The Economics of Barack O’Hoover

Pity the poor, powerless, increasingly unpopular president – a pitiful pawn of the plutocrats and the profits system he has done so much to serve and protect.  Nearly five years ago, in the misleadingly titled book that pre-announced the launching of his presidential candidacy, Barack Obama grounded the United States’ supposed distinctive “greatness” in its “free market” capitalist system and “business culture.”  The American over-class should have been gratified by Obama’s paean to American “free-market” capitalism in The Audacity of Hope:

“Calvin Coolidge once said that ‘the chief business of the American people is business,’ and indeed, it would be hard to find a country on earth that’s been more consistently hospitable to the logic of the marketplace.  Our Constitution places the ownership of private property at the very heart of our system of liberty.  Our religious traditions celebrate the value of hard work and express the conviction that a virtuous life will result in material rewards.  Rather than vilify the rich, we hold them up as role models…As Ted Turner famously said, in America money is how we keep score.”

“The result of this business culture has been a prosperity that’s unmatched in human history….America may have been blessed with some of the planet’s best real estate, but clearly it’s not just our natural resources that account for our economic success.  Our greatest asset has been our system of social organization, a system that for generations has encouraged constant innovation, individual initiative and efficient allocation of resources…our free market system.”

The Particulars Favor the Rich

You have to wonder how Obama feels about the masters of this glorious “business culture” (whose latest accomplishments include 25 million unemployed and under-employed Americans and record foreclosure rates as the Kim Kardashian wedding is likely to cost $10 million) these days.  Consistent with the relentlessly big business-friendly content of his center-right presidency to date, he recently did the bidding of Wall Street by joining the right wing Republican Party in cutting a debt-ceiling budget deal that favors the top 1 percent that already owned 40 percent of the nation’s wealth, 57 percent of its claims on wealth, and a probably equal or larger share of its elected officials. It’s all spending cuts with no new taxes on the filthy rich. As Rana Foroohars explains in her “Curious Capitalist” column atTime Magazine:

“The debt reduction deal guarantees that the gap [between the very rich and the rest of us] will widen, perhaps dramatically….it cuts government spending at a time when spending is most needed.  The economy is weak, and the private sector is still hoarding cash.  This, along with the fear that we’ll have to go through the same charade every few months or years, has economists downgrading their already low growth forecasts, making a reality of the much feared 2% economy – one in which a few highly skilled workers prosper and the vast middle flounders…What’s more, the particulars of the deal favor the rich, since the wealthy escape new taxes and the poor get the tax cut ax in the back in the form of reduced unemployment benefits, public sector job elimination and no increases in spending on programs that might bolster employment or help retrain workers. ‘It’s hard to shrink the size of government right now without exacerbating inequality,’ says Harvard economist Ken Rogoff.’”

So what if, as liberal economist Jared Bernstein notes, “high levels of inequality depress longer-term growth by depressing more broad-based consumption”?  Never mind that, as Cambridge economist Ha Joon Chang explains in his bestselling book 23 Things They Don’t Tell You About Capitalism, “in an economic downturn like today’s, the best way to boost the economy is to distribute wealth downward, as poorer people tend to spend a higher proportion of their incomes” The super-rich want more for themselves and can get it from a president who “worked the phones [and K Street and the golf fairways] like a dog” to set new corporate campaign fundraising records in the last election cycle.

Ironic but Not Paradoxical: Into the Parched Desert of Austerity

So what  has Obama gotten from his beloved capitalism in return for the latest right wing budget deal he cut for its masters? Three epic stock market sell offs (so far – I am writing on Thursday, August 11), talk of a double-dip recession, and the first-ever downgrade of the United States government’s creditworthiness by the leading financial rating agency Standards&Poor.  For weeks we had been told that failure to lift the debt ceiling would lead to economic disaster and a debt downgrade. “Look out,” economists, pundits, and financiers screamed , “the sky is going to fall?” Well, the ceiling was finally lifted (for the 173rd time), the specter of “default” was averted, and both of the dreaded events occurred.

Ironic? Yes. Paradoxical? No. As attention shifted from the debt-ceiling drama (a Teapublican-manufactured crisis Obama could have easily prevented) to underlying economic fundamentals, investors beheld an ugly picture. They turned back to horrible indicators from the weakest “recovery” (more “statistical” than “human”) on record: consumption that fell by 0.2% the last month (the time since September 2009), pathetic and indeed largely illusory “job growth,” unemployment benefits running out for millions of ex-workers, and a U,S, manufacturing index that fell by nearly  5 points in the last month. “The performance of the real economy,” left economist Jack Rasmus notes, “was far more important and ‘real’ than all the huff and puff about debt ceilings and defaults by the US government. The alleged ‘good news’ of the debt agreement was overwhelmed by the undisputable ‘real news’ that the real economy was heading for a relapse.”

