Washington has had a reality check, and not a moment too soon. A few weeks ago, all the energy was focused on the deficit. Now the economy is getting at least as much attention.
Good. The rush to cut spending, thus applying even more contractionary medicine to an economy already reeling from waning fiscal and monetary stimulus and a debt crisis in Europe, was as misguided in July as it is today. Mercifully, August’s terrible employment figures woke up politicians to the fact that the budget problem is serious, but the economic problem is worse.
A political U-turn has accompanied the economic one: The political class has gone from wondering if any Republican can beat President Obama to wondering if Obama can beat any Republican. No president since FDR has been re-elected with unemployment higher than 7.2 percent, and mainstream forecasters expect unemployment to be well above that mark by Election Day.
What can Obama do? About the economy, a little. About what he says about the economy, a lot.
Obama’s new $447 billion stimulus proposal is a palliative (stimulus wears off, as we are discovering right now), but it is an important palliative. It will be worth the cost if it helps avert a second recession — a setback that could not come at a worse time than when Europe stands on the threshold of what may be a large and contagious financial crisis. If it’s paid for in larger long-term deficit reduction, as Obama proposes, it will be doubly sound.
But revitalizing the economy between now and the election, as opposed to maybe averting a recession, is beyond the power of any available policy lever. The political system’s toleration for emergency spending and monetary easing has just about reached its limits. Republicans are pushing back against the Federal Reserve’s efforts at easing, and in 2012 they will be running on a contractionary platform, a stance that reflects Main Street sentiment. Both parties favor supply-side measures, albeit of different kinds: regulatory easing and Medicare cuts for Republicans, infrastructure and education spending for Democrats, tax reform for both parties. Many of those measures are good ideas, but supply-side treatmentsgood ideas, but supply-side treatments typically take years, not months, to translate into growth.
I’m sympathetic to Obama on the economy, as I was to his predecessor. Both faced a dire and, in the postwar period, unknown problem: a “balance-sheet recession” ignited by a financial-system panic, fueled by a vast undergrowth of bad debt, and likely to burn longer than a normal business-cycle contraction. Both presidents took measures that strained the political system and damaged their political standing but proved insufficient. Both are therefore viewed by the right as big-government stooges, by the left as Wall Street pawns, and by the center as ineffective.
Still, Obama isn’t helpless. He can pass a stimulus bill and maybe a deficit-reduction package, hopefully; attack Republicans, unavoidably; pray for an economic turnaround, desperately. Most important, though: He can find a story, something his predecessor never did.
In conversation recently, a former official of George W. Bush’s administration said that Obama’s economy in 2011, like Bush’s Iraq war in 2006, is a case in which the problem isn’t a failure to communicate, the problem is the problem. Bush was losing on the Anbar front, Obama is losing on the jobs front. Better speeches wouldn’t fix it.
Fair enough. But there is a third element between style and substance: having a plausible, understandable and compelling narrative about what you are doing and why it’s worth sticking with. A compelling narrative may not save you if the public has written you off, but it makes all the difference when the public is in doubt and the opposition is flawed and untested.
FDR had Keynes and the New Deal, JFK had “a rising tide lifts all boats,” Reagan had supply-side, Clinton had the Third Way and globalization. George H.W. Bush, by contrast, had economic policies at least as good as any of those others, but he never put them together in a story for the public. The economy was in recovery in 1992, but Bush lost anyway, partly because he could not explain what he was doing.
Quick: What is Obama’s story about turning the economy around? Stimulus bills, budget reforms, 10,000 newly trained engineers, and slogans like “Winning the future” are well and good; what’s missing is the connective tissue that creates, in the public mind — or at least in the swing voter’s mind — a coherent theory of the case. What happens after the next stimulus runs out? Where is the exit from the doldrums?
Republicans have a story: Make government smaller and the unshackled economy will take flight. It’s mostly snake oil, but it is a story. It offers cause and effect and a clear direction. And a flawed story beats no story.
Losing the narrative battle to the Republicans, despite offering better policies, is a failure of imagination, not communication. A stimulus bill and a budget deal might help the president, but a story would help more. Without one, he is George H.W. Obama.
