President Barack Obama won a tactical victory on New Year’s weekend by forcing Republicans to raise taxes on the top 1 percent, but he has far bigger challenges to address—and so do progressives. The economy is still at risk of several more years of hidden depression, with a high level of unemployment and no wage growth. The initial budget deal, thanks to Obama’s post-election toughness on tax increases on the rich and pressure by unions and progressive organizations not to cut Social Security and Medicare, was better than it might have been. But still to come are debates over budget cuts, with Republicans having the leverage of an automatic $120 billion “sequester” for this fiscal year now postponed to early March, if Congress fails to legislate its own additional deficit reduction.
In principle, Obama has committed to $4 trillion in budget cuts over a decade, a sum that would be a huge drag on the recovery, leaving too little for the public investment necessary to create jobs and for the scale of infrastructure spending needed to mitigate future superstorms like Sandy. Since the election, the president has walked back some of his earlier commitment to spending cuts. But even as he forced major concessions out of the Republicans, he has continued to embrace deficit reductions as a necessary path to recovery, a strategy that makes no economic sense and that only whets the appetites of the right-wing anti-government crusade and its close ally, the corporate-sponsored Fix the Debt campaign.
So where is Obama’s running room to pursue a more far-reaching agenda? And where is the running room for progressives to move him?
The president still faces a rigidly conservative Republican House. The Senate, despite a slightly larger Democratic margin of 55 to 45 and the retirement of prominent budget hawks Kent Conrad, Ben Nelson, and Joe Lieberman, has at least six centrist Democrats—enough to deny the president a reliable working majority on some key issues.
But Obama would be wise to pursue a more progressive agenda, for multiple reasons. First, he has his legacy to worry about. Once it sinks in that budget cuts will not produce a robust recovery, Obama will increasingly wish to avoid being remembered as the Democrat who presided over eight years of declining living standards. Second, he is somewhat liberated in that he will not be up for re-election. Third, coming out of his victory, Obama found that progressive stances are good politics. He drew a bright red line on raising taxes on the wealthiest rather than cutting aid to the middle class, and the voters agreed. Finally, progressives are pushing him hard—maybe harder than in his first term.
Both Obama and the progressive community can learn from the missteps of his early years. Soon after the 2008 campaign ended, the new president’s political team wound down Organizing for America as an independent grassroots army and rebranded it as Obama for America, under the thumb of the Democratic National Committee. It’s understandable why the White House did not want a semi-independent mass movement to the president’s left acting in Obama’s name, complicating strategy and message. But the move also deprived the president of the kind of popular fervor that might have helped him shift from a candidate of change to a president of change—and offset the voter frustration that was captured by the Tea Party.
In 2009, Obama kept extending olive branches to Republicans who were determined to destroy him. He appointed a centrist economic team. As the recession deepened, he declined to push for a second stimulus package even though congressional Democrats were eager to pass one. (They finally did so in December 2009 with no help from the White House, only to see it die in the Senate.) He did not push the Employee Free Choice Act, despite the prodding of a labor movement that had gone all out to elect him. Even though a massive liberal coalition on health-care reform helped Obama enact the Affordable Care Act, the one provision that progressives most dearly wanted—a Medicare-style “public option”—was watered down and then jettisoned.
In his State of the Union address in January 2010, Obama pivoted to deficit reduction, even though the economy was far from a strong recovery, and the labor-liberal wing of the party seethed. In short, in Obama’s first term, progressives found they had little leverage on a president who turned out to be more moderate and conciliatory than they expected. All concerned suffered in the 2010 midterm Democratic congressional defeat that followed.
Will this time be different?
The fight over the budget deal suggests that it just might be. America’s unions have provided an instructive civics lesson in how to hold a newly re-elected president accountable. Labor was key to the Obama re-election campaign, spending several hundred million dollars and providing many thousands of hours of volunteer effort. In contrast to 2008, the AFL-CIO and individual unions such as the NEA, SEIU, and AFSCME kept their campaign organizers mobilized in the weeks after the election to fend off a presidential capitulation on two key issues. They demanded: keeping the commitment to raise taxes on the rich and a firm defense of Social Security, Medicare, and Medicaid. Some observers found it odd that labor emphasized these issues rather than making a push on jobs, but the reasoning of AFL-CIO President Richard Trumka was that these battles were the Democratic high ground. If Obama hung tough on them, he would achieve a major victory, weaken Republicans, and avert a disabling fiscal deal. With some wiggle room preserved in the budget, it would be easier to come back for jobs spending later.
