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Earlier this year Paul Krugman noted that the U.S, economy is suffering from “a crisis of faith”, implying that we had lost trust in the institutions of capitalism. The word “credit” comes from the Latin root–Credo–”I believe.” When we don’t believe our President or Hank Paulson or the CEO of Citibank, the whole edifice of contemporary American economics begins to crumple.

Much of this edifice has been built on the theories of Milton Friedman and the Chicago School which believes that we humans are essentially mechanical welfare maximizing tools. Contemporary economists don’t like words like “faith”, because they are not mathematical constructs that can plugged into a formula. But the economists, so sure in their formulas, believed that human welfare was measured by possessions–”when you die, the one with the most toys wins”.

But what if we could build a new economics based around the notion of ethics, community and stewardship of both our planet and our culture? Part of the Rebuilding America, I have been talking about is the realization that our obsessive consumerism was really only a way to anesthesize ourselves against the dread of a culture full of stress and empty of meaning. Part of the reorientation might require us to rethink “the Growth Imperative”–the idea that human welfare can only be increased if the economy grows at the maximum rate without excess inflation. The conservative economist Huber takes this notion to its logical conclusion (without a touch of irony).

Cut down the last redwood for chopsticks, harpoon the last blue whale for sushi, and the additional mouths fed will nourish additional human brains, which will soon invent ways to replace blubber with Olestra and pine with plastic. Humanity can survive just fine in a planet- covering crypt of concrete and computers.

I don’t want to live in Peter Huber’s world and so I have faith that we as a country can create a new social compact that will not be based on mathematics and notions of self interest, but rather on caring, trust and reciprocity. Of course America’s reinvention will require political will, but it will also need a spiritual and cultural transformation that will be just as wrenching.

Googleplex

President-elect Obama needs to be more ambitious.

Now that I’ve got your attention, here’s what I’m thinking about. The Chinese government has just announced it’s going to spend about 7% of its GDP on infrastructure investment in the next two years. Obama has mentioned numbers like $100 billion on infrastructure investment. If we spent 7% of our GDP in two years, it would come to $910 billion! As Paul Krugman reminds us this morning, FDR’s original New Deal fiscal stimulus was too timid and it wasn’t until the massive stimulus of war production that the economy really recovered.

Now I’m not saying all of this investment would come from the taxpayers, but rather that it’s going to take close to a trillion dollars to rebuild our broken infrastructure which has been starved for investment since the start of the Reagan administration. Read more…

The New York Times asked 7 economists to advise the Obama administration under the title of “What Now.” With one exception they all seemed to be addressing what they thought was a given assumption:How can we get back to where we were before the crash? This seems to me to be singularly unhelpful. If the only task of the Obama Recovery is to restore America to a state in which 70% of GDP is consumer expenditures driven by excess credit and advertising, then we will have neither accomplished not learned anything from this crisis. As Jeremy Grantham has written.

An amateur economist could summarize and simplify the Chinese economy as 39-37-37: an astonishingly large 39% of the GDP is capital spending, 37% is internal consumption, and an amount equal to 37% of GDP is exported. (These numbers do not sum to 100 as we are not using exports net of imports because we are concerned with the vulnerability of total exports to a weak global economy.) The U.S., in comparison, is 19-70-13, disturbingly on the other side of normal; 70% consumption compared with 57% in both Germany and Japan, for example, and nearly twice that in China. Read more…

The three cabinet positions that will define the Obama administration are Treasury, State and Defense. The first name floated for Treasury is Larry Summers. This would be a disaster. If one thing Obama promised to end was Clintonomics, as represented by Bob Rubin and Larry Summers. The notion of a “Restoration” was soundly rejected in the Democratic Primaries. Summers would be the same old crowd with the same old coddling of Wall Street. These guys presided over the beginnings of financial deregulation and they should have nothing to do with the new Treasury Department. A far better choice would be Tim Geithner, President of the Federal Reserve Bank of New York. Geithner, was a lonely voice warning of the sub-prime mortgage bomb two years ago and he has both the experience and the youthful vigor to take on the most important job in the new Obama Administration.

On Defense, I am of two minds. I have written in recent weeks that Bob Gates understands some of the hard tasks that lay ahead in the remaking of our military to face the real threats of the 21st Century, not the cold war mentality of the 20th Century that many of the Generals are mired in. However, I still believe that Gates might be unwilling to make the real cuts in the Defense Budget. If Gates goes then Chuck Hagel, a Republican realist might be the right guy for the job. Hagel is a Vietnam vet and understands the foreign and defense policy challenges of our age. 

For the State Department, I think John Kerry would be a good choice. He has spent years in the foreign policy arena and has met most of the foreign leaders giving a sense of security to the rest of the world. I would feel even better if Barack appointed Samantha Power as one of the top NSC players. She went into self-imposed exile from the campaign after calling out the Clintons in the midst of a heated primary race. She is one of the great original foreign policy thinkers in America and Barack should bring her into his administration.

In Los Angeles County, where the polls closed after Obama’s election was a foregone conclusion, 81% of registered voters marked a ballot. When year after year voter participation rates hovered around 50%, I often felt like our democracy was losing its essence.

But not this morning.

