When President Barack H. Obama first took office in January 2009, the financial markets were poised for a monumental collapse. The first to go – and indeed the federal government let them go- was Lehman Brothers, at the time the 4th largest investment bank in the United States. Two years earlier price-earnings (PE) ratios for the overall stock market were 25 times, compared to an historical average of about 16 times. By March 2009, that same PE would sink to 13 times, about half the value of the stock market was wiped out and within a few more months unemployment would rocket to 10%. This was not the internet bubble that popped in 2000, this was far more pervasive, before it would be over the world’s financial markets, especially liquidity, willingness to borrow and regulatory scrutiny, would mark one of the most painful economic periods since the Great Depression.
During World War II, the French were famous for blaming all sorts of inefficiencies and shortages on the war with the all-purpose excuse “C’est la guerre.” Obama’s version of that is “C’est le Bush Administration. He became President, not King, so his ability to either bring good or harm to the problems he faced in 2009 were limited to a) Ability to formulate effective, affordable, durable policy that hopefully could be implemented and impacting quickly, and b) Ability to cobble and compromise in a bi-partisan nature with Congress, while ensuring whatever plans got developed they could stand up to Judicial scrutiny. He tackled the first with fervor, but the second requirement was left undone and only became worse. Rather than building consensus, President Obama chose the unfortunate posture of scolding. He scolded the banks. He scolded Congress. He scolded businesses and others saw all of his scolding as pontificating and alienating.
In 2009 the national debt stood at approximately $12 trillion, representing 83% of GDP. But 2012 the national debt would become approximately 100% of GDP and remain there to the present day, a staggering $18 trillion in national debt. Most of the increase was attributable to the recession and the decrease in income tax receipts, however, in 2012 Obama agree to almost $1 trillion in defense spending. Rather than cutting back on spending both the Federal Reserve (Fed) and the Federal Government ratcheted up financial stimulus to hopefully stave off a worsening economic recession. Somewhat like pushing on a string liquidity remained intransigent, creating an unwillingness of banks to lend without the most pristine of credit history and collateral.
As long as unemployment remained high and manufacturing capacity utilization remained low, there was no inflation impact to flooding the money supply, a point where economists – throughout the years – disagreed sharply. Now that unemployment is closer to historical averages and manufacturing capacity utilization likewise, continued government and Fed tinkering will likely and finally create inflation. Indeed the 30-year Bull Run on long-term bonds appears potentially catastrophic once interest rates are finally left alone to float with the market. This sets up a conundrum from a policy standpoint, that is, how to unwind the combination of trillions in assets on the government balance sheet and also allow interest rates to rise without a new albeit somewhat different economic collapse.
The Affordable Care Act (ACA) of 2010 has enabled 11.7 million Americans to obtain medical insurance, three-quarters of them on the federal exchange, which finally seems to be working reasonably well. The Congressional Budget Office forecasts that by 2022 fully 33 million will be insured via the ACA process. On the face of it a good thing since prior to insurance these people would avoid going to the doctor until so sick they would show up at the emergency rooms of hospitals. Unable to pay such an expensive bill, the bad debt would find its way into the overall costs for everyone who was buying health insurance.
For those signing up on the federal exchange, healthcare.gov, some 87 percent received federal subsidies to help them afford the monthly premiums. The subsidies totaled $263 a month, on average, leaving consumers to pay $101. These subsidies are at the heart of the next battle for the administration. The Supreme Court is currently deciding whether those signing up on the federal exchange are eligible for subsidies.
Insurance companies can no longer discriminate on the basis of “pre-existing conditions.” In addition, insurers must spend 80-85% of every dollar they receive on medical care (instead of advertising, administration, etc.). The law is expected to spend a bit over $1 trillion in the next 10 years. The law’s spending cuts — many of which fall on Medicare — and tax increases — are expected to either save or raise a bit more than that, which is why the Congressional Budget Office estimates that it will slightly reduce the deficit.
The wars begun in 2001 have been tremendously painful for millions of people in Afghanistan, Iraq, and Pakistan, and the United States, and economically costly as well. Each additional month and year of war adds to that toll. According to the Watson Institute for International Studies, some of that toll can be summarized as follows:
- 350,000 people have died due to direct war violence, and many more indirectly in addition to indirect deaths from the wars, including those related to malnutrition, damaged health infrastructure, and environmental degradation
- New disability claims continue to pour into the VA, with 970,000 disability claims registered as of March 31, 2014. Many deaths and injuries among US contractors have not been identified.
- 7 million people have been displaced indefinitely
- Erosions in civil liberties at home and human rights violations abroad have accompanied the wars.
