One of the earliest things that I disliked about Obama’s political stance was his support for subsidies to ethanol producers.

This wasn’t just because I tend to disagree with subsidies generally but because of the havoc that such subsidies cause on the food market, as can be seen from the rise in the price of wheat recently. The policy which Obama supports is directly responsible for the immiseration of millions. (For more detail on just how scary the situation is, see Stuart Staniford’s article here.)

I tend to see this as a perfect example of government intervention – a well intentioned act that goes wrong. Where we have room to become even more concerned is with regards to protectionism, in particular, whether Obama, perceived to support protectionist policies, is likely to sign into law another Smoot-Hawley tariff act.

So my issue with Obama is whether he will try to use the powers of government to escape from the crisis in such a way that the problems become worse. That is, will he understand the problems clearly enough to recognise that central control is not a viable solution?

The energy crisis is the most severe problem faced and, as exemplified by his policy on ethanol, there is little sign that Obama understands the extent of this. (This may, however, be due to electoral calculation – we shall see what he really believes when it comes to making decisions, eg on the future of GM/Ford etc – see below.) His language about “a rescue plan for the middle class” is, however, ominous for its inappropriateness. There is no way in which the middle class of the United States can be rescued, and to make that a principal soundbite from his earliest press conference is deeply disturbing.

The model or prior example that is generally being referenced in present day discussions, especially about economics, is the experience of the 1930s. In particular I have a strong suspicion that Obama sees himself as following in the footsteps of FDR, who actively used government intervention to ‘prime the pump’ to get the economic system running again.

This ignores several things, things which are rather important.

The first is that FDR faced no shortage of resources. There was abundant energy available, along with raw materials and, in particular, the government was solvent. Given the effective bankruptcy of the US it seems unrealistic to expect Obama to have enough finance to achieve his aims, not least if the US dollar collapses in value.

The second is that, by the time that FDR was elected, the shape of the crisis was clear. I am not persuaded that Obama has a decent understanding of the predicament that he is inheriting, and nor do the American people (or most other populations come to that) – that is, I think he needs to ponder Dmitri Orlov’s work. We will see very early on whether Obama ‘gets it’ when we see how he treats the car industry. Either he will actively try and reshape it towards extremely efficient cars and (more importantly) a retooling towards massive investment in public transport, especially rail – or he will try and keep the system going for a little longer. If he chooses the latter then he will fail, miserably.

Consequently, thirdly, I expect the Obama campaign to try and act dynamically and aggressively, using the levers of government, to try and change things around. In this endeavour they will fail, because the wires connecting the levers to the parts of the engine have been severed. One of the principal impacts of Peak Oil will be the hollowing out of government. In such a situation the political future belongs to someone who can bring Clint Eastwood’s desires to fruition: “I wish there was a Libertarian candidate who would put forward a more Libertarian point of view – leave people alone, don’t put so much regulation on them and live within our means. Everybody’s going to have to go back to that.”

It is possible that Obama will realise that this is the situation early on in his first term of office and that he will then use his considerable rhetorical gifts to persuade the US people both of the magnitude of the tasks that face them, and their ability to meet those tasks. I suspect that he won’t be able to do such a thing however, which is the burden of my next and final post in this sequence.