Jun 20 2010

State of the Wave: How President Obama is Creating the New Space Age — An Update

Eighteen months into the Obama administration it’s appropriate to check Obama’s progress on space. I first sketched his status in 9/24/09; See “How President Obama is Creating the New Space Age.”

Does the BP oil spill threaten the new international Space Age as well as the environment?
Click .
(Image: U.S. Coast Guard)

In reality — as the last 200+ years have shown — extraordinary pulses of activity in exploration and engineering are enabled by reliable, long-term business cycles. And all indicators suggest we’re sneaking up on the edge of another Golden Age of Prosperity, Exploration, and Technology(GAPET).

Typically, during the twice-per-century upswings of the long economic wave and within a decade after a major financial panic (such as the Panic of 2008) and its major recession, we emerge into an ebullient, transformative decade known as a Maslow Window. Perhaps the most ebullient one followed the Panic of 1893 and was led by Theodore Roosevelt: the Peary/Panama Maslow Window from 1903 to 1913. But before that the mid-19th century Dr. Livingstone/Suez Maslow Window produced the “technological jewel of the 19th century,” the Suez Canal, and the famous Lewis and Clark Maslow Window opened the Great Northwest to the world in 1805.

Our most recent Maslow Window — the stunning 1960s Apollo Moon decade — was unique in the last 200+ years in that it wasn’t immediately preceded by a financial panic or great recession. But the approaching Maslow Window, expected to open near 2015, resumed the much more “normal” sequence of the last 200+ years when the Panic of 2008 heralded its impending arrival.

But since last September, much has happened in the economy, in Washington, and in the world. And given the high likelihood of our next Maslow Window materializing near 2015, the key question remains: How will Obama create the exceptional prosperity that is the hallmark of such Camelot-like times?

As before, there are basically 2 options:

OPTION I: Obama becomes a 2-term President: He becomes the new John F. Kennedy without the Vietnam-style baggage of LBJ.
Historical/Economic Model: The 1960s Apollo Maslow Window.

Three ways Obama could trigger prosperity are:

a) The recession will end naturally and prosperity will follow.
Post-War recessions have averaged 11.3 months in length (with the longest 16 months) and the current one is 22 months old. Most economists think the economy hit bottom recently and is currently recovering.

UPDATE: Some indicate that recent gains in the stock market and modest economic growth suggest we are on the verge of a robust recovery. However other indicators continue to cast doubts, including U.S. unemployment hovering near 10% and the record $ 13+ T national debt.

Indeed, The Economist for May 29- June 4, 2010, leads with a front cover headline, “Fear Returns. How to Avoid a double-dip recession.” And inside they continue with, “Governments were the solution to the economic crisis. Now they are the problem.” And New York Times columnist Thomas Friedman (5/23/10) argues that “There is no margin for error anymore.” He quotes experienced global investor Mohamed El-Erian who warns that, “The world is on a journey to an unstable destination, through unfamiliar territory, on an uneven road and, critically, having already used its spare tire.”

b) Obama will “reset” his presidency resulting in prosperity.
Ted Van Dyk, a long-time Democrat and formerly Vice President Hubert Humphery’s assistant in the LBJ Whitehouse, advises Obama to cut back his proposals and expectations (WSJ, 7/17/09):

“You made promises about jobs that would be ‘created and saved’ by the stimulus package. Those promises have not held up. You continue to engage in hyperbole by claiming that your health-care and energy plans will save tax dollars. Congressional Budget Office analysis indicates otherwise.”

UPDATE: For better or worse, this hasn’t happened. Obama passed his health care bill and recently revived discussion of climate legislation and new multi-B $ bailouts.

c) The Keynesians are right and major government spending and deficits result in prosperity.
For example, according to British Prime Minister Gordon Brown, the idea of slowing major stimulus spending would be an “error of historical proportions,” (WSJ, 9/22/09; B. Stephens).

UPDATE: The New York Times (5/23/10) reports Europe is “rethinking its safety net,”

Across Western Europe, the “lifestyle superpower,” the assumptions and gains of a lifetime are suddenly in doubt. The deficit crisis that threatens the euro has also undermined the sustainability of the European standard of social welfare, built by left-leaning governments since the end of World War II.

