Economic Panics -- An American Tradition

Spring break has arrived at WRA; the third marking period has ended and students have departed until the end of the month. With a few moments to contemplate, I have been thinking, as have many Americans, of the unpleasant state of the national economy.

From an economic perspective, things are pretty bad. And, particularly dispiriting, they seem to be getting worse; the future, in the view of many, looks gloomy. As one wag put it, “things will get worse before they get worse.” The current bad news coincides with some recently studied material in my AP US History class.

Just before we headed out on break, we got Woodrow Wilson elected in 1912 and prepared to look at the country’s studied neutrality followed by active involvement in World War I. A couple of weeks earlier however, in studying the last decade of the 19th century, the class examined an unfortunate economic phenomenon known as the Panic of 1893. Here’s how the AP text describes the situation: “in early 1893 a severe panic swept the nation, bringing five full years of depression…the economy sank lower and lower. In the industrial regions, factories closed, and thousands of men were thrown out of work.” In past years of teaching this material, the collective student attitude, I must admit, was one of substantial indifference. Now, as a slight (very slight) silver lining associated with the present downturn, students can at least see, first-hand, that the trajectory of free-enterprise capitalism isn’t always one-way and upward. This may provide a helpful reality injection to students (and others) used to seemingly endless good times.

Which of course is what, if we pay attention, history teaches us. Just a list of the most notable panics – the word of choice before being replaced by “recession” – would give us the panic of 1819, followed by 1837, 1857, 1873, the previously mentioned 1893, 1907, and then the BIG one, the Great Depression. And, there have been any number of economic downturns or recessions since the end of the Second World War. What insights, if any, can we glean from all this? Maybe only two: it’s nearly impossible to predict, with exactitude, when the next financial downturn will occur or how long it will last and, second, the present major recession will, ultimately, end, the economy will improve and then, at some point, decline again. These observations may seem pretty obvious and I suppose they are. They do provide me, however, with more comfort and grounding than dwelling on the details of such exotic concepts as credit default swaps, collateralized debt obligations, the increasingly discussed “uptick” rule, or Byzantine mark to market requirements.

Revving up the Economy -- Then and Now

OK, I have one last Lincoln administration-Obama administration connection to offer. My AP US History students and I have finished up studying the Civil War and Reconstruction. We’re moving on to the last three decades of the 19th century – the transformative era when the United States changed from a primarily rural agricultural economy to an industrial powerhouse.

As I watched the inaugural events last week, much political talk focused on the dismal shape of the current US economy. President Obama is pushing for quick passage of his nearly one trillion (!) dollar stimulus package. This proposal, likely to be passed by Congress sometime next month, would, it is hoped, jumpstart the ailing economy. Much of the money would go to public works projects of one sort or another – for example, new roads, bridges, and schools. The idea is to put people back to work on activities that provide long-term benefit to the country and its citizens. The downside, of course, is that the billions of dollars needed to fund these efforts have to be borrowed – drastically increasing an already huge federal government debt.

This gets me back, briefly and wistfully, to the 1860s. As a result of the Southern states’ secession, the war-time Congress had a considerably freer hand in passing legislation benefiting the national economy. These laws, among other things, raised the protective tariff, opened up the west to settlers in the Homestead Act, and created land grant universities specializing in agriculture and engineering. Perhaps most significant from a long-term perspective, Congress enacted the Pacific Railroad Act of 1862. Completed seven years later, the Union Pacific (from Omaha) and Central Pacific (from Sacramento) linked the country together and set the stage for America’s industrial takeoff.

So, will the current proposed Obama infrastructure effort have the same beneficial results? Well, of course we’ll have to wait and see. But, here’s one important (and not helpful to the current situation) distinction. With the transcontinental railroad, the government paid the companies through sales of federal lands (over thirty million acres were sold). The “stimulus” for extensive private development – the land – was already possessed by the government. Because the government was the seller, rather than borrower, the economy could move ahead without the burden of increasing mountains of federal debt. That’s considerably different from where we as a nation are now.

