President Barack Obama and his key appointees are past the festivities and getting down to business. The rest of us should be also. But first, a very quick look at the Inaugural itself.
By far the most articulate and moving remarks of the day came not from Obama but from the Rev. Joseph Lowery, a powerful figure of the civil-rights movement now in his mid-80s. His positive, embracing message also contained wry bits of humor relating to blacks, browns, reds, yellows, and whites. Less sensitive commentators found them inappropriately racial; I found them wonderful. Lowery is of that generation of black leaders who paid their dues and contended with raw racism, often at risk of their lives, yet emerged without bitterness and with wisdom. I found myself crying involuntarily, along with thousands in the huge crowd.
Obama, of another generation, did not deliver a lyrical speech, perhaps purposely. It was at times a bit disjointed, and I had the impression that he had inserted passages, his own or others', after preparing a shorter, tighter original draft of his own. There were no memorable lines, such as JFK's "Ask not what your country can do for you..." or FDR's "the only thing we have to fear is fear itself." But it set a proper tone. It was a meat-and-potatoes, get-down-to-work speech which properly called on us "to put childish things aside" and take responsibility for lifting the country and ourselves out of some difficult times.
I thought he was wise to unexpectedly end the speech with a quotation from George Washington, when the nation's very existence was in question: Back to our roots. Meanwhile, the inauguration itself, and Obama himself, were the story. Obama disclosed himself as large-minded and idealistic but, above all, pragmatic and principally interested in making things work without getting bogged down in ideological fine points — much like the vast majority of the American people.
Now, what next? Obama and his core advisers are, right now, chewing over the best ways and means of lifting the country out of financial and economic distress. Pretend for a moment that you are in the Oval Office and party to the discussion. Here are questions now being posed and some likely answers being offered.
What is the first and central requirement right now?
It is to save the financial system. We averted a collapse in October. But major institutions, including Citi and Bank of America, have not yet been stabilized. They and some smaller institutions are still carrying too many toxic and perhaps worthless assets. They cannot loan money and end the credit squeeze until they get their balance sheets in order. The domino effects of their failures would be unacceptable and could lead to general panic. The government can either buy more preferred stock in these institutions — perhaps to the degree that they become termporarily nationalized — or it can relieve them of their toxic assets. If it is the latter, the federal government will be forming a new agency, with a huge new bureaucracy, with the task of managing and eventually disposing of these assets. They may turn out to be worth less than the cost of establishing the new agency. If Willie Sutton robbed banks because "that is where the money is," then we must save banks because "that is where the money must be" if economic growth is to restart.
How do we create jobs as soon as possible?
Democratic leaders in the Congress will not like the answer: It is to institute immediate personal and business tax cuts, across the board. Tax cuts create, in the aggregate, fewer jobs than major public works and other government spending targeted to job creation. But they do it right away. They also create incentives to business to hire (or at least not to fire) employees and to go forward with planned expansions and investments. They ease pressure on working taxpayers. They do not, of course, channel resources directly to health care, energy efficiency, and other national goals. But they do provide an immediate jump start.
Infrastructure and other government spending will create jobs. but mainly two to three years down the road, even if projects are supposedly "shovel ready." Most estimates suggest public works and infrastructure spending would not begin to have a jobs payoff until mid-2010 at the earliest.
Then what do we do right away?
We do the practical and possible. First, we save the big banks by whatever means necessary. Saving the financial system remains Job No. 1. We send money to states facing big social-service burdens and deficits. Then we please congressional Republicans and moderate Democrats by proposing immediate tax cuts. We please liberal Democrats, labor unions, governors, mayors, and others by proposing targeted, job-creating spending of at least equal magnitude — but in the knowledge that it will take longer to have an effect, possibly not until the recession is winding down. We count on the Federal Reserve to keep monetary policy as easy as possible.
We avoid keeping campaign pledges, made to please unions, of renegotiating NAFTA and other trade deals. That could set off global protectionism which helped lead to the collapse of the 1930s. Unions already have signaled they will take jobs programs and forget their trade agendas, for the time being. We do not abandon our plans for energy efficiency or national health reform, or for Social Security or Medicare reform. But we go, first, for saving the banks; second, for creating immediate stimulus (which means tax cuts); and, then, for targeted, job-creating public investments in projects which will add long-term value to the economy.
What about the real economy?
Even the strongest companies are postponing plans for expansion and new investment. Layoffs are taking place in every sector. Retail and housing will continue to be hard hit for many months. We need a financial system to sustain the real economy. But, in that economy, there are many uncompetitive enterprises which government cannot save. There is huge global overcapacity in the auto industry, for example. Will the Detroit Big Three emerge from this recession intact? No. At least one, probably Chrysler, will likely disappear. General Motors may have to enter bankruptcy in order to shed long-term obligations which presently keep it uncompetitive.
This will be painful. But, coming out the other end, every American economic sector ought to be leaner and more competitive for the long run. Government will find itself intervening in some cases, such as autos, to ease the transition. In other places, where underlying weakness is too great, there will be no option but to let the weak fail and the strong survive, doing what we can to retrain and help displaced employees.
Will interest groups and ordinary citizens tolerate two or more years of such pain?
With leadership, they will. If financial and corporate greed are perceived as continuing, and if the Congress continues to spend big money for marginal purposes, they will not. The President will need to cast some early vetoes to show he means business. He will have to face down leaders of his own congressional party. He will have to go the country, as if in a political campaign, to ask for support over the heads of the Congress.
Before we get going, how bad is it?
The patient is in a serious but not life-threatening condition. Before this financial and economic trouble is over, we will have experienced the worst downturn since the 1930s. It already has spread internationally and probably will linger internationally after the U.S. has come back. There will be unexpected hedge-fund and other financial failures ahead; unexpected and sudden corporate failures too. But, as the President said in his inaugural address, the people and institutions of this country are strong enough to weather it and prevail. We have lived through several decades of easy expectations. Now, for the first time in a long time, genuine difficulty is upon us. Judging from their reaction to the new President's election and inauguration, the American people are ready to do what needs to be done.
