Despite justifiable pride in his legislative successes, President Barack Obama never had a working majority to enact the program that the economy needed. Obama's signal accomplishments -- the stimulus program, health reform, financial reform -- all built half a bridge. They were big steps in the right direction, but not enough. Most of the resistance was
caused by Republican obstruction, some of it by conservative Democrats, and some by the limits of Obama's own imagination as a crisis president who needed to act more boldly.
Democrats are suffering voter retribution because during Obama's first two years, they seemed to be in charge, though often only on paper. But over the next two years, the president will be even less able to get Congress to act. However, he may be able to influence whether Republicans belatedly reap some of the blame for economic problems unlikely to go away.
Unemployment is at a persistent plateau. The revelation of undocumented mortgage paperwork is exposing deeper underlying weaknesses of bank balance sheets that could set off a second banking crisis. A vicious circle of depressed consumer purchasing power combined with skittish banks is discouraging business investment. No second stimulus is in the cards. Even if Obama gives in to the Republican version of a stimulus -- massive tax cuts -- it's unlikely to spur a recovery.
The Federal Reserve, responding to the failure of fiscal policy, has adopted an expansive monetary policy. But very low interest rates and recourse to the printing presses are not doing the job. On the contrary, the Fed's extreme monetary easing has stimulated a speculative commodities boom and a weak dollar that could backfire as higher inflation. Nothing likely to emerge from partisan deadlock will change the basic economic trajectory.
So, what does the country need in these circumstances and what are President Obama's options? Obama's thinking to date, as revealed in interviews with selected journalists, does not produce much comfort. In a mid-October New York Times Magazine piece, correspondent Peter Baker quotes Obama saying that he let himself look too much like "the same old tax-and-spend liberal Democrat." A recent authoritative story by the AP's White House correspondent, Ben Feller, reports that Obama plans to focus on reducing the deficit. Feller quotes the president, "If we're going to get serious about the deficit, then we're going to have to look at everything: entitlements, defense spending, revenues. ... And that's going to be a tough conversation."
But if anything, large deficits have been caused mostly by the recession itself. Deliberate deficit spending has been too small to produce enough fiscal stimulus. At a recent conference sponsored by De'mos and the Economic Policy Institute, liberal economist Paul Krugman and conservative economist Martin Feldstein agreed that a much larger stimulus is needed. If Obama becomes the paladin of unpopular tax increases and cuts in social insurance while Republicans are pressing for tax cuts, he will save neither the economy nor his presidency.
As he positions himself for the 2012 election, Obama has three historical Democratic role models. He can emulate Bill Clinton after 1994 and seek common ground with Republicans. This course served Clinton's own re-election, though key to Clinton's success were Newt Gingrich's overreaching, a strong economy, and Clinton's luck in drawing a feeble 1996 opponent in Bob Dole. But the strategy of pursuing consensus with Republicans did not work well for Obama when he had more Democrats in Congress, and it is hard to see how it will work now.
Alternatively, Obama can invoke Harry Truman, send Congress the legislation that the country needs, and dare Republicans to vote it down. When he does sign necessary compromises to keep the government afloat, he can make clear that this is not what the economy requires -- and then make 2012 a clean referendum on two opposite courses. By then, the economy is likely to still be in deep stagnation, and this time, a lot of the voter anger could be turned against the GOP.
Obama, however, seems to be flirting with a third course -- offer bitter medicine on the premise that the country needs it. Here, the unfortunate role model is Jimmy Carter, who won neither re-election nor economic recovery. This program would include higher taxes and cuts in entitlements -- the cocktail recommended by austerity-mongers like Peter G. Peterson and embodied in the president's own fiscal commission, due to report by Dec. 1.
But this strategy is bad medicine economically and a disaster politically. If the president wants points for embracing what is politically unfashionable, let him define a real recovery program and fight for it.