bottom up change

I watched President Obama’s speech about General Motors and Chrysler today, and I had the same reaction that most people had.  How can the President justify such a different tone between the banks and the auto industry?  And it wasn’t just the difference in tone.  I wondered: is the President overreaching in demanding that the CEO of GM, Rick Wagoner, resign as a condition of future taxpayer dollars to GM?  After all, I didn’t hear about Obama demanding that the CEOs of any of the banks resign as a condition of them receiving more money.

Don’t get me wrong: I think Obama is on the right course in trying to save GM while requiring the company to do major restructuring.  However, I can see major political problems developing for the President among auto workers who will see a double standard in the way that Obama is treating the financial industry compared to the auto industry.  That assessment may not be fair, in the end, but there is an appearance problem here.

And finally, although I’m not outraged by the President’s action Monday, I do think we need to have a debate about the limits of government intervention in the economy.  Is it a good development that the federal government is now basically making management decisions in one of the largest industries in the United States?  Was Obama justified in demanding the resignation of Wagoner, or should he have simply expressed his strong recommendation that Wagoner resign?

We’re definitely in uncharted territory.  I guess the thing about a mixed economy is that sometimes it just leaves you mixed up.  But, maybe that is a good thing, and a refreshing break from the ideological certainty of recent years.

I suspect that one of the great debates that will be unfolding about the Obama years is his approach to economics–Obamanomics.  I have begun writing about this economic philosophy on this blog, and in the future I’m going to devote much more attention to the debate about Obamanomics.  Monday, Robert Reich had an excellent piece in the Wall Street Journal where he offered his view of how Obama wants to change President Reagan’s “trickle-down” or “supply side” economics with a “trickle-up” approach that uses public investments as a way to increase human capital more broadly in society.  Or, in Reich’s words:

Obamanomics, by contrast, holds that an economy grows best from the bottom up. The president proposes to increase taxes on the highest 2% of income earners starting in 2011. Those tax increases will fund more Pell grants allowing lower-income children to attend college, better pay for teachers that show they’re worth it, broader access to health care, improved infrastructure, and more basic research. These and related expenditures are designed to help Americans become more productive. You might think of it as “trickle up” economics.

The key is public investment. Reaganomics did not view any public spending as an investment in the future except when it came to spending on the military. Hence, since 1980, federal spending on education, job training, infrastructure and basic research and development (apart from defense-related R&D) have all shrunk as a proportion of GDP. And apart from a modest expansion of health insurance available to poor children, there has been no significant attempt to make health insurance broadly affordable to Americans.

Obamanomics is premised on the central importance of public investments in the productivity of Americans. The logic is straightforward. Capital no longer remains within the borders of a nation where it is saved. It moves to wherever around the globe it can get the best return. Some of it flows as highly liquid investments that slosh across borders at the slightest provocation, as we’re witnessing in the current financial crisis. But much takes the form of direct investments in new plants and equipment, telecommunications systems, laboratories, offices and — most important of all — jobs. Such capital goes to nations that can deliver high returns either because labor is cheap and taxes and regulations low or because labor is highly productive: well educated, healthy and supported by modern infrastructure.

In this way, every nation faces an implicit choice of whether its strategic advantage will lie in low costs or high productivity. For the better part of the last three decades America’s job strategy has tended toward the former. But this inevitably exerts downward pressure on the real wages of a larger and larger portion of our population.

Only those Americans whose parents can afford to give them a high-quality private education and health care, and who can situate themselves in locations with excellent infrastructures of telecommunication, transportation, public health and safety, have been able to link up with global capital on more positive terms. But not even they are entirely secure economically, because they face growing shortages of talented people they can rely on within easy reach, and can’t entirely avoid the disadvantages of a deteriorating public infrastructure, such as ever more congested roads and airports.

Obamanomics recognizes that the only resource uniquely rooted in a national economy is its people — their skills, insights, capacities to collaborate, and the transportation and communication systems that link them together. Public investment is the key to attracting long-term private investment so that a nation’s people can prosper.

I don’t know if I’ve found a better statement of Obamanomics yet.  But I have one question: does a commitment to a green economy also count as a fundamental part of Obama’s economic philosophy?

By the way, I’m not crazy about the term “Obamanomics.”  Reaganomics has always bothered me too.  Why do we feel the need to slap a president’s name to an economic view, but only for some presidents?  You never heard Clintonomics or Carteromics, or Bushonomics, for that matter.  Well, after trying out those names, I can see why they never caught on.  They sound even worse.