What's Wrong with America: Exhibit A

Perfect evidence to demonstrate our government's inability to deal constructively with domestic policy:

Four months ago, it appeared all but certain that the White House and Democrats in Congress would succeed in overhauling the student loan business and ending government subsidies to private lenders.

President Obama called the idea a “no-brainer” last fall, predicting it would take billions of dollars from the profits of private lenders and give it directly to students, and many colleges were already moving to get loans directly from the federal government in anticipation of the next move by Congress. But an aggressive lobbying campaign by the nation’s biggest student lenders has now put one of the White House’s signature plans in peril, with lenders using sit-downs with lawmakers, town-hall-style meetings and petition drives to plead their case and stay in business.

As it stands, private lenders serve as "middle men" between the government and students to provide loans. The private lenders are subsidized by taxpayers, but if a borrower defaults, the government still picks up the tab. As the Times observes, "Private lenders get a cut of the federally backed loans that they originate and service, with little risk of their own." So what's the point of privatized, subsidized middle men if they run no risk of defaults? It's a lose-lose for the taxpayer. Good question.

Unsurprisingly, private lenders fighting this legislation, like Sallie Mae, are describing the plan as a "government takeover." This is deeply ironic of course, because, again, the government already has taken over the risk part of the student loan market, they just left the profit part to private lenders. This happened when Congress wanted to ensure access to student loans to those might not otherwise be able to qualify; in doing so, they guaranteed to cover any losses at the hands of private lenders.

If this sounds vaguely familiar the housing crisis, it's because an analogous (though not identical), story took place. The government wanted to encourage people to buy homes, and risky loans from Fannie Mae were guaranteed by the taxpayer. They weren't guaranteed by the taxpayer in the case of completely by private lenders like Citi and Bank of America, but alas, their losses were guaranteed by the taxpayer as well. It seems like a good way to solve this issue, whether in student loans or housing is fairly simple: if we're going to socialize risk, let's socialize profit too. And if we're going to privatize profit, privatize the risk also. (In the health sector, a different story is taking place, but on the fundamental question of efficiency opponents speak of a similar "government takeover.")

So why is news of a lobbying effort evidence of what's wrong with America? Well if it's not self-evident, let me explain: We have a political system that seems to be incapable of making good public policy. Republican politicians fuel anti-government fervor in their rhetoric and then come to Washington and proceed to subsidize and protect the interests of a few corporations that are rich enough to buy protection through gigantic lobbying efforts in the name of "limited government." What a load of claptrap. As far as Congress goes, the entire notion of limited government is mostly non-existant. Instead we simply have big government that subsidizes powerful industries instead of ordinary people. Hopefully, the Senate will pass student loan reform, make the system more efficient, and consequently prove me wrong. But it must first defeat the lobbying efforts of taxpayer subsidized middle men.

Sometimes a Little Populism is a Good Thing

Who is Barack Obama? This seems to be a question that animates political pundits more than your average president. I don't think there were as many people spending time trying to capture the "essence" of George Bush or even Bill Clinton, for that matter. And understandably so. Barack Obama, by way of his personal story and personality, perhaps demands more scrutiny. Is he a centrist? Is he Stalin plus Mao multiplied by Castro? Is he just a pragmatist? Or maybe just something in between?

Obama happens to possess many traits that (like his own lineage) live on the boundary between two subtle, but crucially different, worlds. He is incredibly self-confident, comfortable in his "own skin," a trait which his opponents see simply as arrogance. Similarly, he has a much talked about "inner calm" and coolness, which both supporters and opponents misinterpret as aloofness. And finally, he is incredibly cautious. He takes things slowly (witness the year it took to put a forth a year-long review of Don't Ask Don't Tell). There's more to this caution: not only does he take things slowly, but when he does take on an issue, he does so incredibly judiciously. He plays it safe. He's not around to ruffle feathers. He is an incrementalist.

It is this particular aspect of Obama's leadership and rhetoric which conservatives like Andrew Sullivan find so appealing and prompts an author like Sam Tanenhaus to describe Obama as a "conservative" president. He is conservative in the sense that he seeks to strengthen and work within existing institutions (see: private insurance market) instead of tearing them down and beginning anew. He is in the business of accommodating, not revolutionizing. (For the best investigation on this topic, see Ryan Lizza's New Yorker article, which was all but forgotten in light of the silly cover cartoon controversy).

