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Lame ducks

October 16th, 2008

I wrote this is a guest post for the News.com blog: not sure if they’ve run it yet.

The US elections, now only a few weeks away will be held in an atmosphere of economic crisis unparalleled since 1932. Paradoxically, however, it can be safely predicted that the immediate impact will be minimal, and almost certainly negative. This is because, under rules originating the pre-railroad era, the new President and Congress are allowed more than two months to make their way to Washington. In the meantime, the Bush Administration will carry on in ‘lame-duck’ mode. Back in 1933, Roosevelt had to wait until March to take office, and the outgoing Congress responded by bringing the inauguration of new presidents forward, but only to 20 January.

The Bush Administration is likely to be even more ineffectual in lame duck mode than it has been so far, and unlikely to consult in any positive way with its elected replacement, particularly if, as seems likely, Obama and the Congressional Democrats are victorious. So, US leadership is likely to be absent until early next year, by which time the situation will certainly have developed substantially, though it is hard to predict how.

Neither Obama nor McCain has any coherent plan to deal with the crisis. This is scarcely a major criticism; even those who anticipated the crisis in broad terms have been surprised by the speed with which it has developed, and even the most knowledgeable financial experts are making it up as they go along.

Still, it is clear that McCain has no real interest or expertise in economic matters, and his economic advisers have long since shredded their credibility. A McCain victory, with the associated prospect of a Palin presidency, would raise a serious risk of full-scale panic on global markets

The challenges for an Obama administration will be huge. Although there is reason to hope that the immediate danger of collapse in financial markets has been staved off by partial nationalisation, the US will certainly be deep in recession by January. With national debt already topping $10 trillion and interest rates close to zero, the capacity for fiscal and monetary stimulus is limited. Quite possibly, emergency nationalisation will have to be extended beyond the financial sector to rescue firms like Ford and General Motors which are, in the current context, too big to fail.

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  1. Joseph Clark
    October 16th, 2008 at 16:00 | #1

    Is there any problem that can’t be solved with nationalisation?

  2. rog
    October 16th, 2008 at 16:50 | #2

    “The challenges for an Obama administration will be huge.”

    They will be even bigger if they nationalise the car industry (why not sell it to Tata?)

    With each “crisis” the concentration of power in Washington grows exponentially – to date there is no reason to believe that financial collapse has been averted by govt policy

  3. Nick K
    October 16th, 2008 at 17:35 | #3

    Rog, agree that there is no reason to believe governments would do better at averting these financial crises.

    As has been debated on this blog, there were policies in the US like the Community Reinvestment Act designed to pressure banks to lend more money to low-income groups and those with poor credit history.

    To what extent policies like the CRA contributed to the current problems in the US may be debatable. But it still begs the question. If this is the kind of interference in the market that politicians and governments like, why would they be trusted to run the entire banking industry?

    The problem is that whenever you have governments controlling any service or resource, there is invariably political pressure to direct more resources to less efficient but politically popular causes.

  4. Smiley
    October 16th, 2008 at 22:06 | #4

    So Nick K, if the capitalist system is so efficient (as exemplified by the US), why have many of the manufacturing jobs been exported out of the US into what is a Communist nation? Let me guess… totalitarianism is more efficient.

    CRA or not the US of A was never going to support itself on “service industry” jobs alone. Without the sub-prime fiasco this meltdown would have just happened sooner. All you have to do is type “deflation” and “2003″ into your search engine of choice and you can read all about it.

    One might think that it was just a ploy to get someone to the end of their second term.

  5. TerjeP
    October 17th, 2008 at 01:44 | #5

    http://www.fool.com/investing/general/2008/10/16/stocks-only-the-government-could-love.aspx

    While we were all arguing about — and distracted by — the government’s $700 billion-plus bailout bill, another industry was getting its own handout. General Motors (NYSE: GM), Ford (NYSE: F), and Chrysler’s $25 billion low-interest loan from the Department of Energy was funded in Congress with little fanfare.

  6. R Dippelsman
    October 17th, 2008 at 06:07 | #6

    The problem of the US system is not just the delayed timing required by the 20th amendment and obsolete transport concerns, but the number of positions to be filled.

    There is no shadow cabinet; there are thousands of political appointees, many having to be approved by the Senate.

    Even if President Obama has his top tier ready to go in January, there will be thousands of Bush political appointees to be replaced at lower levels. So, the period of incomplete effectiveness may linger even longer.

    Fortunately, Obama has had a transition team working for some months, although decisions and job offers will have to wait till after the election. (McCain is less weell-prepared, and he presumably would also want to get rid of many of the people tarnished by being in the Bush adminstration.)

    The Australian/Westminster system of a more or less professional and continuous public service are surely more suitable for dealing with crises.

  7. snuh
    October 17th, 2008 at 06:26 | #7

    bush has been a lame duck president for at least 6 months, possibly longer. maybe you could date it to when maliki agreed with obama’s policy on withdrawing troops from iraq.

    in any event, the point is that what america needs is a parliamentary system, so that this nightmare could have been ended in 2006 at the very latest.

  8. Salient Green
    October 17th, 2008 at 07:56 | #8

    What a crackup! The one thing that would save the US, that is to stop opening containers from China and start doing some real work making the stuff themselves, they can’t do because they owe China for their financial existence.

  9. Ikonoclast
    October 17th, 2008 at 23:19 | #9

    In the great tradition of cricket, I think Pres. Bush’s two terms should be called the “Double Diamond Lame Duck” presidencies.

    In cricket, to be run out for a duck is to get a diamond duck. To be run out in both innings of match would be a double diamond duck. Despite, some flourishing air swings in his first term, I think we can safely say Bush never scored a real run in two terms.

    Technically though, I have to admit his performance smacked more of “trod on own wicket” than anything else.

  10. Michael of Summer Hill
    October 18th, 2008 at 10:12 | #10

    John, the root cause of the ailing US economy is not the result of one big bad mistake but a long string of failures attributed to neo-liberal conservatism and their crappy wright-wing politics for which the current lame duck President and the Republican Hawks (including McCain) are responsible for.

  11. Bingo Bango Boingo
    October 19th, 2008 at 14:28 | #11

    “In cricket, to be run out for a duck is to get a diamond duck.”

    No. Although it is kind of a fringe term, in common usage a diamond duck is when a batsman is dismissed without having faced a ball. For obvious reasons this will usually be run out, but in theory the batsman could get a diamond duck by being timed out, out handling the ball, or out for obstructing the field. Here endeth the lesson.

    BBB

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