The Political Chase

Obama’s economic speech high on macro-theories & missing energy implications

(Update I and Update II below)

Barack Obama gave a major speech in New York today on the economy. He called on sweeping changes in the regulatory system and posited that "what was bad for Main Street was bad for Wall Street." Focusing on the disparity between people and large corporations, Obama said, "we’ve lost that sense of shared prosperity."

Striking major themes Americans hear daily on the evening news  — housing foreclosures, failing financial institutions, and concentration of wealth and power — Obama said changes in industry over time "warrants regulatory reform." He blamed Washington and the current and past administrations for "dismantling the regulatory framework," which was "aided by a legal but corrupt bargain in which campaign money all too often shaped policy and watered down oversight."

Obama highlighted three major elements of his plan, but I am surprised he made no reference to energy other than a passing comment on its rising costs. The three areas are:

1. Modernize the financial regulatory system.
2. Help homeowners facing foreclosure and ease the credit crunch.
3. Enact a second $30 billion stimulus package to address the mortgage crisis, protect vulnerable families, and strengthen the economy.

His address was understandably not laden with details, therefore a fact sheet was provided. I have not read the fact sheet yet, but I did a quick search for energy-related words. Again, energy is not explicitly addressed other than two passing references to rising energy costs.

Maybe the issue is addressed implicitly within the fact-sheet details under modernizing the financial regulatory system. But if not, I would find that to be a point of concern. I’m not an economist, and sometimes I question if the economists are indeed economists, but with energy costs being a substantial part of the economy and a national security issue, I don’t see how it cannot be addressed in an economic context.

Maybe there’s a logical reason for it not being discussed in his address and economic plan, but I would like to understand why. My best guess at this point would be, since Obama has an energy plan, maybe he deemed it covered already. But the two are so closely intertwined, I don’t see how one cannot reference the other at least at some level.

Bottom line — good macro-theory words, but no conclusions until the fact sheet is read. If the fact sheet is not substantive and is void on energy, Obama’s got some ’splainin’ to do.

Read the fact sheet (pdf).

Read the entire speech.

Update I:  It takes a little time for some of this to sink in — proof I’m not an economist. This part of Obama’s plan is rather striking.

Fourth, we need to regulate institutions for what they do, not what they are. Over the last few years, commercial banks and thrift institutions were subject to guidelines on subprime mortgages that did not apply to mortgage brokers and companies. It makes no sense for the Fed to tighten mortgage guidelines for banks when two-thirds of subprime mortgages don’t originate from banks.  This regulatory framework has failed to protect homeowners, and it is now clear that it made no sense for our financial system. When it comes to protecting the American people, it should make no difference what kind of institution they are dealing with.

Indeed that is breaking the conventional mold. Contrary to conventional wisdom, square pegs do fit in round holes as evidenced by the current credit crisis.

Obama’s perspective does turn the regulation theory not on its head, but instead upright. It’s what service or product is sold/provided rather than what mold the legal, corporate charter states. Robbery is robbery regardless of where it occurs. Owning and servicing a loan is the same regardless of who owns it, when they acquired it, or where the loan originated.

This may also have some positive implications, or at least a more level playing-field, with respect to taxes.

This is a bit of an aside, but… Industries have long since been regulated by who they are — Billy Bob’s Electric and Gas, Ma Bell, etc. — and the original premise, I believe, was to to protect consumers from unfair gouging by a monopoly. However, I would venture to say it is more the opposite today — regulated (viz. ensured margin of) profit and providing Billy Bob protection from encroachment by Acme Electric. I have never heard of residents or businesses having more than one option for purchasing electricity. If you don’t get it from Billy Bob, you must create your own, and even that has regulations tied to it (utilities are often required to buy any "excess" you may produce — a cogen at a business is a good example).

Update II:  Here’s the video of Obama’s speech.