Obama leadership fumble [and recovery]

We’ve opined frequently on the overly hawkish direction of Obama’s leadership on fiscal policy, but haven’t seen an opportunities to criticize his leadership style until this weekend.  In an interview with CNN about the damage done to the Gulf ecology and economy by BP and oil service companies, Obama stated:

I would love to just spend a lot of my time venting and yelling at people. 

‘But that’s not the job I was hired to do.  My job is to solve this problem and ultimately this isn’t about me and how angry I am.

We think the president fumbled this one a bit.  One aspect of his leadership style is to hold people accountable in a laid back fashion.  But when a person or an organization screws up as monumentally as BP has, and has caused such severe external damages to so many, one of the most important things a leader can do is to give voice to his or her constituents’ emotions.  In other words, “venting and yelling” is not about him in this situation.  It’s about using his position to give a voice to those who need to feel like they’re being heard.

Ideally, it would be done in a constructive manner, but just as importantly, it must provide relief for constituents struggling with intense fear, anger, and anxiety, who have no way of expressing those emotions directly to the people and organizations who have caused them.  In this kind of situation, leaders must give a public voice to people’s suffering and anger by emoting — express their anger facially, pound the podium and strike an intimidating posture on their behalves, etc (we recommend stopping short of kicking over teleprompters, throwing things, and breaking stuff). 

The only aspect that’s about ‘me the leader’ is the style of voice used to convey people’s anger. There’s more than one way to convey anger vocally — the important thing is that there be no mistake about the emotions behind the words.  

A good leader will also follow up on their commitment to ensure a fair measure of justice, and on that count, we don’t doubt Obama’s sincerity.  But emotive leadership can act as an important safety valve in a situation that’s as socially destructive as this one.  And that’s something that BP execs should appreciate more than anyone, despite any bunker/siege mentality they might be feeling at the moment.

And to be fair, Obama did say he was angry in the interview:

King asked ‘Are you angry at BP?’, Mr Obama responded: ‘You know, I am furious at this entire situation because this is an example where somebody didn’t think through the consequences of their actions. 

‘It’s imperilling not just a handful of people.  This is imperilling an entire way of life and an entire region for potentially years. 

Again, we just think he fumbled the question. It was not, and is not, about his anger. It’s about his followers’ anger, and his capacity to give them a meaningful voice.

UPDATE 6/8/2010 – Perhaps driven by some of the flack over his comments to Larry King, Obama apparently took a sharp rhetorical turn yesterday in an interview that will be aired by NBC today: “The president defended his talks with Gulf fishermen and oil spill experts, saying their purpose was not academic – rather, they were an exercise in asserting where the presidential boot should be administered, ‘so I know whose ass to kick’.” 

URLs:

http://www.dailymail.co.uk/news/worldnews/article-1283959/Furious-Barack-Obama-BP-felt-anger-Gulf-Mexico-oil-disaster.html

http://www.guardian.co.uk/world/2010/jun/08/barack-obama-kick-ass-gulf

“Money we don’t have”

Good NYT article on deficit hysteria, with an especially illustrative quote from Rep. Cooper (D, TN):

“We have to stop spending money we don’t have,” said Representative Jim Cooper, a Tennessee Democrat who voted against the bill. “I hope deficit reduction fever is catching.”

The U.S. is in the midst of a balance sheet recession, with demographic ratios shifting an an unfavorable economic direction for several more years.  Under those conditions, deficit reduction fever will lead directly to the dreaded Japanese Disease —  another decade of stagnation, underemployment, and opportunity costs, all of which will impose greater burdens on future generations than expanded federal deficits would.

And policymakers — not to mention most members of the electorate, including analysts and the media — continue to commit two fundamental errors regarding fiscal policy:

1. They believe that all deficit spending must be financed with interest bearing debt, thus competing with the private sector for scarce financial resources.  However, judging by current Treasury rates, there’s still plenty of room for expanded federal borrowing.  And there’s a symbiosis between federal deficits and repair of balance sheets in the financial sector, as evidenced by the perfect quarters turned in by several major investment banks recently.  Politically, that relationship is almost nauseating, as it’s doing very little to relieve distressed households — but it nevertheless makes apparent the  dynamic between public sector fiscal deficits and private sector balance sheet relief.
2. They also believe implicitly that the U.S. is on a gold or similar standard, where fiscal and monetary policies are constrained by the supply of some exogenous factor, and governments can thus literally “run out of money.”  Governments can’t run out of money, as it is ’created’ by nothing more than digital ledger entries.  In other words, government (today, via operations of the quasi-private Fed) is the sole creator and supplier of high powered money.  Thus, the only constraint on money creation is inflation and a loss of confidence in the currency, and at the moment, those forces are emphatically not in play.  This too is symptomatic of Japanese Disease.

The fears of incumbent politicians like Cooper are certainly understandable.  But they’re borne of either ignorance about how these things work, or self-preservation.  Either way, it smacks of lousy political leadership. 

And given that Republicans are likely to benefit in November, we’d expect the trend towards fiscal conservatism to intensify.  Even President Obama, in a speech yesterday, promised the following:

• A three year freeze on all non-discretionary federal spending beginning in 2011
• Expiration of tax cuts via sunset provisions
• Elimination of 120 federal programs
• Reinstatement of PAYGO
• Higher fees on banks that are expected to lower federal deficits by $90B over ten years

He promised all of this as a way to force the public sector to budget in the same way that families and businesses do.  Again, this is wrong, and is borne of either ignorance or pandering.  And as with Congress, it smacks of crummy political leadership either way. 

The administration’s jawboning is also reminiscent of budget austerity measures touted by the Carter administration in the 1970s in reaction to the “tax revolt” — austerity measures that contributed to its eventual demise, even though they may have been more appropriate to the conditions prevailing at the time (e.g., baby boomers entering adulthood, global trade and financial integration, etc).   Today, austerity is far less appropriate, but even more vigorously pursued.  That almost certainly spells trouble for Obama in 2012 – assuming the GOP can field a worthy candidate and avoid blowing all of its political capital in the intervening years. 

You also have to wonder, were he to experience a change of heart, whether there’s any credible way for him to backtrack from his neo-liberal rhetoric.  The DLC, Brookings, Peterson, and all the other usual suspects have painted the guy into one hell of a corner.

In the meantime, assuming that reality will align with rhetoric, the political climate continues to be favorable to the USD and Treasuries, and rather risky to gold.  A contrarian call? You bet.  But it’s based on what we think is a well-grounded and – just as importantly – non-ideological assessment of the facts. 

IMPORTANT DISCLOSURES: Symmetry Capital Management, LLC (“SCM”) is a state registered investment adviser in the Commonwealth of Pennsylvania. The views expressed by the author are as of the publication date, and are subject to change based on market and other conditions. The foregoing information is for informational, educational, or entertainment purposes only. It does not constitute an offer to buy or a solicitation to sell any security, or to engage in any investment strategy. Investors should not use this information as a basis for any investment decisions without first consulting their own financial adviser. SCM is an Amazon.com associate, and earns a commission on sales generated through links from our website. Some clients of the firm are long GLL and/or long TLT.  At the time of writing, neither the firm nor its principals owned any securities mentioned. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.

URLs:

http://www.nytimes.com/2010/05/29/us/politics/29deficit.html

http://www.japanreview.net/review_bsr.htm

http://www.miraeasset.com/ourmarket/outlookView.do?board_id=1125&group_id=1&pageNo=2

http://www.investmentnews.com/article/20100602/FREE/100609973

http://seekingalpha.com/article/208174-how-deficit-hawks-will-keep-cutting-spending-until-we-re-all-on-food-stamps