And the U.S. is not far behind. America’s public debt is (V. Kohlmayer, American Thinker, 6/10/2010),

more than 90% of the country’s GDP. Public debts of more than 60% of GDP are considered unhealthy. Public debts above 90% of GDP cause severe disruptions in the country’s financial framework and the economy at large.

According to the Obama administration, America’s public debt will exceed 100 % of GDP in the next fiscal year.

Bottom Line for Option I:
The economic case for Obama eventually becoming the new JFK is weaker than it was last September.

However, if he can overcome current challenges, Obama can still become the new JFK. He would continue the brilliant, transformative lagacy of Theodore Roosevelt and the Panama Canal, that began with Thomas Jefferson and the Lewis and Clark expedition.

OPTION II: Obama becomes a 1-term president: He becomes the new Grover Cleveland (and possibly LBJ), and leads to a pro-prosperity Republican presidency.
Historical/Economic Model: The Peary/Panama Maslow Window (1903-13).

The New York Times (9/6/09; Richard Stevenson) observed that,

Nearly eight months after the inauguration, the economy … has stabilized sufficiently that the nation is no longer gripped by the sense of urgency that allowed Mr. Obama, almost without challenge, to carry out an audacious act of industrial engineering: reshaping the automobile industry from the Oval Office in a matter of weeks … The most relevant political framework instead appears to be a more problematic one inherited from his predecesser: a general loss of faith in government.

On August 21, the Wall Street Journal (8/25/09; William McGurn) reported that,

White House spokesman Robert Gibbs said his boss was “quite comforrtable” with the idea that sticking to his agenda may well mean “he only lives in this house” for one term.

Indeed, if unemployment remains high into 2012, reelection will be a challenge for Obama.

Three things that could hinder Obama’s reelection are:

a) The Stimulus has not worked.
The Wall Street Journal (9/17/09; Cogan,Taylor,Wieland) reports that,

The data show government transfers and rebates have not increased consumption at all … and that the resilience of the private sector following the fall 2008 panic — not the fiscal stimulus program — deserves the lion’s share of the credit for the impressive growth improvement from the first to the second quarter.

And as unempoyment heads toward 10%, Obama’s promise that rapid passage of the stimulus package would keep unemployment below 8% has not been realized.

UPDATE: Little has improved here. In late February, Harvard’s Robert Barro (Wall Street Journal, 5/23/10) concluded that “The fiscal stimulus package of 2009 was a mistake.” Based on his long-term empirical model of past U.S. fiscal actions, he estimates a spending multiplier of 0.4 (in the same year) and 0.6 (over 2 years). Increased government spending reduces other portions of GDP like “personal consumer expendature, private domestic investment, and net exports.” According to Barro,

Viewed over five years, the fiscal stimulus package is a way to get an extra $ 600 B of public spending at the cost of $ 900 B in private expenditure. This is a bad deal.

b) Obama’s economic policy may be fundamentally flawed.

Published economic research by the current head of President Obama’s Council of Economic Advisors — Christina Romer — raises doubts about Obama’s policy of major government spending to end the recession. The Wall Street Journal (8/21/09; Alan Reynolds) considers Professor Romer’s 1999 study (J. Econ. Perspect.) and concludes that, based on economic history since 1887, “bigger government appears to produce only bigger and longer recessions.”

If this is true, Obama’s large stimulus/bailout packages and large federal budgets will not stimulate the economy in his first term.

According to William Gale of Brookings,

The budget outlook at every horizon is troubling: the fiscal-year 2009 budget is enormous; the ten-year projection is clearly unsustainable; and the long-term outlook is dire and increasingly urgent.

UPDATE: Little improvement here. According to Robert Reich (WSJ, 4/12/10), President Clinton’s Secretary of Labor, “Many outsourced jobs will never return, and median income will likely continue to fall…”

Former Fed Chair Alan Greenspan (WSJ, 6/18/10) sees “growing analogies to Greece.”