Labor’s strategy was not to implore Obama but to get firm commitments out of House and Senate Democrats not to vote for any budget deal that cut Social Security and Medicare or failed to raise taxes on the well-to-do. Washington lobbyists can’t always get a meeting, but key leaders from back home can. The week after Thanksgiving, union leaders from 33 states met with most of the House and Senate Democratic caucus, noted which Democrats were equivocal, and followed up with pressure on wavering Democrats in their districts. The Capitol Hill lobbying by local labor leaders, bolstered by a strong presence back home, strengthened the collective spine of the congressional party, which was already somewhat to Obama’s left, making it more difficult for the president to cave. Although the unions did not get everything they wanted, their actions demonstrated how a grassroots presence combined with shrewd Washington lobbying can exert influence.
One good way of creating presidential running room is to set agendas that embarrass Republicans, magnify divisions in their coalition, and eventually win votes in Congress. Everyone’s candidate for an early priority on that front is immigration reform. Success enhances presidential prestige and opens up space for bolder actions down the line. Even so, given the recalcitrance of the Republican House, much of Obama’s success will involve executive actions that sidestep Congress. He has a lot of executive power if he will use it, and one of his prerogatives is the power to appoint.
As president, Obama has been getting his advice from a narrow group that represents the fiscal center-right. He owes it to himself to broaden the circle. In his first administration, Jared Bernstein, nominally the vice president’s chief economist but a de facto member of the senior policymaking team, was a progressive voice at the table. During the period of the auto rescue, labor’s most astute investment banker, Ron Bloom, provided a counterweight to Wall Street influence and continued for several months as the president’s adviser on industrial competitiveness. Both left the White House in 2011. Now, the closest thing to a progressive in the president’s inner circle is the chair of the Council of Economic Advisers, Alan Krueger. But the top team at the Treasury plus economic policy chief Gene Sperling and White House chief of staff Jack Lew have much more influence than Krueger, and they are first and foremost fiscal-balance guys.
Obama should be hearing directly from more people who understand that budget balance neither creates jobs nor produces the public and private investments on which a strong recovery depends. In the Clinton administration, Robert Reich was a forceful labor secretary who had access to the president when he needed it. He served as an important counterweight to the financial conservatives at Robert Rubin’s Treasury. The current labor secretary, Hilda Solis, is an outer planet when it comes to exercising policy influence in the cabinet. Obama, if he is to avoid four years of slump, has to be a lot bolder. So do the progressives who make up the Democratic base.
Even without legislation, the president has executive powers that he hasn’t maximized. Two of the biggest drags on the recovery are the overhang of homes worth less than their mortgage debt, and the trillion dollars of student debt sandbagging younger adult Americans in a weak job market. The two are directly related. Homeownership among people age 25 to 34 is at a three-decade low, because households carrying large student-debt obligations can’t qualify for mortgages. Serious debt relief on both fronts would make a huge difference, both politically and economically. But grassroots movements for student and mortgage relief, though creative, have been fragmented.
A key player in debt relief could be the Federal Reserve. Normally, the Fed is far more risk-averse than the executive branch when the issue is whether to create more money to stimulate the economy. But as a depressed economy enters its sixth year, Chair Ben Bernanke is playing against type. Bernanke has been champing at the bit for more effective action by the administration. Obama should recognize the ally that he has and take Bernanke up on it. When the banks were on the ropes, the Fed purchased securities to get bad paper off the banks’ books and replace it with cash. The Fed could do the same with securities backed by underwater mortgages—but pass on the savings directly to homeowners.
The administration’s signature programs for mortgage relief have been notable failures. The Home Affordable Mortgage Program allows for a reduction in monthly payments, while a sister program, the Home Affordable Refinance Program, permits refinancing for homeowners with mortgage debts that modestly exceed the value of the home. But the banks retain huge discretion over who gets loan modifications, and the people who most require the help can’t qualify. The Fed has advanced huge sums to banks at interest rates close to zero. The Fed could condition these advances on lending programs that include reduction of principal, so that more underwater homeowners can get refinancing.
So far, with more than one home in five still carrying mortgage debt more than the value of the house, and with at least 10 million homeowners at risk of losing their homes, only about 1.3 million homeowners have gotten help through the affordable mortgage program. Although home prices have bottomed out and have begun to rise in most metro areas, they are still down about 30 percent from their pre-crash peak in 2006.
