Just as night predictably follows day in the physical world, so nemesis predictably follows hubris in the world of human affairs. Such is the latter case with the young presidency of Barack Obama.
Just one year ago, a young untested politician was vaulted into the highest office in the United States on a wave of media euphoria that might easily have been mistaken as recognition of a Second Coming rather than as a simple change of administration in a constitutional republic. Drenched in adulation, with impossibly high expectations pinned upon him by the electoral majority that thrust him into office, and gifted with significant Democrat-majorities in both houses of Congress, it is not at all surprising that President Obama and his administration over-reached, and pursued during the first year of a first-term a policy agenda designed to impact every aspect of the United States economy.
The goals were indeed all-encompassing: a restructuring of one-sixth of the entire economy in health care reform, an empowerment of the unions, in ‘card check’ legislation, the defeat of global warming, in ‘cap and trade’ legislation, the revamping of income distribution through the imposition of increased taxes on the well-to-do, the partial nationalization of the financial sector and the automobile industry, a shift away from free trade towards trade protection, and the reversal of economic deregulation policies promoted by his four immediate predecessors in the White House. Oh yes, and by the way, the administration would remove in 2009 the financial panic, and associated economic contraction, that was throttling jobs and wealth throughout the nation, decimating home ownership and wiping out stock market wealth.
The outcome inevitably fell far short of the goal, as the United States Congress lost traction with the median voter in its frenzied efforts to meet impossible targets, and as an idealistic President expended all his personal political capital, and more, in promoting, in a hands-off manner, an agenda that, if successful, would change the nature of the US economy forever, via a shift from laissez-faire to state capitalism. Few individuals can relish the price that President Obama will pay tonight as he makes a State of the Union Address that will be viewed world-wide as a recognition of the failure of his economic policies and that will outline a new, and yet I fear, an equally over-ambitious course for the second year of his young presidency.
What advice can an outsider offer to a president who teeters on the precipice of policy disaster? Specifically, what lessons from public choice might President Obama now take on board? In this short column, I shall offer two central life-lines.
First, and most important, reconstruct your cabinet to reflect the realities of the political market-place. The economic team that you created in 2009 has served you badly, by offering advice that is out of line with the views of your initial electoral majority, and by suggesting a time-line that no experienced administrator ever would have attempted. If you are now decided to adjust your agenda to a more central course, your economic team reshuffle should signal that change. The median voter will react very favorably to the following changes: for chief of staff, replace Rahm Emmanuel with a seasoned apolitical administrator; for Chairman of the Fed, replace Ben Bernanke with Paul Volcker, for Treasury Secretary, replace Timothy Geithner with Robert Rubin; for National Economic Advisor, replace Lawrence Summers with Gregory Mankiw; for Chairman of the Council of Economic Advisors, replace Christina Romer with her husband, David Romer, for Regulation Tsar, replace Cass Sunstein with Sam Peltzman. Your new economic team would command immediate respect among Democrats and Independents because it would reflect, for the most part, a New Keynesian rather than a hydraulic Keynesian methodology and a much more professional and experienced approach to policy promotion.
Second, shift your own persona from that of the fox to that of the hedgehog, in the sense defined by the great philosopher, Isaiah Berlin. The fox knows many things, your situation in January 2009. The hedgehog knows only one thing, but it is an important thing. That should be your position in 2010, if you wish to reverse your fortune once again, this time from disaster to success.
The one big thing that you should know is that a majority of Americans value the relatively laissez-faire economy that is the source of their economic well-being. They look to their president to nudge the economy back onto the path of the Great Moderation that your incompetent predecessor abandoned. A policy of small changes for a better world is the public choice medicine that surely will cure your ills. It is a tough medicine to swallow for an understandably ambitious young man. But unlike some of your much older predecessors, you have a long life ahead in which to enjoy the sweet fruits of humble but steady progress.