What do you think about the current economic condition of the country? And, if you were an advisor to the one-week-old Obama administration, what would you suggest? Hit the “comment” button and we will post your advice. Who knows – Obama has lots of smart folks working for him -- maybe they will read and implement your thoughts!

The Better Angels of our Nature

With just a little more than a week to go before President-elect Obama’s inauguration, talk continues on the comparisons between March 4, 1861 and January 20, 2009. We have heard for quite some time about Obama following Lincoln’s “Team of Rivals” selection approach for his cabinet. Now comes word that Obama will be sworn in on the Bible used at Lincoln’s inauguration nearly 150 years ago.

But, of course, there’s more. Both Lincoln and Obama hail from Illinois; both served in Congress for only a brief period of time before winning the Presidency; both were relatively young when Click on image to enlarge

elected - Lincoln was 51, Obama is 47. And, less well known is this remarkable American history connection:

Obama takes over as the nation’s 44th President less than three weeks before the bicentennial anniversary of the Great Emancipator’s birth (February 12, 1809).

What will resonate from Obama’s Inaugural Address? His reputation for verbal eloquence and inspirational rhetoric already is well deserved. As he ponders theme, content, phraseology and presentation, the president-elect would do well to emulate his eminent predecessor. Lincoln addressed a divided country on that blustery Monday in March. Seven states had already seceded from the Union; the Civil War would begin with the attack on Fort Sumter the following month. Lincoln’s most memorable phrase from the First Inaugural fell on deaf ears, at least at the time. Pleading for reconciliation short of war, the President asserted: “the mystic chords of memory…will yet swell the chorus of the Union, when again touched, as surely they will be, by the better angels of our nature.”

President-elect Obama will surely need the better (and smarter) angels of our nature from January 20th onward. But the United States has been blessed, repeatedly, by right leadership at the right time – think Washington, Lincoln, Franklin Roosevelt, Kennedy during the Cuban Missile Crisis, Reagan during the dying days of Communism in Eastern Europe. And, as we know, in the journey we call America, the government remains, as Lincoln himself noted, of the people, for the people, and by the people. The people have endorsed Obama at the polls -- now, looking forward, may our collective better angels prevail for him and for the nation.

Team of Rivals or the Hundred Days?

Much time has passed since our last posting. The students from Caterham, in Surrey England, came to Reserve for their annual two-week stay at the end of October. The seemingly never-ending election actually did conclude – decisively – on November 4.

Since the election, the political buzz has centered on President-elect Obama’s cabinet selections. The emerging theme, encouraged by Obama and his closest aides, focuses on his appointment of a “team of rivals” to key positions in his administration. The term comes, of course, from the hit work of history with that exact title, written by Doris Kearns Goodwin. Goodwin’s book examines Lincoln’s appointment of William Seward as Secretary of State, Salmon Chase as Secretary of Treasury, and Edward Bates to Attorney General. All of these politicians had contested the 1860 Republican Party presidential nomination – all thought they were more qualified than the country-lawyer from Illinois.

Similarly, Obama has appointed Hillary Rodham Clinton as Secretary of State (by the way, how about this for historical irony – Obama is from Illinois, as was Lincoln; Clinton is from New York, as was Seward). As well, former presidential contender Bill Richardson has been named to head up the Commerce Department and, earlier, another candidate, Joe Biden, was tapped by Obama as his running mate.

So, there’s much to be said for the “team of rivals” idea. But, given the economic and political problems faced by the country and the incoming administration, a more apt analogy, I think, is to Franklin Roosevelt’s first 100 days in office. Roosevelt took over as President on March 4, 1933, four months after defeating the Republican incumbent, Herbert Hoover. FDR faced the worst economic crisis ever seen in the country – the Great Depression. Largely because of the lengthy delay from Roosevelt’s election to inauguration, the nation enacted for future presidencies the 20th Amendment, moving the inauguration date up from March 4th to January 20th. Obama’s challenges will be manifold – many will center on the severe current economic conditions: over a half million jobs lost in November, the “big three” Detroit automakers teetering on the edge of bankruptcy, the ongoing crisis in the housing industry.

