Opinion: Obama Doesn’t Pay His Debts
By Mike Hachey: Mike is a graduate of Emerson College. His future is uncertain.
Gen Y put President Obama in office. Whether we worked as high-profile speechwriters or volunteered for unglamorous jobs like door-to-door canvassing, millennials made up the bulk of the president’s vast grassroots network during the election of 2008. David Plouffe, Obama’s campaign manager, cites youth involvement as essential to the campaign’s success in his election memoir, The Audacity to Win, writing that the Obama campaign “simply would not have won without the historic level of participation from our volunteers.”
Plouffe’s book is studded with little stories about individual young people, miniature portraits of hope and commitment: the Drake University student who “must have lost five pounds, sweating for hours” in a mascot costume, drumming up enthusiasm at a rally; the Dickensian soul who “grabbed some ramen on the weekends” and “didn’t take a girl to a movie” so that he could channel his meager spare change toward the campaign. Plouffe and Obama are apparently aware of their debt: “Dozens of times Barack Obama and I marveled at the commitment and talent of our grassroots supporters and pledged not to let them down,” he says. “‘I feel such an obligation to them,’ [Obama] would say. ‘They believe in me. In us. In themselves.’”
I listened to Obama’s jobs speech before the Brookings Institute yesterday with those words of gratitude fresh in my mind. Obama’s detractors have always called him vague, and I usually dismiss these criticisms as pedantic. But yesterday’s speech did not inspire confidence that Obama has made a priority of the challenges facing the millennial generation. The speech contained one sole reference to “young people who were just starting their careers,” a subordinate clause in a long sentence of beleaguered demographics: “blacks, whites, Hispanics… individuals 50, 60 years old, looking for a job.”
The hardships posed by unemployment on anybody should not be underestimated. But joblessness for our generation presents formidable consequences for the future. According to the Employment Policies Institute, early-career unemployment results in a lifetime of depressed wages and heightened vulnerability to future job loss. Furthermore, a study by the Lumin Collaborative reveals growing skepticism among millennials toward the power of the political system to ease rough economic times. This encroaching pessimism should give pause to any administration that was carried into office by a movement based on optimism.
There were good things in Obama’s speech, to be sure. The administration should be commended for its $12 billion investment in community colleges, an often overlooked corner of the American educational system. Meditating on that figure, however, provides insight into why a major speech on economic policy should be so conspicuously lacking in numbers. Comparing an investment of only $12 billion in the future of American students with the $700 billion in TARP funds given freely to the banks makes for a distressing statement about Washington’s priorities.
TARP was not Obama’s idea, of course; it was a policy he inherited from his predecessor. Still, it’s a little troubling to know that Obama’s plan for job growth entails nothing more than throwing businesses the scraps left behind in the TARP feeding frenzy. Obama intends to redirect some of the $200 billion on TARP savings to guarantee bank loans to small businesses; it is his hope that after injecting some capital into firms, employment will pick up. This is a rather hands-off approach, uncomfortably reminiscent of the underlying philosophy of TARP in the first place, which was to promote business lending by giving over hundreds of billions of dollars of taxpayer money to the banks with no strings attached. Needless to say, the business lending never materialized.
This new plan, however, will have an effect on business lending, because the government will essentially be paying banks to lend money. A government-guaranteed SBA loan to a business follows the same basic idea of a government-backed student loan in that it gives the financing bank the loan’s full profit value while keeping the risk securely on the shoulders of the taxpayer: if the financed business venture succeeds, the bank gets repaid with interest; if the venture fails, the government covers the bank’s losses. While this scheme may be effective at promoting job growth—given enough funding, that is—it strikes me as much less efficient than direct government lending. In an age of climbing deficit hysteria, why not let taxpayers reap the benefits of a loan as well as the risks? Even when enacting policy ostensibly designed to help out the common man, this administration is poised to give the banks another handout.
The sad fact is, I think Obama is listening to all the wrong people. His information is coming to him through the filter of his economic team, experts who are almost all banking industry alums. In his speech, Obama was fluent and specific with the metrics of high finance, but when it came to the lives of ordinary Americans he had to resort to generalities. I cringed at hearing this poorly thought-out transition, which I think encapsulates this administration’s perverse priorities: “I would meet men and women bearing the brunt of not only a deepening recession, but also years — even decades — of growing strains on middle class families. But now the country was experiencing something far worse. Our gross domestic product… fell at the fastest rate in a quarter century.”
You could not ask for a clearer explanation of what President Obama thinks is important.
Unfortunately, all the other issues — structural obstacles in our society that have been eroding the middle class for decades; the real trauma of families struggling day-in day-out to do more with less; the dreams of college graduates being smothered by the outsize cost of college tuition; the rising cost of living and the falling average wages; the growth of predatory lending and tricks-and-traps credit card pricing models – are pushed to the wings as this dip in GDP, and its sudden threat to the livelihood of Wall Street financiers, takes center stage.
