Reflections on the big, sick dog

BOSTON — In his first 100 days in office Barack Obama has spent more time dealing with the economy than most presidents do in four years.

He’s had no choice. The 2008 presidential election turned in large part on economic matters, so he was on the hook even before taking office.

It seems Abraham Maslow’s hierarchy of needs theory of psychology applies to economics, too: Everybody requires money to buy (1) food and (2) shelter. This is particularly true of voters.

Moreover, as you’ve no doubt heard, we are living through “the worst economic crisis since the Great Depression.” Preventing calamity is good economics. It’s even better politics.

Aside from domestic concerns President Obama has also, rightfully, tried to play a leadership role in addressing the global scope of the crisis.

The U.S. produces roughly a quarter of the world’s economic output. It is the big dog of the global economy — the big, sick dog. The global economic meltdown began here, continues to wreak havoc here, and is spreading through the world like, well, mange.

In particular, it has infected two key economic partners and U.S. debt holders: China, where more than 65,000 factories have shuttered in part because Americans are spending less; and Japan, which now has 1.6 million people living on welfare — the most in 44 years — in part because Americans are buying fewer Japanese cars and electronics. (Japanese exports to the U.S. slid another 51 percent from a year ago in March, after dropping 58 percent in February.)

As a result of America’s culpability, the crisis has given President Obama an unforeseen reason to wake up at 3 a.m.: It has allowed friends and foes to paint the U.S. as an economic villain (what’s Russian for collateralized debt obligation?), or to maximize political and economic leverage over Washington.

We’ve already seen this from France and Germany, who resisted U.S. calls for greater stimulus spending. Beijing also played this card by rebuking the U.S. for its rapidly rising debt, and then by calling for a global reserve currency that could replace the dollar.

More troubling than lost U.S. prestige is that economic crisis is often a harbinger of instability. In fact, over the past 100 days we’ve seen mass protests (Hungary, Greece, Latvia, the Czech Republic, Moldova, India), labor unrest (France, Ireland), political upheaval (Thailand), and rising crime and violence (Mexico).

So important foreign policy implications have infused President Obama’s intense focus on economic matters, a fact underscored by his insistence on receiving a daily economic intelligence briefing that details global trouble spots.

Faced with these serious, complex and interlocking challenges, it is no surprise President Obama has spent so much time and energy on the economy. But what has he done so far in response? And is it working?

• To help restore U.S. consumer confidence, in February the president signed into law a $787 billion economic stimulus plan, largely tax cuts and government spending. To address rising home foreclosures, in March the administration announced a plan to give lenders financial incentives to renegotiate troubled home mortgages.
• To address the collapse of the U.S. auto industry, the Obama economic team took a harder line on Detroit, forcing both General Motors and Chrysler to re-do their restructuring plans before receiving government bailout funds. Then it engineered the resignation of GM chief executive Richard Wagoner, and nudged Chrylser toward a merger with Italy’s Fiat.
• To address catastrophic problems in the U.S. financial system, in March Treasury Secretary Timothy Geithner announced a “Public-Private Investment Partnership” to create a market for the frightening amount of so-called toxic assets banks are holding on their books.
• The administration is also applying “stress tests” to see if banks can withstand severe economic problems before providing additional money to repair troubled balance sheets. (For a cogent analysis of the administration’s handling of the Wall Street mess, read this report from the Baseline Scenario blog.)
• Globally, the first 100 days were dominated by the G20 summit in London, where leaders of the world’s biggest economies agreed to give the International Monetary Fund a larger role in regulating the global economy, and $1 trillion to fight the crisis.

Is all this action working?

The simple answer is no. Or, at least, not yet. While, thankfully, the economy may no longer be in freefall, consumers are still spending less. Businesses are still laying people off. The U.S. unemployment rate — admittedly, a lagging indicator — is up to 8.1 percent, and 2.6 million people have lost their jobs the past four months. Credit is still hard to get, for companies and consumers. Real estate prices are still dropping. (If you’ve got the stomach, see this depressing data roundup from the economics blog Calculated Risk).

Of course, nobody expected these problems to be solved quickly. And if these first 100 days of  intensity and action are any indication, President Obama will keep doing what he believes is the right thing to do.

But we are a long way from puppies and sunshine.

So forget the 100-day framework. President Obama’s economic focus is likely to dominate the next 100 days as it has the first. And the next 100 after that, and the next 100 after that, and after that, and after that.

Only then — just maybe — will we be able to worry about other important matters of state. Like Bo, the First Family’s healthy new Portuguese Water Dog.

For more on the global economic crisis: