Tom Pal­ley has writ­ten an excel­lent opin­ion piece for the Finan­cial Times on why Oba­ma is fail­ing, and he request­ed that I repro­duce it here. How­ev­er, to read it, I’d pre­fer if you clicked on the link in the title of Tom’s piece below. That will take you to the Finan­cial Times blog itself–the more hits that pieces like this are seen to get in the con­ven­tion­al media, the bet­ter (to encour­age this, there are some links in the Finan­cial Times piece that I haven’t repro­duced in this repost).

Though I con­cur with Tom’s opin­ions, I can ful­ly under­stand Oba­ma’s deci­sion to use the same advi­sors that Clin­ton before him (and to some extent Bush) had also used. Fun­da­men­tal­ly, Oba­ma is a politi­cian, not an expert in eco­nom­ics, and as a politi­cian deter­mined to take an intel­li­gent approach to the prob­lems con­fronting Amer­i­ca, he sen­si­bly decid­ed to get his infor­ma­tion on these chal­lenges from the very best.

How was he to know that the world’s lead­ing econ­o­mists, the “very best” in this cru­cial field, actu­al­ly knew noth­ing about how the real econ­o­my actu­al­ly func­tions?

Only after 2 years in office, when the econ­o­my is not recov­er­ing from the reces­sion as his advi­sors told him it would, and the reme­dies that he throws at it (on their advice) turn out to be more damp squibs that the weapons of mass eco­nom­ic recon­struc­tion he was told they would be, must it slow­ly be dawn­ing on him that may don’t under­stand the econ­o­my.

He’s learn­ing the hard way the les­son I and many oth­er crit­i­cal econ­o­mists acquired as we stud­ied for our eco­nom­ics degrees–mostly by react­ing incred­u­lous­ly to weird propo­si­tions that our Pro­fes­sors would use to derive their models–that there is some­thing rot­ten in the state of eco­nom­ic think­ing.

For­tu­nate­ly, I had time to under­take schol­ar­ly research to con­firm that ini­tial gut­tur­al reac­tion. Yes, what sim­ply felt like crap to me rather than wis­dom, real­ly was crap: the weird propo­si­tions that my Pro­fes­sors would put for­ward were kludges to hide fun­da­men­tal flaws in the under­ly­ing the­o­ry. In full view in the aca­d­e­m­ic lit­er­a­ture of eco­nom­ics, paper after paper proved that the the­o­ry did not hold togeth­er.

Some­times, as with Piero Sraf­fa, a crit­ic had proven a fatal flaw in one aspect of the the­o­ry (in Sraf­fa’s case, the the­o­ry of income dis­tri­b­u­tion and the con­cept of a pro­duc­tion func­tion link­ing out­put of goods to inputs of labor and cap­i­tal). Oth­er times, it was an “own goal”, as lead­ing neo­clas­si­cal econ­o­mists tried to prove some­thing they hoped was true–such as that mar­ket demand curves obeyed all the laws they had derived for indi­vid­ual demand curves, and that they there­fore nec­es­sar­i­ly sloped down­wards so that there could be only one equi­lib­ri­um between sup­ply and demand–and proved that this was­n’t true.

In any gen­uine sci­ence, these dis­cov­er­ies, being fun­da­men­tal to the the­o­ry, dev­as­tat­ing in their impact and vast in num­ber, would have caused an intel­lec­tu­al cri­sis that would ulti­mate­ly have led to a revolution–as with the shift from the Ptole­ma­ic to the Coper­ni­can view of the struc­ture of the solar sys­tem. But in eco­nom­ics, what hap­pened instead was that these flaws were ignored–if they had been dis­cov­ered by the crit­ics like Sraffa–or papered over by tru­ly absurd assump­tions, if they had been “own goals”.

The end result was that eco­nom­ic the­o­ry was an utter sham­bles of false abstrac­tions, and I wrote Debunk­ing Eco­nom­ics to bring this to the atten­tion of peo­ple who fight­ing for social jus­tice but whose endeav­ors were being blocked by econ­o­mists.

Unfor­tu­nate­ly, Oba­ma did­n’t read it.

