Saturday, September 19, 2009

President Obama didn't learn the lesson of Bush II

Insisting the Obama administration would not be deflected from this goal [of financial sector reform], Mr. Summers rubbished advertisements claiming that the new agency would prevent florists from offering credit to their customers.

“That argument is to the financial regulation debate what the death panel argument is to the health insurance debate,” he said, referring to incendiary claims that health reform would give bureaucrats the power of life and death over senior citizens
. FT

President Obama's Director of the National Economic Council, Larry Summers, has hit the nail on its head. The deeply entrenched rent-seekers in the US economy, notably those in health care and finance will use all the techniques of propaganda to maintain the status quo. These are the fruits of such virtuous (I believe) principles as free speech and bicameralism, as the founders discovered to their chagrin more than two centuries ago.

There is no such thing as a free lunch.

As is always the case, those in favor of maintaining the status quo have cultural inertia on their side. This is particularly the case when, as in the current situation, recovery efforts precede reform as the shock of crisis, which opens the mind to the virtues of change, fades.

Imagine if, instead of reforming US foreign policy in the weeks after 9/11, the Bush team directed their energies to cleaning up the mess and making the broken families whole, and waited months before trying to pass the Patriot Act, gain funding for the War in Afghanistan and initiate the War on Terror. I suspect if the Bush team waited a year before they tried to pass such reform measures they too would have run into the same inertia bogging down Obama's reforms. Legislators might have actually read the Patriot Act.

In the event, the Bush team struck while the iron was hot, while the Obama team worked to reassert a sense of normalcy into financial markets. What a different world it would be if those choices had been reversed.

The question for Obama's team is this. What are they prepared to do to pass their reforms?

Will they wait for another crisis and risk being blamed as causal agents? Or will they ram legislation through and deal with the inevitable backlash-perhaps even inspiring another crisis and further muddying the waters as their reforms are blamed? Are they willing to pay the price Bush the elder paid when he raised taxes, and allowed Clinton to reap the benefits?

Oh well, nobody said it was going to be easy.