THIRD CHANCE - March 27, 2009

The Obama Administration made perhaps its most important if unavoidable policy decision on Monday, 23 March. Capitalism will be pulled from the gutter, sobered up, made to attend a lecture on Ethical Culture – then get a credit card from the US taxpayer so it can go back out and make money for itself. Indeed, due to urgency of the financial crisis the lecture and even the sobering up will be deferred.

Unsurprisingly the president took his first significant heat from his

left in the days leading up to the announcement, especially coming

as it did on the heels of revelations about enormous bonuses paid to executives of AIG's financial services group, largely responsible for

the firm's dire straits. On one level the AIG bonuses were and are genuinely outrageous, an encapsulation of the market pathology that brought us to this crisis. But the outrage itself quickly became cheap,

a cable television spin cycle. Even Republicans, not usually offended

by private sector salaries, jumped into the act, which culminated with CNN's Ed Henry, at the next day's presidential press conference, asking the president why he had waited several days to join the outrage chorus.

"I like to know what I'm talking about before I speak," snapped Obama, an effective non-answer to a disingenuous question.

At the root of all this lies what Marxists of an earlier age might have called the contradictions of capitalism. The entire global capitalist system is in some real sense bankrupt, unable to pay its bills, and has been placed in a form of US government receivership. The receivers now propose to give these same capitalists a trillion dollars or so in loan guarantees to get 'toxic waste' (now renamed legacy assets) off their backs so they can reopen for business.

There is no pretty way to characterize this policy choice. The worst that can be said is that the Administration is buckling under to a capital strike – an implicit collective threat by the world's rich people to take what is left of their money and retreat to their secluded estates while the world economy goes to hell in a handbasket. The best that can be said for it is that it might work to get credit markets unstuck, and there is no other suggestion that does not amount in the end to the same thing. No one believes that anything as complex as credit markets could be directly administered. If the banks were nationalized they would eventually have to be returned to private ownership, on terms that make it worthwhile to own a bank.

Somewhat remarkably, no one at Tuesday's press conference asked Obama about the Geithner plan, released only the day before. Perhaps the air was taken out of the bank rescue issue, at least for the moment, by the stock market's reaction. After panning Geithner's earlier vague remarks, the market greeted his more detailed exposition with a dramatic rally, under the circumstances the most crucial early endorsement it could get. On the Democratic Party left, in fact, the tone of the last week never quite matched the language. Geithner took a beating, but there was little heart for taking it to the president. Perhaps finance remains too arcane, or perhaps the blogosphere also tacitly accepted that as supremely obnoxious as Wall Street has been and still is, it has to be coaxed on board for recovery to take place.

Meanwhile, what of the politics? The multi-poll trend line at Pollster.com shows that Obama's job approval peaked in early December – over a month before he came on the job – at about 70 percent, and since then has fallen steadily, at about 3.5 points per month, to the high 50s. The bad news is that if that rate of slippage continued, by year's end Obama would be in George W. Bush territory. The good news is that his approval is still high for a president in bad economic times. The slippage comes, unsurprisingly, from Republicans and conservative-leaning independents, groups whose honeymoon support was never going to survive contact with his liberal Democratic policy agenda. At the same time job approval of the Democratic Congress has risen dramatically, though it remains in negative territory (voters generally like their own members while disliking Congress as an institution).

From strategic perspective the White House has reason to think that it is in good position. A fall in job approval from 70 percent to 58 percent (and a third of it before he took office) is a small price to pay in political capital for having passed a stimulus package that simultaneously puts Obama's long term imprint on Washington and promises to infuse jobs into the economy just in time for the 2010 midterm elections. His other main priorities, health care reform and a start toward a post-oil energy regime, will come to the fore in the next couple of months, and might be wrapped into a 'budget reconciliation' process that cannot be filibustered and therefore needs only 50 votes to pass the Senate instead of 60 votes.

The president and his team are, naturally, betting on the essential soundness of their economic policies. Obama's polling numbers could fall off a cliff this year, but if the economy is recovering – or even seems to be recovering – next fall, so will his job approval rating. The Republicans have been forced into a far unhappier wager. Betting on the end of the world is always a loser, because even if you win you won't be around to collect.

That is more or less where the GOP is now. If Obama is right, and the economy is showing signs of recovery, Republicans will be left looking foolish and irrelevant. If Obama is wrong, but the economy is on the road to recovery anyway due to natural resilience, he will still get credit (even if unfairly), and Republicans will look no better. Only if the economy spins into collapse will they be vindicated, and in that case they merely inherit the rubble.

As a political party the GOP's real hope is that public forgetfulness and disgruntlement will count for more than anything they say now. But conservative ideology is forced into the same bet, and so has almost certainly lost the credibility that it enjoyed since the Reagan era. Capitalism may get off without even a lecture on Ethical Culture, but market fundamentalism will have a lot of explaining to do for the next generation or so.

Rick Robinson

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Author of the article holds B.A. degree in Economics from the University of California in Los Angeles (UCLA) and M.A. degree in English from California Polytechnic State University in San Luis Obispo, California . Mr. Robinson worked as a county-level campaigner in Dukakis (1988) and Clinton (1992) presidential campaigns. He presently works as a journalist and political commentator.

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