So now a man who had hopes to be remem­bered for not only being Amer­i­ca’s first black Pres­i­dent, but also for being one of its great social reform­ers as well, will prob­a­bly go down like Her­bert Hoover, who is known more for his fail­ure to pre­vent the Great Depres­sion than for any­thing else. To cite Wikipedia here:

When the Wall Street Crash of 1929 struck less than eight months after he took office, Hoover tried to com­bat the ensu­ing Great Depres­sion with vol­un­teer efforts, none of which pro­duced eco­nom­ic recov­ery dur­ing his term. The con­sen­sus among his­to­ri­ans is that Hoover’s defeat in the 1932 elec­tion was caused pri­mar­i­ly by fail­ure to end the down­ward eco­nom­ic spi­ral. As a result of these fac­tors, Hoover is ranked poor­ly among for­mer US Pres­i­dents.

Such will almost cer­tain­ly be Oba­ma’s fate as well, though not because he was a poor Pres­i­dent but because he was deter­mined to be a good one, and he there­fore fol­lowed the advice of the econ­o­mists in com­bat­ing the begin­nings of the Sec­ond Great Depres­sion. How was he to know that their way­ward eco­nom­ic the­o­ries had actu­al­ly helped set up this cala­maity in the first place, and that hav­ing caused it by means they did not under­stand, that they were the last ones who were able to give him the eco­nom­ic advice he actu­al­ly need­ed?

So much for me; over now to Tom’s views–and please read them via the link, as request­ed. One of the many rea­sons that neo­clas­si­cal eco­nom­ics has become dom­i­nant is that news­pa­per edi­tors believed, as Oba­ma did, that the dom­i­nant econ­o­mists were the best ones, and non-ortho­dox thinkers like Tom and I were shut out of the opin­ion pieces even more effec­tive­ly than we were mar­gin­al­ized with­in the eco­nom­ics pro­fes­sion itself. The more pieces like Tom’s get read in the main­stream media, the soon­er those days will be over–and the long-over­due intel­lec­tu­al rev­o­lu­tion in eco­nom­ics can begin.

Deaf to History’s Rhyme: Why Pres­i­dent Oba­ma is Fail­ing

Finan­cial Times Econ­o­mists’ Forum, Decem­ber 2, 2010

Copy­right Thomas I. Pal­ley

The great Amer­i­can nov­el­ist Mark Twain observed “his­to­ry does not repeat itself but it rhymes.” Today the rhyme is with the 1930s, and if you don’t hear it read FDR’s great Madi­son Square Gar­den speech of Octo­ber 1936:

“For twelve years this nation was afflict­ed with hear-noth­ing, see-noth­ing, do-noth­ing gov­ern­ment. The nation looked to gov­ern­ment but the gov­ern­ment looked away. Nine mock­ing years with the gold­en calf and three long years with the scourge! Nine crazy years at the tick­er and three long years in the bread­lines! Nine mad years of mirage and three long years of despair! Pow­er­ful influ­ences strive today to restore that kind of gov­ern­ment with its doc­trine that that gov­ern­ment is best which is most indif­fer­ent.”

Despite this clar­i­ty, the Oba­ma admin­is­tra­tion insists on hear­ing a rhyme with the 1990s. That tone deaf­ness has its roots in polit­i­cal choic­es made at the administration’s out­set and explains why the admin­is­tra­tion has stum­bled so bad­ly in its first years. If con­tin­ued, the eco­nom­ic and social con­se­quences will be grave.

In 2008 Pres­i­dent Oba­ma cap­tured the nation with a mes­sage of change, yet in office he has cho­sen to deliv­er change of style rather than change of sub­stance. At the head­line lev­el this choice was reflect­ed in his call for bi-par­ti­san­ship that looked to split the dif­fer­ence with Repub­li­cans. In eco­nom­ic pol­i­cy, it was reflect­ed in the whole­sale reap­point­ment of the Clin­ton admin­is­tra­tion team led by Lar­ry Sum­mers and Tim­o­thy Gei­th­n­er, a case of con­ti­nu­ity not change.