Roosevelt responded to the country’s economic woes in the spring of 1933 with a raft of government sponsored programs – a four-day “bank holiday” immediately after his inauguration followed by creation of “alphabet soup” agencies such as the CCC, the PWA, the FDIC, and the TVA. Some of these programs worked; some did not. But in Roosevelt’s view, the key point was psychological – to show the country that the government was aware of and attempting to resolve the economic crisis.

Will Obama embark on a similar “100 Days” approach? Time will tell. And, of course, in some ways the country’s challenges in 2008 are more comprehensive than 75 years ago. Back then, the foreign policy problems of Nazi Germany and imperial Japan were on the horizon but not immediate. Now, the United States is involved in two ongoing wars in Iraq and Afghanistan as well as embroiled in crises with Iran, North Korea, and the unending Israeli-Palestinian standoff.

So...imagine yourself as a key player in the incoming Obama administration. What are your priorities going to be? Will they center on the domestic economy or foreign policy? What should be done quickly and what do you think will take more time? Here’s one prediction: the Guantanamo Bay terrorism detention camp will be announced for closure (note: that’s different than actually closed), within days of the inauguration. What do you think will happen in the first weeks of the Obama presidency? Click on the “comment” button at the bottom of the blog and we’ll post your response.

Good Grief--a Tie???

One of the most fascinating and contentious presidential elections in modern memory comes to an end in less than three weeks. The polling remains relatively close; the candidates remain combative. The magic number in the all-important Electoral College is 270. The last two elections have been extremely close, both in the popular vote and the electoral vote. George Bush, as we know, lost the popular vote to then Vice President Al Gore but won the electoral vote and thus the presidency, by a margin of 272 to 266. Four years ago President Bush narrowly won the popular vote over Senator John Kerry and increased his winning total slightly in the Electoral College – the electoral vote was 286 to 252 in favor of Bush.

Notice anything interesting about the Electoral College numbers? That’s right; they add up to 538, an even number, thus allowing, at least hypothetically, for the possibility of a 269-269 tie in the electoral vote. After much hand wringing and gnashing of teeth, the question would rapidly become: Now what? For the answer, we’re forced into the deep recesses of Article II of the Constitution. To begin, we can say this – the new President will be chosen by the House of Representatives. In fact, the newly elected House (as of November 4), would make the call. But, here’s where it gets really arcane. According to Article II, “in choosing the President, the votes shall be taken by States, the representation from each state having one vote.” This means, among other things, that the 53 representatives from California would get together and decide between Senator McCain and Senator Obama. The one representative from Wyoming gets together with herself and similarly decides. California and Wyoming’s votes are then counted equally!

Still with me? OK, good. Let’s take a state like Ohio, with an even number (18) of representatives. If they divide their votes 9-9, Ohio can’t cast a vote and would be forced to pass. Other states with an even number of representatives may find themselves in the same predicament. Let’s move ahead with the Constitutional language: “a majority of all the states shall be necessary to a choice”. With 50 states, that means a candidate would need 26 states to secure the election. To illustrate, suppose this occurs: McCain wins 25 states, Obama gets 21, and four deadlock. McCain has not won. The House would need to vote again (and possibly again and again) until either McCain or Obama got to 26.

