If I Were Obama I Would…

Blog, November 2008

Obama has just been elected and we are waiting for his first policy announcements. The world is very excited by his victory but I have grave doubts. Sure he makes nice speeches, but I find them utterly vacuous. I am not saying Bush, Mc Cane or Hillary Clinton are any better, I think they are all equally hopeless.

Anyway, the purpose of this blog is to say what I would do. The first priority is of course the economy, but I will address Climate Change, the Middle East Problem and other assorted issues including healthcare and education as well.

10 trillion dollars of household wealth has been destroyed by the near 50% fall in the Stock Market and the 17% fall in house prices. Banks are not lending, consumers have stopped spending and it’s looking utterly horrible.

At the heart of the problem is the housing market, and this must be addressed first.

Many American residential mortgages are non-recourse. That means they are secured only on the property, and in the event of default the bank has no right to pursue the borrower for the difference between the the foreclosure price and the mortgage amount. As a result, when the property market falls, and consumers fall into negative equity, they can simply mail back the keys and look to move to a cheaper place despite being capable of servicing the mortgage. Each foreclosure then adds to negative sentiment and pushes prices still lower.

This vicious circle must be stopped and so my first legislation is to remove the non-recourse option from all existing and future contracts. A controversial piece of legislation, but a vital one. Without this the housing crisis will probably drag on and on.

In addition the penalty free thirty year fixed rate mortgages that are most common in the US market are enormously difficult for counterparties like Fannie Mae and Freddie Mac to hedge. The negative interest rate gamma positions force them to charge a premium and expose them to a great deal of risk. Also, the effectiveness of monetary policy is curtailed by the widespread adoption of fixed rate mortgages.

Fannie and Freddie will be prevented from offering fixed rate no penalty mortgages in the future. In fact Fannie and Freddie will only offer variable rate mortgages with a maximum two year fix option. While we are on housing, lets squeeze in the obvious steps of abolishing mortgage tax relief.

The next issue is the size of the stimulus package and the form it will take.

China announced a stimulus package of 15% of GDP over a two year period. That would equate to about two trillion dollars if applied to the US economy so I will go for that amount. The money would be entirely used to build Nuclear Power Stations - at least 400 of them. This is enough power to end the use of fossil fuels in US electricity production, and it should produce a surplus capable of enabling at least the beginning of the switch to electric or hydrogen cars. The ultimate goal of this massive nuclear investment is to bring the marginal price of nuclear electricity so low it can eventually be used to end the use of fossil fuel industrial heating.

The two trillion dollars would be placed inside a government owned company that would own and operate the power stations. It would be expected to make a profit, especially given the economics of mass production, and would be an asset to future generations rather than a financial burden. Hopefully this company would become the world leader in nuclear energy and would go on to profitable projects abroad as well. Just as America has led the computer revolution this investment should enable America to dominate nuclear energy. The potential market is mind boggling - one day virtually the entire whole world will be 100% nuclear.

As well as meeting all CO2 targets and transforming the Climate Change problem the switch to electric cars would provide an enormous stimulus to the automobile sector. American could dominate car manufacture as well.

In order to ensure the new nuclear and electric car industries do not fall prey to union inefficiencies as GM & AA etc did, I would introduce legislation banning the right to strike in the US. If the workers don't like the wages they will have to leave, it's as simple as that. It sounds radical for a democrat but in truth only a tiny proportion of workers in the USA belong to unions anyway and those that do are concentrated in industries that are consequently on the edge of bankruptcy.

In addition to solving climate change and stimulating the economy, the famous American addiction to Oil would be utterly killed. America is forced to intervene in the Middle East in order to ensure the stability of its oil supply. This would end and America could disengage from Middle Easter politics and leave the Arabs to go back to driving camels once their oil becomes worthless.

Talking Foreign policy, Israel would be told that in it must withdraw inside the borders laid out by the old Camp David Agreement or face UN sanctions. Dealing with the issue of rocket attacks a formula would be developed and published allowing Israel to drop 2x tonnes of munitions on any neighbour in response to x tonnes of incoming munitions (of course Israel's targeting would be that much more precise and that much more deadly). America should also issue an apology to Iran for supporting Saddam Hussein during the war between them. Iran should give up nuclear weapons in return for a security guarantee and Israel doing the same. If Israel refuses she should face the same problems Saddam did. Abu Ghraib would be closed and all the inmates pardoned. Also Russia deserves an apology for lack of respect, complaints and US military support to Georgia designed to weaken her sphere of influence etc. The policy of promoting democracy would be utterly abandoned, and China would be embraced. Liberal values and humane treatment of citizens would be promoted, but without regard for a democratic or authoritarian political system. I would also end the embargo on Cuba and recognise Northern Cyprus. The Afro American vote is just about big enough to take on the Jews, Cubans and Greeks!

Universal health care (paid for by taxes on private policies) is of course a top priority. The US spends a higher proportion of GDP on healthcare than any other nation and 30% of the public is still uninsured. The state needs a central role in heath care to contain costs and it must be prepared to grasp that nasty nettle called rationing (eg no free heart transplants). Degrees in Medicine would ideally be free not vastly expensive, allowing doctors to earn less. US malpractice suits need to be dramatically curtailed beginning with medical malpractice.

Vouchers in schools (go crazy and allow top ups plus the freedom to select pupils in any way) are a vital priority given the parlous state of the US education system. The US must set itself the task of topping international league tables of academic performance. It is interesting that while private sector involvement in healthcare needs to be cut, in education it needs to be expanded. Why? Healthcare is suffering from bloated costs, education from lack of innovation. The strength of the private sector is primarily innovation.

Defence Spending in the US is clearly far too high - in 2005 almost as much as the rest of the world's defence spending combined. Lets reduce it by 60%.

Gasoline Tax - currently US retail gasoline sells at $1.60 per gallon. Higher gas prices raise government revenue and incentivise consumes to look for more efficient cars. Lets increase the price of Gas across to US to $5 a gallon which is still a below the average European price.

Reducing Tax complexity is another obvious target. A flat tax rate should be possible.

The US has a sort of self interested and isolationist feel about it. Eg it needs to engage with the world by ditching protective pork barrel political positions in world trade disputes. Whist most of the world adopted GSM, America predictably didn't, it should be at the forefront of global standards and trade. In the same way the US stands almost alone in not having adopted the metric standard. Lets ditch this old fashioned attitude and fully adopt the metric even with regards to road signs. The $1 bill, the all green money point to a stagnant legacy of traditionalism and gridlock. America needs to embrace change. Hell I would even change the voltage from 110 to 220 volts just to shake up that small town mindset that infects too many obese flat-earthers living in the mid West.

I hope you will agree that almost everything I have listed in this blog is obvious, yet, I doubt Obama will do any of it. Democracy is deeply depressing.