Now, the admin­is­tra­tion is sink­ing under fail­ure of its eco­nom­ic pol­i­cy. That fail­ure is due to its attempt to revive a 1990s par­a­digm that nev­er worked as adver­tised and can only deliv­er stag­na­tion. Painful though it is for Democ­rats to acknowl­edge, the real­i­ty is the eco­nom­ic poli­cies of Pres­i­dent Clin­ton were large­ly the same as those of Pres­i­dent Bush. On this the record is clear for those will­ing to see. The Clin­ton admin­is­tra­tion pushed finan­cial dereg­u­la­tion; twice reap­point­ed Alan Greenspan; pro­mot­ed cor­po­rate glob­al­iza­tion through NAFTA and Chi­na PNTR; ini­ti­at­ed the strong dol­lar pol­i­cy; spoke of the “end of the era of big gov­ern­ment”; con­tem­plat­ed pri­va­ti­za­tion of Social Secu­ri­ty; and struck down a core ele­ment of the New Deal by end­ing the right to wel­fare.

The main dif­fer­ence between the Clin­ton and Bush admin­is­tra­tions was the former’s will­ing­ness to offer some help­ing-hand poli­cies to cush­ion the harsh effects of the invis­i­ble hand. Dif­fer­ences in out­comes were not pol­i­cy dri­ven but reflect the fact the Clin­ton admin­is­tra­tion enjoyed the good for­tune of the Inter­net invest­ment bub­ble. It also ben­e­fit­ted from the begin­ning of the hous­ing bub­ble when Amer­i­can fam­i­lies had plen­ty of untapped home equi­ty and cred­it.

Pres­i­dent Obama’s fate­ful deci­sion to go with Clinto­nom­ics meant the reces­sion was inter­pret­ed as an extreme­ly deep down­turn rather than a cri­sis sig­nal­ing the bank­rupt­cy of the neolib­er­al par­a­digm that has ruled both Repub­li­cans and Democ­rats for thir­ty years. That implied the reces­sion could be ful­ly addressed with stim­u­lus, which was the same response as the Bush admin­is­tra­tion to the reces­sion of 2001.

The cur­rent reces­sion is the deep­est eco­nom­ic down­turn since the Great Depres­sion of the 1930s, invit­ing com­par­isons with Pres­i­dent Franklin Delano Roo­sevelt. FDR had the advan­tage of tak­ing office three years into the Depres­sion when the unem­ploy­ment rate was near 25 per­cent. The ver­dict was in: the sys­tem need­ed change. Pres­i­dent Oba­ma took office as the cri­sis was deep­en­ing. Those who had designed the sys­tem could still argue it could be revived and as estab­lish­ment insid­ers they had the upper hand. But that argu­ment is done and today the prospect is of long stag­na­tion.

The New Deal was a break with both the pol­i­tics and eco­nom­ic poli­cies of the past. Its eco­nom­ic pol­i­cy inno­va­tions like Social Secu­ri­ty, the Secu­ri­ties and Exchange Com­mis­sion, the Fair Labor Stan­dards Act, and the Wag­n­er Act grant­i­ng the right to orga­nize, are still cel­e­brat­ed. How­ev­er, it was FDR’s new pol­i­tics of sol­i­dar­i­ty and com­pas­sion that cre­at­ed the nec­es­sary polit­i­cal space: sol­i­dar­i­ty that rec­og­nized the coun­try was in the Depres­sion togeth­er and com­pas­sion that rec­og­nized many were suf­fer­ing through no fault of their own. That is the polit­i­cal rhyme Pres­i­dent Oba­ma must hear, while the New Deal is the pol­i­cy rhyme.

The President’s fail­ure to deliv­er on the country’s desire for change of sub­stance has left a vac­u­um that is being filled by dan­ger­ous unsta­ble forces. This is the tale of the Tea Par­ty, which is a tale that has res­o­nance for Europe. The eco­nom­ic risk, already more advanced in Europe, is a dou­bling-down of dis­as­trous­ly failed hard­core neolib­er­al eco­nom­ic poli­cies. The polit­i­cal risk is a rise of intol­er­ance and xeno­pho­bia.

These are not nor­mal times. If the admin­is­tra­tion per­sists with its deaf­ness to his­to­ry it will sure­ly hit the rocks and an his­tor­i­cal oppor­tu­ni­ty for pro­gres­sive change will be squan­dered. Worse yet, its deaf­ness will leave the field open to the extreme right whose “blame-the-vic­tim” social mes­sage and “liq­ui­da­tion­ist-aus­ter­i­ty” eco­nom­ic poli­cies clear­ly con­firm today’s rhyme is with the his­to­ry of the 1930s.