The country needs a massive program to reduce the principal owed on underwater mortgages, using refinancing at today’s record-low interest rates. When banks were tottering in the fall of 2012, the Treasury and the Fed pumped trillions of dollars into the banking system. But today, the banks are sitting on nearly $2 trillion that they won’t lend because they don’t see profitable lending opportunities in a deflated economy. The time has come for the Treasury and the Fed to get money on this scale into the pockets of consumers directly, through loan forgiveness and refinancing measures. The Federal Reserve, using emergency authority that Congress gave it during the Great Depression, invented special lending and bond-purchase programs to help the banks. The latest of these buys $40 billion a month worth of mortgage-backed securities, many of them collateralized by loans whose market value is underwater. The Fed could condition these purchases on reduction of principal. It could also bypass the big banks and work with credit unions to offer refinancings.
A parallel is the case for student-debt relief. Recent graduates begin their adult lives encumbered with crushing debt in a bleak job market. This toll on their purchasing power is a huge macroeconomic drag on the recovery.
Had Congress squarely faced this issue two decades ago and asked whether we wanted to sandbag the next generation with a trillion dollars of debt, few legislators would have voted for such a policy. But due to a combination of dwindling state support for public universities, inflation in college costs, and a shift of federal grant aid to student loans, America backed into just that policy. It is now not only an obstacle to the recovery but a huge generational injustice.
Three decades ago, most boomers graduated college without being encumbered with debts. But except for the offspring of the wealthy, today’s young people begin economic life with lead weights tied to their feet. This increases class disparities as well as generational ones. Addressing the economic catastrophe of student debt would be smart politics for Obama. It would offer tangible help and reinforce the allegiance of younger voters, who supported Obama’s re-election by wide margins. Republicans would resist at their political peril. Obama did sponsor successful legislation to allow some recent graduates to opt for paying a share of their incomes as a way of paying off student debt. But only a small minority of those carrying college loans qualify. This policy needs to be expanded to all students.
For those graduates carrying old debts, Congressman Hansen Clarke of Michigan has introduced important legislation, the Student Loan Forgiveness Act. The proposed law would cancel student loans if graduates had paid 10 percent of their discretionary income for ten years. In the case of graduates working in public-service jobs, the debt would be canceled after five years. The interest rate would be capped at 3.4 percent.
As a candidate for re-election, Obama understandably emphasized the positive—that the economy has created nearly five million jobs since the pit of the recession; that unemployment has come down from more than 10 percent to less than 8 percent. But now it is time for him to stress how far we still have to go. Most of the jobs the economy lost paid much better than the new jobs do. More than 20 million Americans are still looking in vain for full-time jobs. The economy will need a massive recovery program if we are to get back to full employment.
Here, the politics are trickier. While the voters dearly want a stronger recovery with more and better jobs, they are not sure that they trust government with a direct jobs program. In September 2011, under pressure from the labor movement, Obama proposed a $447 billion American Jobs Act, with funding for school repair, hiring of teachers, an infrastructure bank, and a good deal more. Then he decided not to make a major issue of it in the 2012 campaign.
But superstorm Sandy provides the context for a new presidential initiative on infrastructure investment. As a national imperative, the business-led slogan “Fix the Debt” just got overtaken by a more urgent need: “Save Our Coasts.” Cleanup from Sandy will easily exceed $60 billion. Beyond that, we will need a multiyear public-investment program well into the hundreds of billions to protect low-lying areas from future superstorms as the ice caps melt and the sea levels rise. Even those who doubt that carbon emissions have caused the melting cannot deny that it has occurred—and will intensify. A five-foot rise in ocean levels will submerge major portions of our coastal communities. If a conservative, in the cliché of the 1970s, was a liberal who just got mugged, a big-government progressive nowadays is a conservative whose state was just flooded.
In World War II, massive public spending cured the Great Depression, even though nearly all of that spending went to underwrite destruction. What if a comparable burst of public investment went for rebuilding? With all of his inspirational skills, Obama could challenge Americans to make this our next great endeavor—not another “stimulus” but a program of necessary public investments.
America requires not just seawalls and storm barriers but also a thoughtful process to determine which low-lying areas are worthy of reconstruction aid. Hurricane Sandy is a reminder that we have deferred investments to modernize and harden our power stations and electrical lines, water and sewer systems, and our tunnels, bridges, subways, and highways against future storm surges. In order to keep climate change from worsening, we must redouble our efforts to shift to renewable energy.
In terms of conventional budget politics, the money supposedly just isn’t there. But when al-Qaeda attacked on September 11, 2001, we found the money. Indeed, we found far more than was necessary, to fight two wars of choice—more than $3 trillion over a decade. The increasing risk of future catastrophic floods is a national emergency on a par with a military threat to America’s national security.