Or as a New York Times correspondent writing from the Gaza Strip in Palestine put it,

From far away, this is how it looks: There is a country out there where tens of millions of white Christians, voting freely, select as their leader a black man of modest origin, the son of a Muslim. There is a place on Earth — call it America — where such a thing happens.

At 8 PM in Los Angeles last night, when NBC called the election for Obama, I looked around my living room full of friends, many of them with tears streaming down their faces, and tried to think back if there had ever been a political moment like this in our lives. Most of us are in our late 50′s or early sixties, though there was a group of our children in their 20′s as well–and I concluded that there had not been such a moment of joy in our political lives.

We cannot underestimate the herculean task that lies before Barack Obama. Though I have been on his side from the very beginning of his Presidential journey, we cannot expect that the accumulated mistakes of 30 years of neoconservative philosophy to be quickly erased. In his victory speech, echoing Dr. King’s prophetic words from Memphis, Barack indicated the steepness of the hill to climb.

The road ahead will be long, our climb will be steep.We may not get there in one year or even one term, but America, I have never been more hopeful than I am tonight that we will get there. I promise you, we as a people will get there.

One last thought. Obama’s victory margin of 7 million votes (52%-46%) is a major landslide, the likes of which we haven’t seen since 1984. The Republican Party must now rethink its role in America’s renewal. McCain tried in his concession speech to begin to close some wounds that he and Palin had worked viciously to open in this last month. The boos from his crowd,when he mentioned Barack’s name, are a testament to the politics of fear that have been the defining tactic of Republicans since 2000. They must now realize that their view is not shared by the majority of Americans. The Palin/Limbaugh wing of the party will want to start an immediate guerrilla movement to delegitimize Obama. McCain and the cooler heads in the center right must prevail.

They have one choice–you are either part of the problem or part of the solution.

Drudge is up with a leak from the exit polls saying its going to be a huge night for Obama. Barack up by 17 points in Pennsylvania.

Barack & Michelle

A few weeks ago, when this country was in full panic mode and hedge funds were having to dump huge amounts of good companies to cover redemptions, I bought the stocks of four companies–General Electric, Chevron, Apple and Johnson and Johnson. I considered it an Obama Put. With the exception of Apple the stocks were paying dividends that were higher than Treasury rates, had really strong balance sheets and were in businesses I thought would flourish in an Obama Administration. Today alone, GE was up almost 8%, Chevron-6%, Apple 4% , and JNJ 1%. I’m not saying this will continue, but my reasoning was as follows.

GE-The next four years is about building infrastructure, especially green infrastructure. GE is a world leader in all elements. In four years, GE Capital will be down to 1/3 of their business, not 1/2.

CVX-I think Cheney’s ten day trip to Saudi Arabia and the rest of the Gulf countries in March was meant to insure that oil prices came down substantially before the election–the same tactic that had worked well for Republicans in 2004. Although OPEC kept pumping at full capacity, even as it was obvious we were heading into a worldwide recession, they have now announced serious production cuts for this next month. Of course oil rose $6 a barrel today.

AAPL-In an austere Christmas, an IPod or IPhone is still a valued gift. My wife in I have been in Apple stores in three cities since the crash, and the energy and crowd is like an Obama Phonebank. It’s clear that Universal Broadband will be an important objective of an Obama administration. That will only make it easier and faster to get that 8 GB high def Movie file into your I-Tunes.

JNJ-I just think Johnson and Johnson is a world class company and it’s obvious that health care will be one of the issues as all the Boomers get cranky and old.

Far be it from me to call a market bottom, but I have a good feeling about our ability to navigate the choppy waters ahead. My favorite measure of credit flows, LIBOR is at 2.86%. That is down from 4.82% on October 10. That means that interbank lending is trending towards normality.

Barack will have a huge amount of work ahead of him, but we all need him to succeed.

Barack tells the origin story of the famous phrase.

It is hard to imagine now that four years ago George Bush was reelected in the midst of a climate of fear and suspicion. Democrats were on the defensive, the long term relevancy of their party being questioned by the media. Today’s election may render the Republicans a minority party, completely out of tune with the mood of the country. What happened?

The easy answer would be to say “Iraq and Lehman Bros.”. Those two tragedies expose the fallacy of the neoconservative philosophy of preemptive war and radical deregulation. But I would argue for two different phrases–”Bottom-up and Broadband”. In 2004 Democrats were overpowered by two forces: the Republican Top Down money/organizing machine and the power of right wing talk radio. There were many states that will vote Democratic today (Montana, Virginia, North Carolina, Indiana) that in 2004 had neither organization or media that reflected a Democratic message.

When after the 2004 defeat Howard Dean came to LA to campaign for the DNC Chairman spot, he said he would build a Democratic organization in all 50 states. And he did. But what Barack Obama realized from the start was that he was building a movement, not just a political campaign and he seized upon the bottom-up power of the Internet that Dean had pioneered and took it to a new level. And while the Clintons didn’t run a 50 state campaign, Obama did and it really paid off in the final month of the general campaign with the extraordinary organization And that’s where Broadband came in to the picture. Think about the effect of the will.i.am “Yes We Can” video, viewed more than 18 million times on the net. Read more…

Karl Rove Calls it for Obama.

The final Rove & Co. electoral map of the 2008 election cycle points to a 338-200 Barack Obama electoral vote victory over John McCain tomorrow, the largest electoral margin since 1996.