But here's the catch: Obama's accommodations--to Congress, interest groups, and institutions altogether--all serves a larger strategy. For Obama these accommodations are merely a tactic in achieving larger liberal goals, on health-care, the climate, and education. The approach is sort of utilitarian--accommodate people who, in a perfect world we wouldn't, in order to achieve the greater good. Give in to the imperfections in our political system, Obama tells his liberal supporters, so American lives can get that much closer to perfection. Obama often makes this pretty clear to his supporters: it's worth giving up some worthy goals, like the public option, for the overall greatness of health-care reform.

And this approach makes sense, to an extent. It's hard to believe it now, but I believe Obama took essentially the right path on health-care reform. He let Congress write the legislation, cut deals with interest groups like Pharma in order to get their support, and was a few days away from passing historic health-care reform. Who would've thought Ted Kennedy would die and the special election to replace him would take place just as health-care was about to be agreed on by both chambers? (And why the heck are there two chambers anyways? A question for another time.)

But while I think his accommodationist approach was largely appropriate on health-care, it is this same approach on another issue that makes him largely to blame for whatever more general unpopularity he currently suffers. Here, I am talking about Obama's handling of the financial crisis. Obama, to be sure, inherited both the crisis and bailout, but his approach to the crisis exhibited the same kind of deference for entrenched interests and institutions. But in the case of the financial crisis, one must ask what these accommodations were in the service of? Obama (under the guidance of Robert Rubin proteges like Tim Geithner and Lawrence Summers) chose to throw money at banks instead of nationalizing them and breaking them up, a path preferred by everyone from Paul Krugman and Joe Stiglitz to Reagan treasury secretary James Baker and McCain economic advisor Douglas Hotz Eakin . Now, Obama, Geithner, and company tell us that the bailout averted a total financial meltdown. Is this really meant to be either reassuring or convincing? First, telling the townspeople that we had to kill everyone in town because they were spreading disease, shouldn't make them happy. Secondly, just because the bailout worked (and we are not sure of that yet), doesn't mean that the alternative plan wouldn't have worked better and saved taxpayers a lot more money. And most importantly, even if it hadn't, the execution of the bailout could have been executed with far more transparency and care for the interests of the taxpayer.

Underlying this entire story, one can't help but be drawn again to Obama's deference for entrenched interests. He doesn't want to ruffle our largest bank's feathers, so he throws money at them--a policy which they embrace because it allows them postpone writing down their balance sheets instead of dealing with their devalued assets. But this is bad policy and bad politics. People see large banks get handouts and yet Obama still attributes populist outrage merely to a poor economy. Yes, that's an important part of the picture, but it obfuscates his own responsibility for his unpopularity. In the 2008 election, pundits considered if Americans were changing their attitude toward a more positive view of the role of government. And yet when they watch our government act only to protect and perpetuate aristocracy, they rightly distrust the federal government. Why should they support a large government when that large government only acts on behalf of the powerful? The Tea Partiers, as crazy as they might be on everything else, are right to be angry about the bank bailouts.

When it comes to the financial crisis, populism, as a matter not only of politics, but policy, is a good thing. David Brooks in a recent column assails populism observing that "simply bashing the rich and the powerful will still not solve the country’s problems." True enough. But with the financial crisis, it is an issue of both fairness and good policy, not punishment. Simply falling back on "populism is always simplistic and ignorant," is sometimes, ironically enough, a bit too simplistic. Populism can also save taxpayer money.

On this issue of the financial crisis then, unlike health care, the times called for confrontation, not accommodation and incrementalism. And the problem is made worse by Obama's never ending rhetoric on "making tough decisions." It makes one wonder: who will Obama fight? The teachers union? Big whoop. He has deferred to the banks, Pharma, Ben Nelson, and Joe Lieberman already. I hope for a change of course when it comes to financial regulation (another welcome change would be some personnel moving: remove Tim Geithner and bring Paul Volcker into a more substantive role, in addition to Joe Stiglitz. And replace Robert Gibbs with Bill Burton).

In assessing President Obama's current political stature, many outlets, like this cover article of Newsweek, speak to Obama's failure to communicate. This, finally, takes us all the way back to Obama's own character traits. His inner calm can be easily interpreted as aloofness--a failure to connect to the people, to "feel their pain." And this is a part of his problems, but so are his policy failures, particularly with the financial crisis. And this returns us to that third aspect of his personality: his extreme political caution. But much like his traits of self-confidence and inner calm, President Obama's caution also walks a fine line. And that caution, if it hasn't already, might soon turn to a nightmarish timidity.