How likely to occur is the above-described scenario? Not very, but certainly possible. Here’s an example: McCain wins all the Bush states from 2004 except Iowa (7 electoral votes), New Mexico (5), and Nevada (also 5). Obama wins all the Kerry states plus the three just mentioned. That’s 269 to 269. And there are several other combinations that lead to the same result. Politicians being politicians, they will tend to vote for the candidate of their party. That favors Obama; the House is presently controlled by the Democrats and indications are they will increase their majority in next month’s election. But let’s concoct one or two more political fantasies. Suppose there’s not only an Electoral College tie but a McCain victory in the popular vote. Would that result pressure Obama leaning Democrats to vote the other way? We’ll probably never know because an electoral tie remains highly unlikely. But, to come close to putting a cap on this, how many highly unlikely events have we seen already in this election? And, for those metaphysically politically wonky, think about this. How does the 23rd Amendment, giving three electoral votes to Washington, D.C., mesh with Article II? Does the one D.C. delegate to the House of Representatives have a vote in the event of a tie? Or not? That’s enough for now – I’m giving myself a headache. Congratulations on your perseverance if you have made it all the way here to the finish line.

The View from Caterham

This is my first contribution to our joint blog, and perhaps an appropriate place to start my part of this venture is with a few comments on Anglo-American relations. The ‘special relationship’ is certainly very much alive and well as far as Caterham and the WRA are concerned, and the next chapter in our ongoing exchange begins in just four weeks time. Those of us who are coming over met last week, and we are, understandably, very excited. Of course it’s even better this time because we have an American Presidential election in full swing; our only regret is that we have to get back just before November 4th and will miss the voting and the result.

You’d expect us to be excited because we’re all students of American Politics and we have a real academic interest in what’s going on the other side of the pond. You might be surprised, though, by how much interest there is among our general public in your election. Until very recently when it’s been dwarfed by the monumental upheaval in the financial markets, the US election has regularly been making headlines. I don’t think that’s just because America is so important in the world, or because the next President can claim with some justification to be a ‘World Leader’; it’s largely a reflection of the fact that your politics is just much more interesting than ours. Those of you who know me are well aware that I’m no great fan of Gordon Brown, our beleaguered PM, but it has been excruciating to watch him in recent weeks. He’s like an exhausted boxer, clinging on for dear life in the vain hope that he might survive until the final bell without being knocked out. His goal, of course, is 2010, when he will have to call an election, although I have no idea what he thinks will happen by then to improve his chances of a victory in our next general election. He cuts a sad shambling figure, overwhelmed by circumstances, undermined from within by his colleagues and increasingly incapable of doing anything to stem the tide flowing against him. In that sense he reminds me very much of George W Bush. They both have a zombie-like appearance at the moment; they are in charge, but only in name; they have lost the confidence of those around them and the general public, and the spotlight in which they once revelled has long since passed them by. The big difference is that you don’t have to focus on George Bush; he can to some extent suffer in silence; the spotlight really has moved on to Barack and John (and Sarah!). We have another two years of agony before someone else can have a go. We could, of course, replace the unelected Brown, or at least the Labour Party could, but don’t hold your breath, no one really wants the job. The big-hitters are keeping their powder dry until after the next election because they know Labour has no chance of winning in 2010 whoever is leader. If he is replaced it will be because he’s plumbed new depths in incompetence and has become not just a failure but a laughing-stock. Over there, you know from the start that the worst you can have with Obama or McCain is eight years, and if they really mess up you can kick them out after four years without having to change the Party ruling Congress. That’s a real advantage that we don’t have.

So- it’s at least in part to take our minds of our own suffering that we are revelling in your race at the moment. It’s revealing that we stand for office, but you run for it; there’s just so much more pace about US elections. Sarah Palin has appeared in a whirlwind from nowhere; that could never happen over here. If McCain loses she will presumably disappear again into relative obscurity (the career prospects of failed Vice-Presidential candidates is pretty grim; when you’re bored one evening see how many of them you can name…). Win or lose, though, she’s certainly interesting! Contrast her with Harriet Harman, Gordon Brown’s Deputy, or Jacqui Smith, who holds one of the top three jobs in UK Politics. You’ve probably never heard of them. Don’t worry, you haven’t missed much!

