Contradiction in Obama's Economic Philosophy

Commenting on Obama's health care 'summit,' Krugman identifies the pattern that dominates health care and pretty much everything else in national politics: "Democrats [offer] moderate plans that draw heavily on past Republican ideas, and Republicans [respond] with slander and misdirection."

Why do we see this same pattern of compromising Dims and savage Cons year in and year out?  One theory is that the Dims are actually Cons and so by losing to the Cons can get what they secretly want.  This theory works some of the time. But it doesn't explain the Dims tolerance for highly-visible losses, which are supposedly a bad thing. 

Another theory is that the Dims are not really Cons, especially in the sense that they are basically nice, humane people unlike Cons and therefore don't fight to kill and win. They actually like compromise, believe in everyone getting along, have faith in the high road, etc.  This theory is also more than partly true.

This blog has long interested itself in what allows people to formulate a strong position and then actually achieve it. This is equivalent in our terms to avoiding the pursuit of decline and failure, which has become so common in the vast but shrinking middle rungs of American society.

One central precondition is intellectual coherence.  Obama's political weakness is related to the fact that he lacks this.  His health care proposal, weak as it is, assumes an expanded role for government in the delivery of health care.  This in turn assumes that government plays a necessary regulative role in a market-based system dominated, to majoritarian distress, by a small number of large and powerful corporations.  This regulative role further assumes that government is a positive and constructive force in negotiating society's relationships with private entities like Blue Cross.

How does this fit with Obama's overall economic approach?  In a speech to the Business Roundtable last March, Obama offered a good summary of his economic philosophy, so to speak:

I’ve always been a strong believer in the power of the free market. It has been and will remain the very engine of America’s progress — the source of a prosperity that has gone unmatched in human history. I believe that jobs are best created not by government, but by businesses and entrepreneurs like you who are willing to take risks on a good idea. And I believe that our role as lawmakers is not to disparage wealth, but to expand its reach; not to stifle the market, but to strengthen its ability to unleash the creativity and innovation that still makes this nation the envy of the world.

But I also know this: Throughout our history, there have been times when the market has fallen out of balance. There have been moments of economic transformation and upheaval when prosperity and even basic financial security have escaped far too many of our citizens. And at these moments, government has stepped in not to supplant private enterprise, but to catalyze it — to create the conditions for thousands of entrepreneurs and new businesses to adapt and ultimately to thrive.

That’s why we laid down railroads and highways to spur commerce and industry — to stitch this nation together. That’s why, even in the midst of civil war, Lincoln launched a transcontinental railroad, and Land Grant colleges and the National Academy of Sciences. That’s why we initiated universal public high schools and passed a GI bill to nurture the skills and talents of all our workers. That’s why Eisenhower built an interstate highway system, and Kennedy pointed us to the moon, knowing that the exploration would lead to unimagined innovations here on Earth.

That’s what we’ve done in the past. And that’s why I’ve chosen to address education, health care, energy and this budget — because we can’t wait to make the investments today that will lead to tomorrow’s prosperity.

Such thoughts are why Cass Sunstein called Obama a "Chicago School Democrat" - the market creates all wealth, except when the market fails, at which point government must fix the market.  This also a "public private partnership" (PPP) philosophy, similar to that espoused by Blair and Brown Labour in the UK.

Unfortunately, Obama's position -- a common one among centrist Dim and Labour elements --  makes neither political nor conceptual sense.  If the market fails with any kind of regularity, then government is also a source of wealth and value. If government is a source of wealth and value, then the market is not the dominant if not the only source of wealth and value.  In the case of health care, if the market is the very engine of American progress, then America's free market system that has placed such enormous profits in the hands of HMOs and insurance corporations has been an amazing success, and we should not now be talking about bringing government in to regulate it.  Cons take continuous advantage of Obama's awkward stance.

The political problem with Obama's position is similar. How can he rally a mass base by chiding Wall Street bankers one day and praising their wealth the next? How can he be taken seriously by saying business should run the economy and then invoking the railroads to say government should help run health care?  The scope and timing of intervention is also always at issue, and you need some coherent principles to decide when and where.

The obvious solution is for Obama to say loudly and often that "government creates wealth" - in exactly the ways he describes in his speech, with quality education being at the heart of value-creation along with universal health care.   Society creates wealth, and government is one instrument and business is another, and in a democracy society gets to decide the scale and scope of the various instruments.  Government and businesses are co-generators, which means that public investments should be both ackowledged and compensated - which would reduce profits for companies that have gotten used to getting all sorts of public stuff for next to nothing, and would challenge American capitalism as it is, which of course Obama has to do if he wants a real recovery, except he thinks we already have one.

Obama's intellectual failure to expound a coherent social-democratic vision of society, which would also be post-capitalist in the sense of being post our inefficient, wasteful, crooked, silly current version of capitalism will, if it continues,  be yet another source of his political failure.