Ruminations, July 19, 2009

The Obama bubble

Economic bubbles tend to be periods of unbridled enthusiasm. They are characterized by people putting a value on an object that is greater than the object’s intrinsic worth. Hence we have recently had the “dot.com” bubble and the “housing and credit” bubble.

Can there be such a thing as a political bubble? If we measure bubbles by approval ratings, maybe so. For example, both Presidents George W. Bush and Harry Truman had approval ratings approaching 90 percent at one point in their presidencies only to see severe drops as they left office. In fact, all post World War II presidents, with the exception of Bill Clinton, had lower approval ratings when they left office than when they entered. (Clinton competed in a three-man race against Ross Perot and George H.W. Bush and received only 43 percent of the popular vote which may have contributed to a lower initial approval rating.) President Obama, although he hasn’t left office, has already seen his approval ratings drop.

Are these political bubbles? Are they parallel to economic bubbles? The answer to both these questions is probably yes.

People tend to be optimists and believe that in the long term, things will be better. When a new president takes office, there is generally a positive feeling that this guy, if we supported him, knows what he is doing; if we opposed him, well maybe he won’t be as bad as we thought and he probably won’t be able to do the things we see as bad. In essence, we tend to put a higher value on the individual than his intrinsic worth and then face reality.

Of course, there are factors that influence a president’s popularity. Fighting and winning a war can be a big boost, while dragging out a long war can be a negative influence. And don’t forget the economy – a president gets the blame for a bad economy and credit for a good one.

So what about Obama? He got the bubble that most new presidents get and is seeing it dissipate — which fits the historical pattern. What can he do to reverse its direction? Well, he can dramatically turn the economy around or bring home victory in Afghanistan. Unfortunately, success in either of these two areas is not likely to come quickly.

Healthcare? With American growing increasingly skeptical and concerned about the healthcare’s cost, that may not be a winner.

Obama will just have to ride out his bubble like the rest of them.

G8 and 2 degrees of separation

The political leaders of the G8 (the United States, Japan, Germany, France, Britain, Italy, Canada and Russia) met and discussed global warming, among other things a couple of weeks ago. The global warming discussion concluded with an agreement that the G8 will hold world temperatures to a 2 degree Celsius rise over the next 40 years.

That sounds pretty good, but even with the best minds, utmost human determination and the latest technology, something is missing in the equation: the sun. Suppose the nations of the world do everything right and, at the same time, solar heating increases. The global temperature may still rise.

On the other hand, suppose we do everything that the environmentalists tell us is wrong; CO2 and other pollutant emissions sky rocket – and the sun cools. We could meet our and even surpass our temperature goals, owing to solar cooling.

Don’t the G8 politicians know that the sun can affect global temperatures? Of course they know. Then why would they put the onus on the resultant temperature – something that they can’t control — rather than on a measure of CO2 or other pollutants – something they can control?

Here’s a wild guess:

• They believe that we are entering into a global cooling phase due to solar conditions and in targeting temperatures the G8 can point to success.
• There may be some doubt creeping in to the minds of some of the G8 members as to the ability of people to actually control global temperatures. So rather than admit that anthropocentric global warming is merely a myth, they allow nature to take its course and still have a mandate to reduce pollution.

On the other hand, maybe they’re just confused. You choose.

Strong dollar

U.S. Treasury Secretary Timothy Geithner last week said, "It is the policy of the United States and it will remain the policy of the United States to remain committed to a strong dollar."

Meanwhile, in other action, some members of congress and the Obama Administration are now considering a second stimulus bill and a $1.5 trillion healthcare system, either of which could lead to inflationary pressures on the dollar and a weak dollar.

Having a strong dollar in the face of extraordinary spending will be a neat trick if Geithner can pull it off. We wish him success.