Wall Street, Geithner, and Defunct Economics Threaten Obama's Leadership

04/24/2009 05:12 am ET | Updated May 25, 2011
  • Ann Pettifor Director of PRIME Policy Research in Macroeconomics

President Obama is in danger of making the same mistake Nelson Mandela made. Like Mandela he is abrogating power to shape a vision for the recovery of the US economy, and handing over the baton of leadership to Wall St. and lesser mortals.

Arianna is right, these mortals know nothing of leadership. They are the same economists and financiers applying the same bankrupt policies that got us into this mess in the first place.

They know only the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish. (Franklin D. Roosevelt, 1933 Inaugural Speech.)

Like Mandela, Obama is a lawyer in awe, it appears, of economists. He is surrounded by members of the profession who are, we would contend, the slaves of a defunct economics. Defunct, but dangerously ingrained, since these men are clearly experiencing the most intense difficulty escaping from old ideas and policies, and developing new ones.

Nevertheless they have Obama's full support. This is because, like Mandela he is a man of integrity, and so humbles himself before people he believes know more than he does about how the system works.

Only they don't.

He has put his trust in the ability of Larry Summers, Tim Geithner and the more arms-length Robert Rubin to grapple with the dizzying complexity of finance and economics.

This trust is profoundly misplaced. As misplaced as the trust once placed in Mr. Alan Greenspan, a man until recently well-nigh worshiped by Larry Summers, Tim Geithner and Robert Rubin. A man held in awe by politicians, economists and by the whole of Wall St.

Senator Tom Harkin, in an interview in October, 2008 said of Greenspan that "he had a way of speaking that made you think he knew exactly what he was talking about at all times.... He was able to say things in a way that made people not want to question him on anything, like he knew it all. He was the Oracle, and who were you to question him?"

Who indeed? Senator Harkin was a representative of the people - and of all people he should have questioned Greenspan's dogmatic certainties that proved so cataclysmic for the global economy.

Arthur Levitt Jr., a former chairman of the Securities and Exchange Commission, says that he "always felt that the titans of our legislature didn't want to reveal their own inability to understand some of the concepts that Mr. Greenspan was setting forth....I don't recall anyone ever saying, "What do you mean by that, Alan?"

And so, for want of a simple question, Mr. Alan Greenspan was able to blind the 'titans of our legislature' with the 'science' of economics. He lulled politicians into complacency so that they ignored the gargantuan risk that grew into the monster that is now AIG. He did this by arguing - cogently - that "the general growth in large institutions has occurred in the context of an underlying structure of markets in which many of the larger risks are dramatically - I should say, fully - hedged."

Fully hedged? Tell that to US taxpayers committing $170 billion of their own wealth and that of future generations to bailing out the bonus-greedy executives of AIG.

The world is awash with misguided Greenspans and their acolytes. That much we now know. What Wall St. and Geithner will never deliver is a vision, that is not self-seeking. One for a new, more equal, socially just and environmentally sustainable world.

When Robert Rubin was Treasury Secretary he refused to regulate derivatives because, he said, "all of the forces in the system were arrayed against it. The industry certainly didn't' want any increase (in regulation)...There was no potential for mobilizing public opinion."

In other words, Mr. Rubin did not have the courage to take on these forces and exercise leadership. The only thing he was capable of was 'followership.'

President Obama, I believe, is different. He has a vision of a more socially just world, and the courage to mobilise society behind it. He understands the threat of climate change. He has the mettle of a true leader. The people of the United States, and of the world, need him to assert that visionary leadership over the economists surrounding, and hurting him.

To do so he will need to look to others for practical day-to-day advice on the economy. In my next post I will respectfully suggest a list of such experts that may support his vision with more sound, just, and sustainable economics.