Obama’s economic speech yesterday was not the usual campaign stump piece but instead a serious policy address, delivered [near] the heart of New York’s financial district.
The speech includes an historical overview of the role of government in the economy, beginning with the arguments between Hamilton and Jefferson. It traces the rationale for economic regulation, where it got off the track and what we need to do to fix it. It was an economic analogue to his speech on race in America.
There are parts of this speech that probably won’t get much attention from the media, but they should. Here is just the part leading up to Obama’s call for regulatory reforms (which McCain’s aide claimed he embraces — see previous post):
. . . the American experiment has worked in large part because we have guided the market’s invisible hand with a higher principle. Our free market was never meant to be a free license to take whatever you can get, however you can get it. That is why we have put in place rules of the road to make competition fair, and open, and honest. We have done this not to stifle – but rather to advance prosperity and liberty. As I said at NASDAQ last September: the core of our economic success is the fundamental truth that each American does better when all Americans do better; that the well being of American business, its capital markets, and the American people are aligned.
I think all of us here today would acknowledge that we’ve lost that sense of shared prosperity.
This loss has not happened by accident. It’s because of decisions made in boardrooms, on trading floors and in Washington. Under Republican and Democratic Administrations, we failed to guard against practices that all too often rewarded financial manipulation instead of productivity and sound business practices. We let the special interests put their thumbs on the economic scales. The result has been a distorted market that creates bubbles instead of steady, sustainable growth; a market that favors Wall Street over Main Street, but ends up hurting both.
Nor is this trend new. The concentrations of economic power – and the failures of our political system to protect the American economy from its worst excesses – have been a staple of our past, most famously in the 1920s, when with success we ended up plunging the country into the Great Depression. That is when government stepped in to create a series of regulatory structures – from the FDIC to the Glass-Steagall Act – to serve as a corrective to protect the American people and American business.
The policies of the Bush Administration threw the economy further out of balance. Tax cuts without end for the wealthiest Americans. A trillion dollar war in Iraq that didn’t need to be fought, paid for with deficit spending and borrowing from foreign creditors like China. A complete disdain for pay-as-you-go budgeting – coupled with a generally scornful attitude towards oversight and enforcement – allowed far too many to put short-term gain ahead of long term consequences. The American economy was bound to suffer a painful correction, and policymakers found themselves with fewer resources to deal with the consequences.
Today, those consequences are clear. I see them in every corner of our great country, as families face foreclosure and rising costs. I seem them in towns across America, where a credit crisis threatens the ability of students to get loans, and states can’t finance infrastructure projects. I see them here in Manhattan, where one of our biggest investment banks had to be bailed out, and the Fed opened its discount window to a host of new institutions with unprecedented implications we have yet to appreciate. When all is said and done, losses will be in the many hundreds of billions. What was bad for Main Street was bad for Wall Street. Pain trickled up.
That is why the principle that I spoke about at NASDAQ is even more urgently true today: in our 21st century economy, there is no dividing line between Main Street and Wall Street. The decisions made in New York’s high-rises have consequences for Americans across the country. And whether those Americans can make their house payments; whether they keep their jobs; or spend confidently without falling into debt – that has consequences for the entire market. The future cannot be shaped by the best-connected lobbyists with the best record of raising money for campaigns. This thinking is wrong for the financial sector and it’s wrong for our country.
. . .
After months of inaction, the President spoke here in New York and warned against doing too much. His main proposal – extending tax cuts for the wealthiest Americans – is completely divorced from the reality that people are facing around the country. John McCain recently announced his own plan, and it amounts to little more than watching this crisis happen. While this is consistent with Senator McCain’s determination to run for George Bush’s third term, it won’t help families who are suffering, and it won’t help lift our economy out of recession. . . .
In his policy addresses, Obama appears to be laying out a coherent, unifying theory of government and a more or less progressive framework for the Democratic platform. (But see Krugman on comparisons with Clinton.) There are echoes of FDR’s New Deal. And he’s using statements whose clarity and intelligence we haven’t seen from any President in decades. He’s a teacher, and he could be our next President.
Update: Jared Bernstein at TPM responds to Krugman’s Obama/Clinton comparison.