Despite overheated rhetoric from his defenders, history will not prove kind to George W. Bush and his foreign policy decisions that have been or will prove to be debacles. The Obama administration is quite right to argue repeatedly that the Bush team left behind a foreign policy mess exacerbated by economic and financial meltdowns.
However, unless it is lucky or changes direction dramatically, Barack Obama is likely to prove as debacle-prone in his domestic economic policies as Bush was in foreign policy.
The threats and dangers to this nation are both domestic and foreign. Unless cynicism was the driving factor underwriting the economic and financial policies that have translated into the execution of the already troubled Troubled Asset Relief Program started by the Bush administration, the economic stimulus package
and subsequent financial recovery programs, not the least of all was the bailout of AIG and General Motors, will not accomplish their aims. Debate is now focused on healthcare reform that if the Congressional Budget Office is correct will add hundreds of billions of dollars to the national debt and hike taxes for the well-off who already pay the lion’s share of federal revenue.
To be fair, TARP was already in train when Obama took the oath of office. Clearly, restoring confidence in the financial system and freeing up credit were essential to righting the economy. Yet, while that is happening, the biggest winners are not “average” Americans from Main Street but Goldman-Sachs and J.P. Morgan Chase from Wall Street who have recorded record profits. Of course, a substantial chunk of those profits will be taxed, and so Uncle Sam is also a beneficiary — a fact that does not impress most Americans who still face tough economic times.
The economic recovery package, however, was neither designed nor intended to address short-term job loss besides the fanfare that declared otherwise. That package was intended to deal with longer-term infrastructure issues, important as they may be, that might — and the word “might” is appropriate — stimulate job creation over the longer term of five years or more. Interestingly, and a healthy dose of cynicism is required, the White House no doubt was betting on winning two ways with this rescue package.
First, come a year or more from now in time for the 2010 elections, the worst of the recession more than likely will be over and unemployment should be on the decline. Second, whether or not the Clintonian mandate that “it’s the economy stupid” prevails, the administration will take credit for the recovery that may pay off at the ballot box. And through the infrastructure programs funded under the stimulus package, the White House will have put in place a basis for empowering the economy in the future.
The strategic flaw in this thinking parallels at home the failure of the Bush design abroad. Bush went into Iraq to change the geostrategic landscape of the Middle East for the better. He certainly did transform that landscape. And not for the better. Now Obama hopes that he will achieve both recovery and investment in needed infrastructure. But if he gets it wrong, he will have set in place the foundations for a domestic debacle.
The bailouts of AIG and General Motors are already debacles. AIG may have been too late or too early in the Obama administration to have been handled differently. One would have thought that the cancerous Financial Product Service division could have been isolated and its bets in the swaps markets neutralized. But that did not happen. However, GM will prove to be the domestic political equivalent of Iraq and Afghanistan for the administration.
This column has explained why GM will not be able to repay the some $60 billion of taxpayer loans it owes even if it manages to stay afloat. Given its planned lineup of automotive products and marketing approach, it will never sell the volume needed to generate the revenues either for a huge public offering or for repaying the U.S. Treasury. The expectation that Buick can compete with Lexus and Cadillac with BMW and Mercedes is at face value preposterous for the short term and very likely for much longer.
When GM stumbles as it will, the Obama administration will face the impossible choice of stepping in again or letting market forces prevail. Either choice will be a potential political debacle.
We will see what happens to healthcare reform. But if costs are not contained, deficits and debt are allowed to rise and taxes increased, the result will spell political danger.
To its credit, the administration has taken on simultaneously many tough tasks. But now it needs to assess carefully which of its policies are indeed potential debacles and what to do to prevent that from happening.
Harlan Ullman is a member of the Atlantic Council’s Strategic Advisors Group and a Distinguished Senior Fellow at the National Defense University. The views expressed are his own. This essay was originally published in the Outside View column, part of UPI‘s Emerging Threats analysis section.