Martin Wolf on Obama

Martin Wolf is probably the most respected columnist with the Financial Times, which is the newspaper of choice for economists and policy people all over the world. Unlike the Wall Street Journal, it is lodged firmly in the reality-based community. Here is Wolf on Obama’s dilemma:

“An ambulance stops by the roadside to help a man suffering from a heart attack. After desperate measures, the patient survives. Brought into hospital, he then makes a protracted and partial recovery. Then, two years later, far from feeling grateful, he sues the paramedics and doctors. If it were not for their interference, he insists, he would be as good as new. As for the heart attack, it was a minor event. He would have been far better off if he had been left alone.

That is the situation in which Dr Barack Obama finds himself. A large part of the American public has long since forgotten the gravity of the financial heart attack that hit the US in the autumn of 2008. The Republicans have convinced many voters that the intervention by the Democrats, not the catastrophe George W.Bush bequeathed, explains the malaise. It is a propaganda coup.”

Wolf is right, of course, and reflects the bewilderment around the globe at the rise of the tea party with its bizzaro-alternative version of history. Wolf’s bottom line:

“Does President Obama deserve blame for this outcome? No and yes. No, because his treatment was right, in principle; yes, because it was too cautious, in practice.”

Like everybody else, he notes that the stability-restoring measures included the TARP, financial guarantees and “stress tests” on banking institutions, the fiscal stimulus, and the Fed’s actions. But while they brought about a recovery in output, this has not fed through yet to employment, and therein lies the dilemma. Wolf concludes that the response was not enough:

“The truth is not that policy was foolhardy and failed, but that it was too timid and so could not succeed…The president’s willingness to ask for too little was, it turns out, a huge strategic error….A lost decade seems quite likely. That would be a calamity for the US – and the world.”

Of course, the return of Republicans to power would only magnify this calamity.