The current federal debt explosion is being driven by an inability to stem new spending initiatives … We cannot grow out of these fiscal pressures. The modest-sized post-baby-boom labor force … will not be able to consistently increase output per hour by more than 3% annually. The product of a slowly growing labor force and limited productivity growth will not provide the real resources necessary to meet existing commitments … Our policy focus must therefore err significantly on the side of restraint.

Former Reagan advisor Arthur Laffer (WSJ, 6/7/10) sees an “economic collapse” for the U.S. in 2011 unless the Bush taX cuts are extended. “The result will be a crash in tax receipts … If you thought deficits and unemployment have been bad lately, you ain’t seen nothing yet.”

c) Afghanistan turns into Vietnam.

The New York Times (8/23/09; Peter Baker) has focused on the dangers a protracted conflict in Afghanistan could have on Obama, “The LBJ model — a president who aspired to reshape America at home while fighting a losing war abroad — is one that haunts Mr. Obama’s White House as it seeks to salvage Afghanistan while enacting an expansive domestic program.”

UPDATE: Afghanistan continues to be a controversial “roller coaster.” Although Obama has tripled the number of U.S. soldiers there, “The conduct of a counterinsurgency operation is a roller coaster experience. There are setbacks as well as areas of progress or successes,” according to Gen. David Petraeus.

Also strategically controversial is Obama’s order to begin reducing American forces by July, 2011. According the the Los Angeles Times, (6/13/10; J. Barnes), “Petraeus did not elaborate on his own reservations and left the hearing moments later after becoming ill. But Sen. John McCain (R-Ariz.) said he was worried that the timeline had undercut Afghan President Hamid Karzai’s support for the U.S.-led war effort.”

d) Something New — Widespread questions about Obama’s leadership capability arise.

UPDATE: This has centered on his administration’s slow response to the catastrophic Gulf of Mexico BP oil spill, and goes to the core of his ability to function as a visionary president.

For example, the New York Times (6/13/10) had several complaints.

It certainly should not have taken days for Mr. Obama to get publicly involved in the oil spill … It took too long for Mr. Obama to say that the Coast Guard and not BP was in charge … These are matters of competence and leadership. It;s time for Mr. Obama to decisively show both.

Response from Obama’s supporters to his first Oval Office television address was likewise unfavorable. For example, Chris Matthews (MSNBC) said, “I don’t sense executive command.” Maureen Dowd (NYT) commented that, “instead of the fairy dust of hopefulness there’s the bitter draught of helplessness.” And Time’s Mark Halperin described his own, “fierce, unforeseen disappointment.” With friends like that you can imagine the shots from the Right.

Broadening the critique to all areas of presidential leadership, Dorothy Rabinowitz (WSJ, 6/9/10) crafted the eye-catching headline, “The Alien in the White House;” not referring, of course, to his native-born status, but to “the distance between the president and the people.” And Peggy Noonan (WSJ, 6/19/10) thinks Obama is “snakebit,” in that he’s “starting to look unlucky, like Jimmy Carter.”

As before, an interesting bottomline emerges:

Re: Prospects for the New Space Age Near 2015:
Based on patterns in macroeconomic data and historical trends over the last 200 years, all realistic roads still lead to a 2015 Maslow Window featuring a Golden Age of Prosperity, Exploration, and Technology, although wildcards are possible.

Re: Mr. Obama’s Prospects:
Despite the fact that Mr. Obama is currently setting the stage for a robust, transformative new Space Age within the next 3-5 years, his presidential prospects remain uncertain and have become even more so since last September.

Obama’s long wave timing and election circumstances (i.e., panic/recession) have more parallels with the 1893-1913 Peary/Panama Maslow Window — in which a 1-term Democrat (Grover Cleveland) was replaced by a pro-prosperity Republican — than with the 1949-1969 Apollo Maslow Window of John F. Kennedy. And Obama’s continuing challenges with high unemployment, record deficits, huge budgets, Afghanistan, and now the oil spill, pose real dangers for him.

As the New York Times noted and as evidenced by Obama’s descending poll numbers, many Americans are expressing skepticism about big government and the economy. Obama will have to create prosperity — the cornerstone of the 2015 Maslow Window — and given Obama’s abilities and resources, he’s remains quite capable of doing it.

But he will have to reverse some of the above trends and perceptions.

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