President Obama struck a different and more optimistic tone in his address to a Joint Session of Congress. We think that he did a good job with the key mission, explaining to people why they must look past the initial policy impacts of his proposals and see the systemic effects.
Background
Obama has sounded some scary notes in his early days in office. This was the tone necessary to galvanize support for the stimulus package and the housing plan. Both of these measures have about 64% support according to recent polls.
His next mission, and that of Treasury Secretary Geithner, will be his plans for the banking system and the auto industry.
The President as Explainer
We think he did a fine job of explaining why it is necessary to make additional investments in banks. This is a very unpopular policy. It is widely conceived as a bailout of those who made poor decisions and their investors. In addition, the first round of TARP funding lacked good procedures to assure accountability.
President Obama made it clear that normal lending and credit is necessary to buy a home, to finance a car, to pay for higher education, or to engage in normal business activity. Without this ordinary lending our economy cannot recovery. People need to understand that aiding banks is crucial for average citizens.
A common opinion is that "lending got us into this problem, so why do anything to start it up again." It is true that excessively leveraged lending was a source of the economic crisis. There is a correct amount of leverage, and it is not zero. The President is in the mainstream on this point, and he tried to sell it to the American people. He also promised more effective supervision.
He also highlighted the role of the automobile companies, and explained why they are crucial to employment.
The President as Visionary
The next policy issue will involve his first budget. There will be extensive Congressional debate on his initiatives in energy, health care, and education, the three featured areas. We expect a slow process and a tough fight on all three, especially health care.
Similarly, the ten-year budget plan is likely to be a rosy scenario. We once tracked all of the Presidential five year plans, and the budget goals always got worse as the planning year drew closer. We are similarly pessimistic about the potential for savings through cutting waste, fraud, and abuse.
Having said this, it is normal to highlight some policy vision in a speech of this sort. These ideas are a long way from becoming law. This includes the plan to allow the Bush tax cuts to expire. That is two years away and will involve plenty of debate.
The Market Reaction
The market will lament the lack of details in the plans. Why is it that so few market analysts seem to understand the purpose and audience when the President speaks? The details on the banking plan would not have been appropriate in a "State of the Union" style of address, a 45-minute speech with many topics.
The market will have to make due with Sec. Geithner's next presentation, which will probably occur tomorrow.
International Relations
The speech was predictably light on international relations, in recognition of the economic crisis. There was a general statement about Iraq and Afghanistan, and applause-fetching references against torture and in favor of our military personnel.
Style
The overall style was Presidential and effective, although Obama seemed a bit stilted at first. He muffed the start. There was extended applause. Then he was supposed to wait to be introduced by Speaker Pelosi and get another round of applause. He started in prematurely. In the first part of the speech he frequently talked on when his audience wanted to applaud.
These speeches are a bit unusual. He was trying to reach people watching at home, yet he had an audience right in front of him. The audience in the House Chamber was partisan, so some statements got applause only from his right. Other lines were universally popular. Eventually, the President seemed to settle in and accept that he would be interrupted (51 times by one report).
There was also some Reaganesque recognition of some average Americans who had done something notable and were now getting their moment of fame.
We think that critics will agree with us that it was an effective speech for the occasion.
Meanwhile, overnight stock futures were flat right after the speech and are now trading a bit lower, as if that made any difference....