The debt “deal” announced that the U.S. government was going to encourage further decline by moving into an official austerity mode directly contrary to what expansion requires. As Rasmus explains further, “[the] magnitude of [federal] spending contraction [mandated by the debt deal just in its first year] will result in 1.5 million to 2 million more jobs lost….With the debt ceiling deal, the US Congress and the president have crossed the bridge into the parched desert of ‘austerity.’ This is an historic juncture, shifting from stimulus to grow the economy out of recession, to austerity to thrust it back into recession! But the politicians of both parties are due for a rude surprise….Austerity solutions are a dead end. If anyone believes austerity solutions are the answer to recovery, they should simply look at Greece, Ireland, and the rest of the periphery of the eurozone. Imposing austerity there has resulted in a further deepening recession, falling tax revenues and still worsening deficits and debt. Ditto for the conservatives in the United Kingdom, whose recent deficit cutting is now thrusting that economy back into recession.”

(The British variant of the austerity disease has recently five straight nights of rioting by disproportionately non-white and hopeless working- and lower-class youth across that  nation – violence that many policymakers have predictably insisted on attributing to the moral degeneracy of the poor).

Furthered by the new austerity, inequality is a cause, not just a symptom of the American slump.  By widening the already grotesque gap between the rich and the rest of us, the president and the Congress are compounding the nation’s economic difficulties by cutting mass purchasing power, the source of 71 percent of U.S. economic activity.

There is nothing mysterious about the debt downgrade.  It reflects Standard & Poor’s reasonable conclusion that the United States is not politically capable of balancing its books anytime soon given Washington’s bipartisan refusal to tax wealthy incomes in the way that serious deficit reduction would require. At the same time, austerity is likely to worsen the government’s debt load. As Rasmus explains, “Deficit cutting and austerity will result in worsening deficits and more debt – not reductions in deficits. An economy cannot cut its way out of a deficit and recession any more than a company can cut its way back to long-run profitability. It can only grow its way out by generating more revenue. For a company, that means selling more products and sales revenue; for the economy, that means creating more jobs and raising tax revenue.” Starting with the deeply conservative president, nobody in Washington is standing up to counter the madness in the name of elementary economic common sense.

More Hoover Than FDR

Blinding themselves to Obama’s richly neoliberal, Wall Street-vetted record, many U.S.  progressives childishly convinced themselves in 2008 that the new Democratic president would be something like the second coming of New Deal President Franklin Delano Roosevelt. Alas, the nation’s first black president has turned out be a lot more of a “Barack Hussein Hoover” than a “Franklin Delano Obama” (title of a Paul Krugman column after the election). Like Hoover, Obama’s presidency has largely coincided with the onset of an epic and global capitalist slump sparked and driven to no small extent by American economic dysfunction rooted in spectacular inequality and related mass indebtedness, speculation, and financial deregulation.  Also like Hoover, Obama has proved too wedded to conservative, so-called “free market” ideology to respond effectively to the economic crisis of his time and to the structural problems behind that crisis.

The extent of his failure and that of congressional Republicans is captured nicely in a recent New York Review of Books essay by Elizabeth Drew. “Someday,” Drew wrote 12 days before the August 1st resolution of the debt ceiling drama,  “people will look back and wonder, What were they thinking? Why, in the midst of a stalled recovery, with the economy fragile and job creation slowing to a trickle, did the nation’s leaders decide that the thing to do – in order to raise the debt limit, normally a routine matter – was to spend less money, making job creation all the more difficult.” Obama was failing party, Drew wrote, because he was up against the savage “know-nothingism” of the G.O.P., “reinforced by opportunistic political figures.” But he also failed, Drew noted, because “the president was using a lot of his time and energy … on the wrong subject”: focusing on the budget deficit when he should have been focused on growing the economy. Right now, Drew said, “the government is borrowing in order to give tax cuts to the wealthy and pay for at least two wars.”

Like Hoover, Obama rode into office partly on the widespread belief that he was some sort of brilliant and charismatic character – a maverick from the “best and the brightest” and outside the traditional political class who had risen above partisanship and ideology. But also like Hoover. Obama has blown his chance to lead because he is deeply beholden to the business elite in ideological and other ways.

Paul Street is the co-author with Anthony DiMaggio of the newly released Crashing the Tea Party (Paradigm Publishers, 2011). He is also the author ofEmpire and Inequality: America and the World Since 9/11 (Paradigm, 2004) and The Empire’s New Clothes: Barack Obama in the Real World of Power(Paradigm, 2010.) Street can be reached at

Paul Street’s latest book is This Happened Here: Amerikaners, Neoliberals, and the Trumping of America (London: Routledge, 2022).