Wednesday, July 13, 2011

Obama's fateful choice

Two roads diverged in a wood, and I—   
I took the one less traveled by,   
And that has made all the difference.
- Robert Frost
No sooner did the economy show signs of starting to recover from the Great Recession than President Obama came to a fork in the woods where two roads diverged. The sign by the well-trodden path to his right read "Austerity." The sign by the overgrown trail to his left read, "Invest in Our Future."  Obama chose the path on the right.  The choice was made months ago, and it was a fateful decision.

The path Obama selected had been hacked out of the forest by Herbert Hoover's administration; it's the path that led to the Great Depression of the 1930s.  Recently the path has been popularized by conservatives and their allies in the corporate  media.   It's the path championed by Sarah Palin, Wall Street banks, FoxNews, network news commentators and newspaper columnists, and every presidential contender in the Republican Party.  The path leads to continued high unemployment and low wages as far as anyone who understands the basic principles of economics can see.   Obama chose the path of continued high unemployment.

At least 7% of America's assets is up for grabs
But the path on the right is not bad for everyone.  The catch is that you have to have a lot of money saved up to make the journey worthwhile. The super rich are crazy about the path, because it's deflationary.  By further reducing demand, it makes things cheaper to buy.  The effect of traveling it makes investment dollars go farther.  The path makes it more affordable for the rich to buy up the property, meager stock portfolios, and other assets of the unemployed and struggling worker.  As you can see by the red slice in the chart at right, at least seven percent of the country's total wealth will be up for grabs.   

Republicans may have built the road, but Obama claims he's a better driver.   In the interest of "fairness," the president tells us he will close some loopholes in the tax code, raise some taxes.  It's true this will help to pay for the journey. But as long as Obama leads the country down Austerity Road, raising taxes on the rich won't change the destination.  At best, an overall decrease in government spending that includes a tax increase will spare some jobs.   It means Obama won't need to travel so far down Austerity Road to achieve a given level of deficit reduction.  It doesn't mean the unemployment level will subside. 

In a year, some brilliant pundit will look at Obama's dismal poll numbers and say "it's the high unemployment stupid." Because by 2012 the jobs situation is unlikely to have improved.  It could be worse -- even a lot worse.   Obama won't be able to claim to have been dragged kicking and screaming down the wrong road.   The crux of Obama's problem is that no matter how far Obama travels down the "slash spending" road, he'll be blamed for not having traveled it far enough.   However far he agrees to go, they'll say he didn't go the distance.    For example, supposing Obama negotiates a tax increase, this fact will later be used against him. "Your tax increases slowed our journey down Austerity Road," his Republican opponent will say.  To the typical under-informed voter, the attack will seem reasonable, as Obama approved the destination and route.

Obama took the road well-traveled.  By election time, that will have made all the difference.  

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