost these past 8 years.

[HuskerInLA]

This is part of what keeps me checking in here, every day, for years. Tom will give a perspective. Two days later he's posting up a different angle. But it all fits, flows and ties together.So I don't see that as contradictory.I have come to see Tom, as a visionary with many vantage points.He may object to the visionary term and so might I. But the line sounded better that way. So there ya have it.

[Walt Lips]

Reply to Stuart & Tom who didn't think much of my citing of the Kondratieff Long Wave Theory: If you knew it well enough to have taught it you would know that the 70s-80s were too early for the winter/depression phase which is underway now. Remember that it is a long wave.

[tom barnett]

Mais oui

The Wave is always right ; it's history that screws up!