A New Appreciation For Partners

No president since Franklin D. Roosevelt has enmeshed himself as deeply and as quickly in the nation’s economy as Barack Obama. Tonight the president will tell us he is ready to share credit, and responsibility, for the results.

It brings to mind the signs that are often posted in souvenir shops: “If you break it, you bought it.”

Obama did not break the economy. The bursting of the housing bubble in 2007, followed by the financial crisis in 2008, created a toxic business environment well before he took office. But his administration’s aggressive and expansive agenda of new laws and regulations, and his “us-versus-them” approach to the business community during his first two years in office, have given him political ownership of whatever happens next. The president has repeatedly signaled, since his party’s “shellacking” in the November elections, that this is something he would prefer to avoid.

Obama got off on the right foot by coordinating with his predecessor’s Treasury on the Troubled Asset Relief Program to keep the global banking system from collapsing. His $800 billion stimulus program was more of a mixed bag, with a lot of useless spending combined with some constructive steps, notably support for struggling state governments to keep them from immediately adding to the nation’s burgeoning unemployment rolls. Imperfect as they were, these two programs created conditions that allowed the economy to begin expanding again during the president’s first year in office.

If only Obama had stopped there, tonight’s State of the Union address might include a report on healthy growth in output, increasing consumer and business confidence, and the prospect of better times ahead.

But the new president did not stop there. To protect jobs in the Detroit-based auto industry, he steamrolled lenders (whom he disparagingly called “speculators”), pushed a “cash for clunkers” program that called for the mass destruction of perfectly good vehicles, and dispensed billions in government money to people who, for the most part, would have bought vehicles anyway. The result was a temporary spike in car sales at the cost of needless government debt and a reduction in the nation’s stock of serviceable cars and trucks. It also signaled that this president, so solicitous of those who contribute their labour to the country’s progress, has much less regard for those who contribute their savings.

He reinforced this message through repeated intrusions in the housing industry. His administration’s flailing attempts to keep people in homes they could not afford, or which they could afford but chose not to pay for, kept prices from reaching a sustainable equilibrium, so he likewise subsidized people to buy homes they often would have bought anyway. Housing demand evaporated along with the incentives, and the market’s return to normal supply-and-demand pricing has been set back by years.

Meanwhile, Obama’s team is about to miss a Jan. 31 deadline to submit recommendations on the future of Fannie Mae and Freddie Mac, the crippled relics of the “house prices never go down” mentality that have already cost taxpayers close to $150 billion, with no end in sight.

Autos and housing are not the only industries that Obama has made concerted, if misguided, efforts to help. He has pushed initiatives ranging from solar power to ethanol to high-speed rail, all of which make much more sense politically than economically. Eager to restore American manufacturing, the president has lately become an advocate for free trade agreements (which languished in his first two years) and, last week, appointed General Electric chief Jeffrey Immelt to head a revamped economic advisory panel.

But playing favourites is not a good way to engender broad confidence. Across the vast sweep of the nation’s businesses, executives and entrepreneurs look at Obama and see a politician who depicts them as “fat cats.” It is only slowly dawning on this president that you can’t demonize people and then expect them to trust that you are trying to help them succeed.

Having fired well over $1 trillion in deficit-fuelled ammunition at the economy in his first two years, the president now wants to persuade businesses to spend a lot of the $2 trillion in cash reserves they have stockpiled. Businesses, however, face an onslaught of aggressive regulation from Obama appointees, on everything from union organising rules to the amount of ethanol in gasoline. The president’s signature initiative, the health care overhaul, creates a statutory obligation for many businesses to insure their employees after 2013, while offering little assurance that insurance costs can be brought under control. He pried $20 billion from BP and its shareholders last year without any reasoned connection between that amount and the Gulf oil spill, without resolving the company’s potential civil and criminal liability, and without any hint that the law gave him any right to the money.

As a president who literally talked his way into the White House – he never had responsibility for meeting a payroll or balancing a budget before running for president – Obama understandably seems to believe that he just needs to find the right combination of words and symbolic actions, like appointing a new White House chief of staff, to persuade business owners that he sees them as more than society’s cash cows.

After two years in office, however, a president is measured by deeds rather than words. Obama’s deeds thus far have not shown that he has any real sympathy for the creative process of building an enterprise that sustains itself through the willing patronage of its customers, rather than the enforced collection of taxes and fees.

Obama will look to set a new, bipartisan tone in his address to Congress tonight. Polite and well-reasoned political discourse is always welcome. But I don’t think it is enough to persuade businesses that national policy is on a prudent, predictable and sustainable course. Oratory put Obama in the White House, but now that he is there, his actions do his talking for him.

For more articles on financial, business, and other topics, view the Palisades Hudson newsletter, Sentinel, or subscribe to my daily opinion column, Current Commentary.

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