Good. The rush to cut spending, thus applying even more contractionary medicine to an economy already reeling from waning fiscal and monetary stimulus and a debt crisis in Europe, was as misguided in July as it is today. Mercifully, August’s terrible employment figures woke up politicians to the fact that the budget problem is serious, but the economic problem is worse.
A political U-turn has accompanied the economic one: The political class has gone from wondering if any Republican can beat President Obama to wondering if Obama can beat any Republican. No president since FDR has been re-elected with unemployment higher than 7.2 percent, and mainstream forecasters expect unemployment to be well above that mark by Election Day.
What can Obama do? About the economy, a little. About what he says about the economy, a lot.
Obama’s new $447 billion stimulus proposal is a palliative (stimulus wears off, as we are discovering right now), but it is an important palliative. It will be worth the cost if it helps avert a second recession — a setback that could not come at a worse time than when Europe stands on the threshold of what may be a large and contagious financial crisis. If it’s paid for in larger long-term deficit reduction, as Obama proposes, it will be doubly sound.
But revitalizing the economy between now and the election, as opposed to maybe averting a recession, is beyond the power of any available policy lever. The political system’s toleration for emergency spending and monetary easing has just about reached its limits. Republicans are pushing back against the Federal Reserve’s efforts at easing, and in 2012 they will be running on a contractionary platform, a stance that reflects Main Street sentiment. Both parties favor supply-side measures, albeit of different kinds: regulatory easing and Medicare cuts for Republicans, infrastructure and education spending for Democrats, tax reform for both parties. Many of those measures are good ideas, but supply-side treatmentsgood ideas, but supply-side treatments typically take years, not months, to translate into growth.
I’m sympathetic to Obama on the economy, as I was to his predecessor. Both faced a dire and, in the postwar period, unknown problem: a “balance-sheet recession” ignited by a financial-system panic, fueled by a vast undergrowth of bad debt, and likely to burn longer than a normal business-cycle contraction. Both presidents took measures that strained the political system and damaged their political standing but proved insufficient. Both are therefore viewed by the right as big-government stooges, by the left as Wall Street pawns, and by the center as ineffective.
Still, Obama isn’t helpless. He can pass a stimulus bill and maybe a deficit-reduction package, hopefully; attack Republicans, unavoidably; pray for an economic turnaround, desperately. Most important, though: He can find a story, something his predecessor never did.
In conversation recently, a former official of George W. Bush’s administration said that Obama’s economy in 2011, like Bush’s Iraq war in 2006, is a case in which the problem isn’t a failure to communicate, the problem is the problem. Bush was losing on the Anbar front, Obama is losing on the jobs front. Better speeches wouldn’t fix it.
Fair enough. But there is a third element between style and substance: having a plausible, understandable and compelling narrative about what you are doing and why it’s worth sticking with. A compelling narrative may not save you if the public has written you off, but it makes all the difference when the public is in doubt and the opposition is flawed and untested.
FDR had Keynes and the New Deal, JFK had “a rising tide lifts all boats,” Reagan had supply-side, Clinton had the Third Way and globalization. George H.W. Bush, by contrast, had economic policies at least as good as any of those others, but he never put them together in a story for the public. The economy was in recovery in 1992, but Bush lost anyway, partly because he could not explain what he was doing.
Quick: What is Obama’s story about turning the economy around? Stimulus bills, budget reforms, 10,000 newly trained engineers, and slogans like “Winning the future” are well and good; what’s missing is the connective tissue that creates, in the public mind — or at least in the swing voter’s mind — a coherent theory of the case. What happens after the next stimulus runs out? Where is the exit from the doldrums?
Republicans have a story: Make government smaller and the unshackled economy will take flight. It’s mostly snake oil, but it is a story. It offers cause and effect and a clear direction. And a flawed story beats no story.
Losing the narrative battle to the Republicans, despite offering better policies, is a failure of imagination, not communication. A stimulus bill and a budget deal might help the president, but a story would help more. Without one, he is George H.W. Obama.
