Streetwise Professor

In my post-election post, I toyed with the Leninist concept “The Worse, the Better,” considering whether in the long run it would be better for Obama and the Congressional Democrats to indulge their wildest legislative whims, thereby sparking a popular backlash that would ultimately prevent them from doing too much harm. Well, they are indeed living out their wildest dreams, and much of “the Worse” is coming to pass, with no backlash in sight.  That possibility is what eventually led me to conclude that the Worse wouldn’t lead to the Better.  

Lenin’s name, and the worse-is-better strategy, are cropping up with some regularity on the right nowadays, but in a somewhat different way.  In the midst of the market carnage, Obama’s apparent insouciance over the banking crisis (note that two candidates for top Treasury jobs pulled out today), gargantuan spending plans, and massive increases in income taxes, capital gains taxes, and energy prices (via a carbon cap and trade plan), the right’s more excitable denizens are seriously suggesting that Obama is a Leninist bent on destroying the economy as a way of seizing control over the economy and the country.  (And it’s not just the right.  Crazed TV investment guru Jim Cramer, who is a pretty liberal guy, has called Obama the L-word.)  

Although I believe that Obama’s economic policies are extremely destructive, I do not believe that he is intentionally inflicting them on the country as part of a Machiavellian political strategy.  Instead, I view him as the Sorcerer’s Apprentice in Goethe’s poem (perhaps familiar to most from Disney’s Fantasia).  An individual who was given great power, and a tremendous desire to exercise it and unbounded confidence in his ability to do so, but in fact possessing little understanding of how to use it wisely.  The Sorcerer’s Apprentice wants to use his power for good, but ends up causing tremendous harm:

That old sorcerer has vanished  
And for once has gone away!  
Spirits called by him, now banished,  
My commands shall soon obey.  
Every step and saying  
That he used, I know,  
And with sprites obeying  
My arts I will show.

The Apprentice command the brooms to work as he desires, but they do not.  Eventually, only the return of the Master restores order, but only after the powers unleashed by the Apprentice had wreaked havoc.  

The Apprentice lacks humility.  He has an exaggerated sense of his own powers, and his ability to use them wisely.  

The sad irony of all this becomes clear when one remembers how Time Magazine described the theme of Obama’s inaugural address: “Humility, Gratitude, Sacrifice.”  The humility is definitely not in evidence.  The lack of humility is evident in actions, with one grandiose plan piling atop another, all against the backdrop of a plummeting stock market and a credit market on the brink of another implosion (note what has happened to credit spreads in recent days.)  The lack of humility is evident in words too: Obama told a group of journalists that he enjoyed being president, and that “And as it turns out I’m very good at it.”  Yeah, that screams humility.

We do have the sacrifice thing going on, though.  But at present it seems all pain, no gain.  The kind of sacrifice only a masochist could enjoy.  

So, rather than a humble president soberly and cautiously addressing our serious economic problems with a “first, do no harm” attitude, we have the Sorcerer’s Apprentice run amok.  (Foreign policy/defense is an issue for another day.)

And, if impromptu, non-telepromptered remarks are any indication, the lack of humility is not based on any objective evidence of superior knowledge or wisdom.  Obama’s disquisition on the stock market was extremely disquieting, to say the least:

On the other hand, what you’re now seeing is profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal if you’ve got a long-term perspective on it. I think that consumer confidence — as they see the American Recovery and Reinvestment Act taking root, businesses are starting to see opportunities for investment and potential hiring, we are going to start creating jobs again.

The statement about the non-existent “profit and earnings ratios” has rightly drawn considerable ridicule.  But that’s not the worst of it.  The rest of the statement is completely disconnected from reality.  Stock prices are plummeting because (a) expectations of futures earnings are plummeting too, and (b) investors are demanding substantial risk premia.  These both reflect increasing pessimism, not optimism.  (Ditto measures like the VIX volatility index–the “fear guage”–and ballooning credit spreads.)  If the American Recovery and Reinvestment Act and the rest of the tax and spend binge were truly restoring confidence, restoring animal spirits, and convincing businesses that investment opportunities were dramatically improving, stock prices would be rising.  No. Two. Ways. About. It.  There’s the market’s view of reality, and there is Obama’s.  The two are completely incompatible.  

I know which of the two I believe.  

But not a touch of doubt. No questioning of whether, just perhaps, his preternatural confidence might be unjustified.   He simply dismisses the market as the economic equivalent of a tracking poll.  Trillions of dollars vaporized–no biggie!  Just something bobbing around.  Nothing to see here.  Just move on.  Trust me and my brilliant judgment!  Ignore the judgment of millions of individuals–investors, managers–with their money on the line.  What do they know, anyways?  

No wonder the name “Marie Antoinette” keeps popping into my mind.  

In the end, Obama’s intentions are of second order importance.  His actions are what matter.  The overweening, swaggering confidence (remember when Bush was excoriated for his swagger?) in the face of impending calamity following hard on the heels of actions that he assured us would stabilize and reverse the decline is extremely unsettling.  The hyperactive policy making–today’s task being merely the reshaping of the health care system–is extremely dangerous under current circumstances.

At least the Sorcerer’s Apprentice soon realized his folly, and attempted to reverse his spell.  He could not, but the Master returned in time to restore order.  We should be so lucky.  But I doubt it.