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Barack Obama: don’t waste the crisis

Godfrey Hodgson
6 February 2009

It is just over forty-five years ago that I rode downtown in a cab to cover the epic "March on Washington". At every intersection there were detachments of paratroops in combat-gear. The John F Kennedy administration has somehow accomplished the posthumous public-relations coup of suggesting that it was passionately in favour of the civil-rights movement. That day, 28 August 1963, it did not feel like that: on the contrary, the government seemed afraid that 100,000 black people coming to town must threaten a form of revengeful insurrection.

Also in openDemocracy on Barack Obama's presidency:

Simon Maxwell, "Global development: Barack Obama's agenda" (20 January 2009)

Pervez Hoodbhoy, "Obama's triple test"  (21 January 2009)

Fred Halliday, "The greater middle east: Obama's six problems" (21 January 2009)

openDemocracy, "Barack Obama: hope, fear... advice" (19-23 January 2009) - reflections from thirty-seven of our worldwide authors

Simon Critchley, "Barack Obama and the American void" (22 January 2009)

By afternoon, after Martin Luther King Jr's great speech at the Lincoln memorial, it was plain that the crowd was at least two-and-a-half times bigger than that. It was happy, peaceful, interracial, and included many families, black and white, who had brought babies in strollers to be able to tell their grandchildren they had been there.

The eve of President Barack Obama's inauguration was Martin Luther King Day, a combination that itself is a striking symbol of how far the United States has moved in the half-century and more since the civil-rights era. That day, 20 January 2009, I and my companions watched the event on television from the middle of a forest in the Cumberland mountains in Tennessee. We probably got a better view than almost any of the estimated 2 million people who thronged the Mall in Washington.

The next day, flying from one of the US capital's two jammed airports to San Francisco, we found ourselves in the middle of some of them - "young, talented and black" in many cases, exhausted in most, deliriously happy and proud in all to have been witnesses of a great and benign change. They reminded me of nothing so much as a crowd from the Glastonbury festival, with added ideals.

Barack Obama's speech pressed all the right buttons. He was gentlemanly toward George W Bush. He blamed bankers, but not only bankers, for the economic crisis. He echoed Thomas Jefferson and Abraham Lincoln, and (via a deftly chosen and vivid quotation from Tom Paine) he compared the nation's plight to that of George Washington's tattered and frozen army at Valley Forge.

It was an eloquent speech of studied moderation. He pledged himself to go beyond the argument between the partisans of big government and those who thought government was (in Ronald Reagan's disastrous formulation) part of the problem, not the solution. The point, he said, was to make government work.

Thus began the presidency of a man who understands that, as his chief-of-staff Rahm Emanuel suggested, a great crisis is also a great opportunity.

A first misstep

Barack Obama also understands that, however tactful and centrist he may be, he will get  little or no help from the Republicans; and that in the "flyover country" between the Appalachians and the Californian Sierra, there are tens of millions of Americans who neither like nor trust him. Even the fact that his inaugural speech was as full of the rhetoric of American exceptionalism as any Republican could have wished will do him no good there.

Both the great skills and the rooted opposition have been in evidence in Obama's first two and a half weeks in office. A few glitches were inevitable.  The most serious has been the withdrawal of ex-senator Tom Daschle, the former Democratic leader in the Senate, from the process of nominating the  position of health secretary. Obama had been counting him to lead the campaign for radical reform of access to the American healthcare system.

Godfrey Hodgson was director of the Reuters' Foundation Programme at Oxford University, and before that the Observer's correspondent in the United States and foreign editor of the Independent. His books include The World Turned Right Side Up: a history of the conservative ascendancy in America (Houghton Mifflin, 1996); The Gentleman from New York: Senator Daniel Patrick Moynihan (Houghton Mifflin, 2000); More Equal Than Others: America from Nixon to the New Century (Princeton University Press, 2006), and A Great and Godly Adventure: The Pilgrims and the Myth of the First Thanksgiving (PublicAffairs, 2007)

Among Godfrey Hodgson's openDemocracy articles:

"Barack Obama: at the crossroads of victory" (11 June 2008)

"A game of two halves" (15 July 2008)

"Welcome to the party: American convention follies" (18 August 2008)

"America's foreign-policy election" (28 August 2008)

"America's economy election" (17 October 2008)

"Yes he can!" (6 November 2008)

"Change?" (2 December 2008)

"An end and a beginning" (5 January 2009)

These are still early days. But already, the realities of power in the American political system have begun to impinge on Barack Obama's presidency.

The United States has wonderfully skilled doctors, clever researchers, opulently equipped hospitals. The reason why it comes so low on most international comparative measures of health is because most Americans cannot get access to these wonders when they need them.

