I believe President Elect Barack Obama will govern as a centrist. He will have no choice, given the challenges the country is facing and the current economic and fiscal backdrop. He'd like to be bold, with big ideas and big changes. But economists say he will face a possible $750 billion budget deficit next year, as well as a number of complicated problems to solve.
Our healthcare system is broken, our education is sub-optimal (to be charitable), our energy policy is a sham, we are facing an economic decline of massive magnitude and declining equity and real estate markets, we have two wars with no end in sight and a number of pressing national security issues to boot. The new President will also inherit unprecedented government ownership of banks, insurance companies and perhaps other industries, and a Federal Reserve with not only a bigger balance sheet than any time in history but also a broadened mandate with almost unrivaled power.
Amid the depth of these problems, his hands will be tied and he will have to be more fiscally conservative than he would have liked. Warren Buffett, Paul Volcker and Larry Summers, his chief economic advisors, are not proponents of extreme measures. With the economy in the ditch, the Democratic Congress will not be able to do whatever it wants either. Some people cite FDR as the model a President Obama should follow, but that model won't work either. The evidence suggests the New Deal interventions did not end the Great Depression and may have exacerbated it. In 1939, FDR's seventh year as President, unemployment was still at 17%, and growth was dismal.
Therefore, tax increases will have to wait. Major initiatives and campaign promises are simply unaffordable at the present moment. And the fiscal stimulus package will have to be geared towards homeowners and job creation.
Barack Obama is faced with very high expectations. The bar is set so high, it may not be realistic. The hopes of so many in the face of very challenging, inimical times, and profound problems we should have solved a long time ago but didn't. There is only a small likelihood that any human being could actually deliver a performance commensurate with those expectations.
When the great Roman General Publius Cornelius Scipio returned to Rome from the Second Punic Wars after beating Hannibal, he had won the greatest military victory any Roman citizen has ever seen at that time. He was hailed as the greatest general since Alexander the Great. The multitudes lined the streets to greet him, throwing laurels, and he was presented with unprecedented honors by the Roman Senate. As he was riding into town, Scipio had an aide in his stagecoach. The aide's sole job was to sit there and repeatedly chant: "General, you are only human." President Elect Obama might want to heed the wisdom of the great Scipio.
Alan Schram is the Managing Partner of Wellcap Partners, a Los Angeles based investment firm.