Friday, October 22, 2010

Capital Expenditure

One of the most telling things George W. Bush is alleged to have said (I'm too lazy to look up the quote) was that if he had political capital, he was going to spend it. He said this as a comparison to his father's administration, which he believed lost political capital because it wouldn't spend it. ("Wouldn't be prudent!")

And, boy howdy, did he ever. He spent every last cent of political capital he gained from 9/11 to pursue his wars and cement his class's stranglehold on the nation's wealth - and pursuit of both happily coincided. Revolting as his actions were, he did what any strong, smart politician does, namely waste no opportunity in which to advance his interests, because at some point, you'll be out of power and you will no longer have those opportunities. That's what it means to spend capital. It is an investment in anticipated future returns, something that may begin as a debt but (through the miracle of compound interest and good borrowing terms) may turn into a very large asset indeed. If nothing else, your capital may get others to toss some of theirs into the kitty and then you can hold a "liquidity event" and cash out. The key here is using capital to raise more capital. It is an entrepreneurial mode and can fail catastrophically (see, LBJ, Vietnam) when a venture goes bad.

This is another way of looking at the Shrill One's challenging post, Epitaph For An Administration:
In today’s report on the foreclosure mess, a revealing sentence:
As the foreclosure abuses have come to light, the Obama administration has resisted calls for a more forceful response, worried that added pressure might spook the banks and hobble the broader economy.
Surely this can serve as a generic statement:
As NAME ISSUE HERE has come to light, the Obama administration has resisted calls for a more forceful response, worried that added pressure might spook the banks and hobble the broader economy.
Stimulus, bank rescue, China, foreclosure; it applies all along. At each point there were arguments for not acting; but the cumulative effect has been drift, and a looming catastrophe in the midterms.

Or to put it another way, the administration has never missed an opportunity to miss an opportunity. And soon there won’t be any more opportunities to miss.
This is an administration whose chief hallmark is timidity, an unshakable aversion to doing anything for fear of doing the wrong thing. In this case, the wrong thing is always to spend political capital without the guarantee of a win. Better to trim sails than to aim high. This the wrong political economic model to take when you are trying to win back ground and solidify gains. As I said two years ago in the post "In Reagan's Shadow," the Obamacans were misidentifying what made Reagan so popular:
Obama has explicitly modeled himself on the popular backwards-looking image of Reagan - the positive, constructive, above-party guy who did spectacle well and inspired people to support him with a flash of his smile and the thrill of his oratory. He cites Reagan as an exemplar of the mode of politics he wants to engage in - telegenic, above the fray, sweeping political change and ignoring the critics. Even if he had not been trying so hard to dismiss Bill Clinton in order to minimize Hillary, Obama would still have been engaged in Reagan worship. Thus, the entire packaging of himself as a movement, swallowing hook line and sinker the hagiography of Saint Ronnie. ...

[Reagan] was able to ... thoroughly dominate the political sphere. He had a foundation. He was a hard-line ideologue who had honed his political talents for decades and who was backed by what is still one of the best funded, most ideologically compact and politically determined groups in current Western politics - the Movement Conservatives. Regardless of what liberals may think of Reagan's political objectives (that they were crack-pot, inhumane, self-destructive, anti-American, etc.), Reagan offered something concrete to every constituency who supported him. Conservative judicial appointments and breaking the barriers between church and state for the theocons, pumping up not just the military but the necessity of US hegemonic power for the neocons, deregulation and supply-side economics for the rest of the cons and crooks in the corporate suites. And he delivered. Even when he was forced to make strategic retreats, the rhetoric did not abate and the overall objectives were never abandoned. He was relentless in pursuit of his vision of how the world should be.
This makes me arrive at an interesting comparison: The Precious is to W as Poppy was to the Gipper, the person who wanted to tone down the bombast and run his quiet little administration for the benefit of the inside players.

The trouble, of course, is that Obama is an opposition candidate, not an inheritor of the master's legacy. He tries to ties himself to Reagan (the mythic Ronnie of bipartisan goodness and late night drinking parties with Tip O'Neill) in some bizarre fantasy that if he can just get the Great Communicator mantle, he'll be protected from having to spend his capital. This doesn't take into account political inflation (so your capital is worth less and you can't do favors that get favors in return), deflation (so your capital is worth more, but there are no longer any goods to spend it on or people able to cut deals) and changes to the currency (when political alternatives gain entry to the political market). As Krugman notes, "But it’s also true that the president himself has had a deeply self-destructive tendency to echo his opponents’ arguments...."
We’ll never know how differently the politics would have played if Obama, instead of systematically echoing and giving credibility to all the arguments of the people who want to destroy him, had actually stood up for a different economic philosophy. But we do know how his actual strategy has worked, and it hasn’t been a success
"All that is solid melts into air," Marx famously said, and with that statement began one of the most admiring, frightened, awe-struck and sober accounts of the powerful effects of capital in action. To be effective, it had to circulate. This failure to move - creating and, yes, destroying as it goes - is why we are entering into a dangerous deflationary period, where economic and political capital are both immobile. The worse the conditions, the less likely the capitalists are to take on the risk that will shake loose the broader economy, which leads to greater contraction in the sphere of action.

To return to political economy, it is increasingly obvious that the holders of both political and economic capital have no interest in investing in the "losers" of the Reagan realignment. This would mean putting their capital into less than optimal markets like a social safety net (returns to the money men are peanuts compared to private insurance and 401(k)s), public infrastructure (let's keep playing chicken with our bridges and dams - we can get the other guy to pay for it!), and improved wages for the bottom 90% of the population (hey! I *need* that third home in Gstaad! You can be priced out of tract homes and/or foreclosed upon.).

The failure to engage in serious capital expenditures has cost the administration. The erosion of this administration's investment opportunities will soon render Obama's remaining political capital worthless.



CMike said...

I remember G. W. Bush speaking of having just earned "political capital" immediately after his 2004 (re-)election victory. He then burned through it in a failed attempt to sell the Congress and the country on a Social Security privatization plan. Bush finally tapped out completely by botching the response to Hurricane Katrina which hit the mainland in August 2005. In late October of '05 his Harriet Miers Supreme Court nomination bounced due to insufficient funds.

Of course, despite those stumbles, Bush remained the most powerful president in American history. His political capital blown, he financed the rest of his second term by slapping around cowardly and principle-less elected Democrats and repeatedly taking their lunch money. Bush continued to do this even after his approval numbers were below 40% and the Dems had taken control of both Houses of Congress in 2006.

As far what Bush 43 had to say about "political capital" before November '04, here's a pretty good run down.

Koshem Bos said...

To accept the post demands accepting that Obama has basic understanding of governing and goals. Sorry, but I believe that Obama's simplistic view of his job (e.g. postpartisan after ten thousand years of partisan politics) has no room for political capital. He doesn't know what it is.