I recently played some clips of US & UK Party conferences to my students. The American version resembles a soccer play-off match; raucous, exciting, full of passion and commitment. Our Party Conferences resemble a County Cricket match; polite, restrained, well organised and guaranteed to put even the faithful to sleep. There’s probably more quality on display in our Conferences (who can forget Jenna Bush’s extraordinary display in 2004 at the Republican Convention?). But who cares? They bore the pants off us. Our elections are marked by daily Press Conferences when the same issues are discussed ad nauseam. Yours are punctuated by outrageous revelations and personal attacks that would make Rupert Murdoch blush. And, of course, yours really matter; at least this one does. For once we know that it will make a difference who wins. If McCain wins he will have little chance of getting much done at home, with hostile majorities in both Houses of Congress. He will focus on foreign policy and the war on terror; he’ll need to do something abroad to make his mark. Obama will be under enormous pressure to get out of Iraq quickly, and to do something useful at home. Interestingly, neither Obama nor McCain seems to have a coherent strategy for dealing with the Credit Crunch and the mountain of debt. The debates will be fascinating watching when this topic comes up!

So: who’s going to win? I’ve been teaching ever since I can remember that the polls a week after the Party Conventions accurately predict the winner. On that basis it’s McCain, just. I wonder though. There are dark rumours here of worse news to come on Sarah Palin. Her approval rating has plunged from +15 to +1 in just two weeks. Will she yet prove to be a liability rather than an asset to McCain? But when it comes to the crunch, will the South really vote for Obama in sufficient numbers to give him the crucial States he needs there? I have never been less sure of the outcome. If I were a betting man I’d be keeping my wallet tightly closed on this one. I hope Obama wins. Not because I’m a Democrat, or even because I think he’ll be a better President, but because America needs Obama to improve its image in a hostile world. It’ll be much harder for the anti-American propagandists to rubbish Obama than McCain. They can portray McCain as more of the same, but they can’t do that with Obama. I’m afraid, though, that while my heart says Obama, my head says McCain. Just. But I’m really not confident. It is exciting, though, isn’t it? If it all gets too much for you and you need to calm down, spare a thought for us, with two more years of Gordon Brown, and be glad you’re American!

Posted by Jim Bunting for Tom Murphy.

CHANGE? -- WHAT CHANGE?

Throughout this lengthy presidential campaign, the word most frequently used by the various candidates almost certainly is “change.” Barack Obama soared onto the political scene in January with “change we can believe in.” Thereafter, all the other Democratic candidates, including Hillary Clinton, rushed to wrap themselves in the change mantle.

John McCain, after running initially on national security and experience, has pivoted of late. Now, he and Governor Palin are the twin mavericks, offering reform and “real change” in Washington. The battle, for the next seven weeks, likely will focus on which campaign’s “change” message most resonates with the public.

But, despite the constant change mantra, what hasn’t changed is the shape of the American electorate. In fact, if anything, the last few weeks have produced both a Republican bounce and an increasingly ossified electoral battleground. Taking my data from the hyper-statistical http://www.fivethirtyeight.com/, here’s where things stand. If the election were held right now, in mid-September, Obama would win every state Senator Kerry carried in 2004. Similarly, McCain leads in all but two of the states President Bush secured in the last election. The Bush states in which Obama leads, Iowa, (fairly comfortably) and New Mexico, (narrowly) are two of only three states – New Hampshire is the other – that changed party allegiance from the 2000 election to 2004.


So, what does all of this mean? With the crucial caveat that many states remain close, the bottom line is this: as of now, we could have a situation where 47 states (and the District of Columbia) vote exactly the same way in three consecutive elections. Subject to confirmation through some research (note to my dear readers: help me out here and see what you find), this development -- if it does occur -- is quite astonishing and probably unheard of. A reasonable expectation, I think, is for five or six states to switch parties from one election to the next. Apparently the newness of the candidates (the first time in over half a century when not one of the four presidential and vice presidential contenders isn’t an incumbent), is making scant difference in the shape of the electoral map. Typical blue states are either solidly or slightly for the Democratic ticket and, with the two minor exceptions noted above, all of the red states look likely to vote Republican.

By the way, the scenario I have described results in McCain winning with 274 electoral votes; Obama receives 264. Stay tuned.