I’ve been wondering lately if moderates who supported President Obama in November are starting to feel they made a mistake.
Before we start, there is certainly some evidence of confusion among moderates. This article by David Brooks perhaps summarizes the situation best. Moderates held out hope that Obama would be like them. There is certainly some evidence that he has tried to be moderate in some areas, for example in foreign policy. But his budget — and the ensuing cratering of the stock market — have made it clear that in terms of domestic policy Obama is no moderate. You also may want to read this article, which discusses the shock among Wall Street Obama supporters, who are starting to getting some voter’s remorse.
So who cares about the stock market? You don’t own that many stocks, so why should you care?. The problem is that in the broadest terms, the stock market reflects confidence in the future of our economy. If you study the ups and downs of the stock market since the 1920s, you will notice that the market is a broad indicator of faith in the future. During the 1930s, the market stagnated because nobody saw a way out of the malaise. During the 1940s and 1950s, as the country began to recover, the market went up, meaning we had much more confidence in our economy’s future. During the 1970s, the market was mostly stagnant because there was a lot of pessimism. The 1980s and 1990s were decades of renewal and optimism, at least as far as the market was concerned. Recent history has shown the market to be stagnant, just like the 1930s and the 1970s.
My point is that the performance of the stock market is crucial as a way of understanding the overall faith in the future. This affects you, even if you don’t own stocks because if you work in the private sector your job is dependent on people buying the stuff your company makes. If there is no faith in the future of the economy, people will buy less of that stuff and you may lose your job. If you work in the public sector, you are holding your job because other people are paying for your salary through their taxes. If the economy tanks, that means lower tax receipts and budget cuts, which means you may lose your job.
So, the performance of the economy matters to everybody. And the performance of the stock market matters to everybody because it reflects the likelihood that you may lose your job in the future even if you haven’t lost it yet. (Not to mention, it affects the size of your 401k and other savings plans). So, how has the stock market performed since Obama was elected? It has dropped nearly 40 percent.
Now, you may want to blame that all on Bush, and if you would like to do that, well, there’s probably not much I can say to change your mind, so I won’t even try. If that is the way you think, however, I would ask you to to ask yourself when does Obama become responsible for the economy and when do we stop blaming Bush? I believe we cannot blame Obama for the recent GDP drop, but we can blame him for the Dow continuing to tank. And the reason is the incredibly leftist budget that Obama has unveiled.
But more importantly, what has happened to the economy so far this year? As this Wall Street Journal editorial points out, the recession has gone on for 15 months (you can’t blame Obama for the recession) but there has been no attempt to restore confidence in the markets that new pro-growth measures are coming.
So what has happened in the last two months? The economy has received no great new outside shock. Exchange rates and other prices have been stable, and there are no security crises of note. The reality of a sharp recession has been known and built into stock prices since last year’s fourth quarter.
What is new is the unveiling of Mr. Obama’s agenda and his approach to governance. Every new President has a finite stock of capital — financial and political — to deploy, and amid recession Mr. Obama has more than most. But one negative revelation has been the way he has chosen to spend his scarce resources on income transfers rather than growth promotion. Most of his “stimulus” spending was devoted to social programs, rather than public works, and nearly all of the tax cuts were devoted to income maintenance rather than to improving incentives to work or invest.
My question to “moderates” who voted for Obama is: is this what you really wanted? Are you starting to wonder if the radical transformation of the size of government that the president is proposing is perhaps a bit too much?
Now, some disclosure: I have always opposed Obama’s agenda precisely because I felt, based on studying economic history, that it would result in exactly what has happened: lack of faith in the future of the economy.
I would also like to point out that if you are a moderate, you could make the argument that things probably wouldn’t have been better if McCain had won. There still might have been a negative reaction on Wall Street, and there still would have been job losses and there still would have been a drop in the markets. This claim ignores an important point, however: McCain, with all his many, many, MANY faults would not have proposed the radical transformation of the economy being proposed by President Obama. And this DOES matter because it affects Wall Street and the stock market and future prospects for the economy.
So, all you moderate Obama supporters, what do you think? Are you happy with the president so far? Or are you beginning to wonder if you made a big mistake?
Reminders for people who will comment here: this is a contentious issue, but if you’d like to post here you will be polite and collegial. Mean-spirited comments will be deleted.