In the campaign, before the full gravity of the economic crisis became plain with the collapse of Lehman brothers in mid-September 2008, Obama gave healthcare reform the highest priority of all. Now he must find someone who combines Daschle's passion for the issue and his profound knowledge of where the bodies are buried on Capitol Hill. That will not be easy.

The revelation that his point-man on one of the most vital issues had taken a lobbying job with a $250,000-worth of free and untaxed chauffeured rides thrown in, has done more than deprive Obama of a key lieutenant. It has raised pointed questions about how much Washington under his presidency can shake off the old bad days of lobbyist power, special interests and "earmarked" appropriations to those who have greased the right palms.

At the same moment, the Democratic governor of Illinois has been impeached for trying to sell Obama's own senate seat: a reminder, if one were needed, that Obama came to Washington not from the land of Oz but from the city of Mayor Richard J Daley and many other Chicagoans blessed with ruthless and acquisitive political skills.

A system collapse

The contrast between the political optimism symbolised by the inauguration and the economic pessimism that has spread out from Wall Street to the economy as a whole is striking. To some extent, the spectacle of a brilliant young leader with an enchanting family, an incarnation of  hope and confidence, has masked the true dimensions of the economic crisis. Economic crises, after all, have a way of turning into political crises. Barack Obama seemed to recognise this danger in his impassioned appeal to senators on 5 February 2009 for support for his huge economic-stimulus bill.

The symptoms are everywhere. Tens of thousands of Americans are losing their jobs every month, and a similar number are losing their homes. California is almost as hard hit as Michigan. The great newspapers of Chicago and Los Angeles, Baltimore and Minneapolis, are bankrupt. The once-mighty complex of the automobile industry - hundreds of component-suppliers and thousands of dealerships as well as the more high-profile General Motors, Chrysler and Ford - are saved from the same fate only by government intervention (and even it may not save them). Other iconic businesses, from Caterpillar to the airlines, are in dire trouble.

As manufacturing industry staggers, the financial-services industry that once eclipsed it is flat broke. Yet the losses already announced are only a fraction of the contingent liabilities resulting from years of error and excess: wild speculation, ludicrous debt-leveraging, reckless packaging of derivatives in an inverted pyramid that was crazily balanced on the point of mortgages that were never remotely likely to be paid out.

The worst of the situation is that no one seems to have a clear idea what to do about the collapse of the credit system. The banks have balance-sheets stuffed with so-called "toxic securities" whose valuation is a timebomb. If the government buys these securities at the banks' valuation it will acquire an unbearable level of debt; if it takes them over at its own valuation, the banks' capital will be wiped out.

The Obama administration is leaking complicated plans for dividing the toxic assets into different grades, while it has put money for "ordinary Americans" into an even bigger rescue-package. The individual states will get money to prevent teachers losing their jobs, and funds are allocated to other groups threatened with disaster. The Republicans, naturally, refuse to vote for any of this: tax-cuts remain their universal nostrum.

The mountain of individual debt on mortgages and credit-cards has tragic consequences for millions of people. The collapse of commercial paper, the credit which supplies working capital to businesses big and small is from the point of view of the economy even more threatening.

A question of timing

Barack Obama seems to have made a mistake in choosing his economic team. He has a Harvard law-school education in how the system is supposed to work, but no personal familiarity with it. So he turned to the most prestigious Democratic pundits, veterans of the Clinton administration and therefore deeply involved in the policies and the "masters-of-the-universe" culture that led to the catastrophe.

Their elder statesman, Robert Rubin, served both Goldman Sachs and Citigroup, companies once seen as pillars of the financial system but now tarnished by Wall Street's fall. It was Rubin who pushed hardest for the repeal of the Glass-Steagall Act, the New Deal-era legislation that separated commercial banking from investment banking. The repeal meant in effect that all the money in the world was available for speculation.

Perhaps the most difficult decision of all for the new president is about timing. Obama's instinct is for caution. He wants to be seen as a unifier, not a divider. He believes he needs a non-partisan "grand coalition". Yet the savviest of his recent predecessors, Lyndon B Johnson, told his close aide Harry McPherson: "You only have one year". What he meant was that in the second year of a fixed four-year term, a president has to give priority to the mid-term congressional elections, and in the third and fourth years he will be preoccupied with his own re-election.

So Obama's wise instinct may be to gentle a troubled horse. But he may not enjoy the luxury of gradualness. He will have to act swiftly before the economic meltdown becomes politically dangerous. In the process, pressing matters - from healthcare reform to global warming, Israel-Palestine to Pakistan - may have to wait.

In politics, as in medicine, to focus on one disease carries the risk of neglecting the others. But Rahm Emanuel is right: a serious crisis shouldn't be allowed to go to waste. The new president will need all the moving faith of the crowds on inauguration day, all the inspiration of his forebears, to turn this grave moment into great opportunity. The clock is already ticking.

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