Photo Credit: aprilzosia
Great article Mike, love your points and how you supported them. Another aspect I see that our Gen will be stuck with is a long term concern: the debt our nation is racking up while funding these “feeding frenzies” as you so aptly phrased it. We’re going to inherit a very large debt, and a soiled economic reputation globally.
I’m with Scott, great article, but the elephant in the room is debt. US debt now stands at $12 trillion. To think that we can carry this debt (meaning pay interest on it) without feeling a little pinched is flat out irresponsible.
Furthermore, the really big picture is that wealth enables cultural advancement. Without it, we’re all too busy hunting and gathering to think about stuff like free speech. And the government does not create wealth, it simply sets the rules by which others can create wealth. When the government itself starts trying to create wealth — by borrowing money, there is no other way — it’s doing the opposite. Look at every country throughout history that has turned over economic drivers to the state; they have all failed, every last one. Obama knows this, but he’s so damn impressed with himself he thinks this time it will be different. It won’t be.
Jeff
http://www.cerebellumblues.com
In my humble opinion, I believe that the solution to both the debt problem and the unemployment problem will come from the small business and entrepreneurial community. In the short term, maybe pumping money somewhere will help, but ultimately I think we could benefit most from some kind of program or policy designed to nurture those businesses and entrepreneurs.
“Gen Y put President Obama in office.”
Fact Attack: The youth vote was 18% of the electorate in 2008, just one more percentage point than in 2004. 77% of Obama’s supporters were over 30 AND if no one under the age of 30 had voted at all, Obama still would have won every state he carried with the exception of just IN & NC.
Young people have always been the engine of political campaigns, it’s just that no one has cared before. The adage that politics is a young person’s game didn’t come from nowhere. Remember the 60′s? It’s just that our generation has just never been out in such numbers that makes it feel unique.
Further, I think it’s wrong to lay blame on Obama for most of this. Perhaps I’m simply ascribing to his brand and I can’t handle the cognitive dissonance–but Obama AND Congress AND lobbying groups are responsible for what’s going on. I’m not saying I’m happy about all this, but political feasibility is a very important part of what shapes Obama’s stance on issues. If you want change don’t complain about Obama, go volunteer in the mid term elections.
Jason – what source did you use in regards to this fact “The youth vote was 18% of the electorate in 2008, just one more percentage point than in 2004. “
A book called “How Barack Obama Won,” it breaks down all the numbers for what happened in 2008. It’s actually on my desk if you want to check it out.
@Christine: I think that the intent behind the SBA loans is indeed to encourage creativity and bold risks on behalf of entrepeneurs. However, this proposal is likely to fall short of what is needed to make a macroecomic dent. Also, as I mentioned in the article, I think there are issues with funding firms through guaranteed loans; direct government lending makes more sense to me.
@Jeff: The notion that government borrowing cannot create permanent wealth is simply false. Economists have known this as least as early as John Maynard Keyne’s General Theory of Employment, which demonstrated the multiplier effect of money. Interestingly enough, the places where government money has the strongest multiplier effect in the economy are in “hand outs” to the poor, like food stamps, because these payments are virtually guaranteed to be spent, causing money to circulate in the economy; tax cuts have a relatively small multiplier effect, because money saved by tax cuts often gets saved in the bank, where it circulates poorly. But we don’t need to resort to economic theory here: we are communicating about this over the internet, which began as DARPANET, a government project which has grown to allow vast amounts of commerce. Even more obviously, government investments in roads and infrastructure make it possible for firms to do business at all. Simply put, government financing is intimately involved in every aspect of wealth creation. You absolutely can “spend yourself out of a recession” in the same way that you can borrow yourself out of debt, so long as you use the borrowed money to make investments with strong returns.
@Jason: I don’t doubt Obama’s good intentions; I do think that he’s surrounded himself by advisors whose interests are not congruent with the interests of the public. Your point about young people always being the backbone of campaign organization is well observed, but to me this only underscores the neglect that politicians have historically held toward the needs of younger generations. I also take serious issue with your assertion that we shouldn’t complain about Obama if we don’t think he’s doing a good job; democracy can’t function without dissent. Also, complaining about Obama vs. volunteering in the midterm elections is a false choice. People should do both.
@Scott: Debt is good when it finances the public good and spurs economic growth. I wish that debt hawks would spend a lot less energy wringing their hands over economic recovery efforts and get a lot more involved in opposing war, the most expensive enterprise known to man.
@Mike Hachey “I also take serious issue with your assertion that we shouldn’t complain about Obama if we don’t think he’s doing a good job”
I could not agree with you more. Dissent is the best thing anyone can do. But my issue with “complaining” about Obama is that I don’t believe many people are informed dissenters. As the leader of the country and leading party it’s assumed he does what he wants. The media plays a large role is this problem too, e.g. referring to health care bills as “Obama care.” I don’t believe a single bill has come from the White House–Congress does that, not the President. So my point is that while we may want him to take a stand on this or that, ultimately it wouldn’t really do much other than erode his political capitol. Bottom line, he’s picking his battles based on political feasibility because he wants to get stuff done, not make us feel good.