- The human and economic costs of these wars will continue for decades, some costs not peaking until mid-century.
- The US federal price tag for the Iraq war — including an estimate for veterans’ medical and disability costs into the future — is about $2.2 trillion dollars. The cost for both Iraq and Afghanistan/Pakistan is going to be close to $4.4 trillion, not including future interest costs on borrowing for the wars.
- While it was promised that the US invasions would bring democracy to Afghanistan and Iraq, both continue to rank extremely low in global rankings of political freedom, with warlords continuing to hold power in Afghanistan with US support, and Iraqi communities more segregated today than before by gender and ethnicity as a result of the war.
President Obama has not only ended these two wars, though some say too quickly, but has steadfastly refused to take America headlong into new wars. This has led some to conclude that the U.S. is no longer viewed as a leader and a superpower. Yet it has also had the effect of getting other countries to begin to step up with their resources rather than always expecting the United States to save the day. For far too long, most countries have enjoyed national savings resulting from an artificial underinvestment in military capability. The unvarnished truth is that if China decided to take Taiwan tomorrow the United States would not go to war with China. This new reality changes nations’ policies toward armament as well as treaties and economic ties, rather than expecting the United States to protect them as was the case with Kuwait and Desert Shield.
Religion and Terrorism
Terrorism has been around a very long time. As a little boy watching the 1972 Olympics I was shocked to see the terrorist attack on athletes from Israel. Terror can be organized abroad, it can also be localized; it can be large and well-funded groups and also lone wolf attacks almost no one can anticipate. Generally, though not always, terrorists claim their motivation is religious, that is, God has determined that they must kill in order to bring about change that God desires. This can result in generalizations from the terrorists to larger religions, turning neighbor against neighbor in fear and outrage. When the Japanese struck Pearl Harbor, setting off U.S. involvement in World War II, we set up “internment camps” for the Japanese Americans, primarily arising from this type of fear.
Although Obama has presided over the killing thousands of terrorists, most notably Osama bin Laden, many in the United States demand that he take a more definitive and strong stance against Islam, claiming jihadist ideology is an inherent doctrine in the Koran, Islam’s holy book. The President has resisted, seeking to differentiate peaceful Muslims from the perverted ideological claims made by groups such as ISIS. The extreme reaction to the President’s view has been to accuse him of “hating America,” “sympathizing with Muslim terrorists,” and perhaps even being a closet Muslim himself. Some in Congress have even gone on record making these sorts of accusations. The combination of Obama’s resistance to new wars in far-flung places, along with his desire to allow Muslim’s in the U.S. and the world to freely practice their religion unfettered, has had the effect of creating a divisive nation at home, with very strong opinions on both sides of the issue.
While this summary assessment is concerned with President Obama, much could be written about the inability of the Congress to be effective and productive as well. That is a subject for another paper. Overall the President has done poorly in terms of building consensus, coalitions, compromise and goodwill among federal government and the general population. In terms of the economy, it appears the Keynesians were right about the so-called “liquidity trap.” As Germany demands austerity (in Greece for example), Europe remains mired in recession even though the example of stimulus in the United States appears to have cut our economic suffering short and shallow. How to unwind the tinkering that has been done will be a daunting challenge; indeed as interest rates finally rise we should expect economic repercussions from asset devaluation (long-term bonds) to high interest payment on our burgeoning national debt, severely impacting the productive use of government income tax receipts.
The ACA had a difficult start and will almost certainly require modifications. Getting millions insured has been accomplished, likely a good thing in the long run. But the jury remains out in terms of overall long-term impact on health care costs and freedom each person had to choose their health care providers. Several more years will be needed before any conclusions regarding efficacy can be written with reliable facts and figures.
The cessation of the wars and the resistance to enter new wars has certainly saved lives, disabilities and dollars. The somewhat new policy has also had the effect of getting other countries to step up their resource commitments toward defending their own interests, certainly an important step in the right direction. But increased investment on weaponry all around the world can also mean another inevitable result: we can expect more wars.
Every president has had a mixed record of accomplishments and failures. No president is ever able to take full credit for great accomplishments, nor should he take full blame for failures. Far too many variables outside his control impact what happens to the United States and the rest of the world. Given all of what President Barack Obama has managed to do, however, it would be unfair to grade him as severely as many are prone to do today. To say he hates the country, supports terrorists, is a racist and a socialist is to overstate the true picture. To say he worked hard and made some progress while doing a poor job at building consensus is a more even-handed approach in terms of grading his performance. The world is a dangerous and violent place, how we navigate the future will require consensus but it will also require tolerance and compassion, of which we seem to have less and less of lately.