One needs not be a hawk to spy a $12,000,000,000,000 national debt looming over your head. The concept of National debt as a benefit stems from Alexander Hamilton, who was directly responsible for the USA’s (previously) excellent credit standing globally. When you consider that the average citizen’s share of the national debt exceeds the average annual salary, continuing to ignore this problem is selfishly irresponsible.
@Scott Templeman I’m not saying that the national debt isn’t a big deal, but it’s not as bad as you think. It’s important to look at the debt with relation to GDP (http://tinyurl.com/yfzuts9). There is more money in the world and America is making more money now than it ever has. As a result, the numbers might be a record high, but they at the same time the debt isn’t. I think it’s analogous to how candy bars used to cost 5 cents, it wasn’t a deal–5 cents just used to be worth a lot more.
@Scott: $12t is huge, no doubt about it, but the American economy is also huge. American creditworthiness is not in serious jeopardy, at least not yet; US treasury bonds remain the safest investment on the planet. Furthermore, it’s misleading to talk about the average citizen’s share of the national debt; in fact, it’s usually misleading to talk about national debt in terms of personal finance at all. The US is immortal: it never needs to pay off its debt entirely, it only has to keep the debt within manageable levels. And the national debt will be manageable for the foreseeable future. I am not saying that deficits don’t matter, and I am not ignoring the problem. I merely believe that the avenue towards debt repayment — and, more important, economic growth — rests with intelligent short term investments. Obama is absolutely correct when he says that choosing between economic stimulus and paying down the debt is a false choice.
@Scott part 2: Also it’s problematic to talk about debt burdens in the future, because inflation devalues debt.
Furthermore, a study by the Lumin Collaborative reveals growing skepticism among millennials toward the power of the political system to ease rough economic times.
LOLOLOLOLOL
This is the worst misconception Gen Y has and I hope to god that we’ve internalized it and learned that the government has no ability to use “government” money to stimulate growth at any kind of “multiplier”.
Your article is solid and well thought, but honestly, the TLDR version of it should be: Obama magic not real, things that are too good/impossible to be true probably aren’t…just like mom said…
I think that might be a very valid personal view, but these numbers paint a pretty compelling picture that Gen Y does trust that government can work. I don’t know if “we” would have come out for Obama so strongly if we didn’t feel that way as a whole.
“Millennials disagree with the idea that if the federal government runs something, it is necessarily inefficient and wasteful. According to Pew Values surveys, 18-25 year olds in 2002-03 disagreed with that idea by exactly 2:1 (64-32), while 18-25 year old Gen Xers who were asked about the idea in 1987-88 were split down the middle, 47-47.”
Source: http://www.newpolitics.net/node/360?full_report=1
@Ben: Thanks for your comment. The notion that government is powerless to help the economy is both utterly bizarre and totally unmoored from facts. The unprecedented growth of the American middle class that came into existence following World War II, for example, owes its existence to direct government intervention–specifically, the G.I. Bill.
I think I am the only one in Gen Y who DIDNT want to put Obama in office. Such a FAIL.
@Mike I stand by what I wrote, which is “government simply sets the rules by which others can create wealth.” To borrow money and hand it to people does not create wealth. I haven’t read Keynes, but I know enough about economics to not trust its theories and models. They are mostly wrong, because they look back at what was done and extrapolate cause and effect. Pretty easy, if you know what outputs you want given certain inputs. Further, infrastructure does not create wealth. The Soviet Union built all kinds of crap and yet remained dirt poor. As for the Internet, well, it was created to enable a “headless” communication system, but the transformation into what it is today was hardly the government’s doing. In fact, it wasn’t going anywhere until we broke up AT&T and allowed the market to innovate. Last point: the U.S. is not immortal, nor was England or France or the Soviet Union or Weimar Germany or Nazi Germany or Rome. Debt matters because as it rises, we all must work harder and harder to simply maintain our standard of living. Ultimately, we revolt.
@Gillian – If you’re interested in youth voter turnout circleyouth.org is a great site and will give you the stats that Jason mentioned. We like to imagine that as Gen Y we’re a bigger politcal force than in previous generations we see that in the 1970′s voter turnout among the under 30 crowd was higher than it is today.
Great article Mike. See you at Christmas.
I'm with Scott, great article, but the elephant in the room is debt. US debt now stands at $12 trillion. To think that we can carry this debt (meaning pay interest on it) without feeling a little pinched is flat out irresponsible.
Furthermore, the really big picture is that wealth enables cultural advancement. Without it, we're all too busy hunting and gathering to think about stuff like free speech. And the government does not create wealth, it simply sets the rules by which others can create wealth. When the government itself starts trying to create wealth — by borrowing money, there is no other way — it's doing the opposite. Look at every country throughout history that has turned over economic drivers to the state; they have all failed, every last one. Obama knows this, but he's so damn impressed with himself he thinks this time it will be different. It won't be.
Jeff
http://www.cerebellumblues.com