In his September 2011 jobs bill, President Obama proposed an infrastructure bank with just $10 billion in federal funding that was supposed to “leverage” as much as $640 billion in private investments. But the premise is questionable, unless we want all our public facilities privatized. What’s required is a true public-infrastructure bank at a much larger scale. It could be underwritten by special 50-year bonds to be purchased by the Federal Reserve. Interest rates have never been lower. The economic activity, employment, and technical innovation stimulated by this program could help produce a durable recovery with rising wages. If Republicans try to block it, this is a political fight the president could win.
One of the inexplicable failures of Obama’s first term was the lethargy with which the White House sent up judicial appointees. This has combined with Republican obstruction to create an unprecedented level of vacancies on the federal bench, triple what it was at this point in the Bush presidency. It was predictable that the Democrats were likely to lose some Senate seats in the 2010 midterm. Newly elected presidents invariably do, and several individual Democrats were vulnerable. But Obama’s people took forever to select and vet judicial nominees.
After their midterm victory, Republicans intensified their blocking of appointments. Currently 78 district court and court of appeals judgeships are vacant—about 100 if one counts judges who will soon retire—and only 39 nominees are even pending. During Obama’s first term, the number of vacancies increased by 51 percent. During Bill Clinton’s and George W. Bush’s first terms, vacancies declined dramatically. The number of empty federal judgeships considered “judicial emergencies” by the Administrative Office of the U.S. Courts has risen from 20 at the beginning of Obama’s term to 33. It is likely that Democrats will also lose some Senate seats in the 2014 midterm, so Obama needs to be much faster off the mark this time.
During Obama’s first term, the alibi given to exasperated advocacy groups was that the White House was preoccupied with other business—cabinet and subcabinet appointments, the economy, the health-care bill—and Gregory Craig, the then–White House counsel, was focused on Guantánamo. To complicate matters, the Justice Department group responsible for new judges was in a turf war with the White House.
Progressive groups concerned with constitutional issues, such as the Leadership Conference on Civil and Human Rights, People for the American Way, and the Alliance for Justice, have pleaded with the White House to streamline the process, but to no avail. “The administration,” says Nan Aron, president of Alliance for Justice, “needs an all-hands-on-deck approach this term, including a more active role by the Justice Department, a task force in the White House dedicated to finding and confirming nominees for every vacancy, and, most importantly, a more assertive personal role for the president himself.”
Barack Obama surely grasps the stakes. He was a constitutional law professor, after all. But the broader progressive community needs to make judicial appointments a bigger issue, because reactionary courts could overturn everything else that progressives are fighting for.
Two good examples of the use of executive power from Obama’s first term are blocking the Keystone XL pipeline and achieving at least a down payment on the Dream Act by suspending the deportations of undocumented residents brought here as children. This embrace of immigrants split the Republican coalition and demonstrated that progressive policies were smart politics. Republican leaders were surprisingly muted in attacking what might have been criticized as a presidential power grab, because Obama had the public on his side. Blocking the Keystone pipeline was more difficult politics, since it split the Democrats, with environmentalists in favor and many blue-collar voters and trade unionists opposed.
These policy shifts did not result from a sudden presidential change of heart or even from an election-year recalibration. They reflected extensive grassroots organizing married to smart Washington lobbying. Latino groups have been pressing Obama to suspend deportations since he took office, especially once it became clear that Republicans would block Dream Act legislation. But they were repeatedly told that the president lacked the legal authority. Only after grassroots organizations such as United We Dream began haunting campaign offices and warning Democrats not to take political support for granted, did the White House discover that the president had the legal right to suspend deportations after all.
Obama’s decision, in January 2012, to reject the application for the Keystone pipeline, after conservative Democrats had joined Republicans to pass legislation giving the president a 60-day deadline to act, was a huge victory for environmentalists. Here, too, the president’s hand was forced by grassroots organizing. The coalition opposing the pipeline included the Sierra Club, the National Wildlife Federation, Friends of the Earth, Greenpeace, and the Rainforest Action Network. Environmental writer and activist Bill McKibben mobilized tens of thousands of protesters through 350.org, and direct actions included more than a thousand nonviolent arrests at the White House in August 2011. President Obama did endorse the southern leg of the pipeline, which extends from Cushing, Oklahoma, to the Gulf Coast, but the larger project that goes from Alberta, Canada, to multiple U.S. destinations is still in limbo and could yet be approved. Mass demonstrations have been planned for February in Washington, to persuade Obama to kill the pipeline once and for all.
For his second term, what other executive actions might embarrass Republicans, energize the progressive base, and deliver substantively good policies? One example is tax enforcement, especially of offshore tax evasion. For more than a decade, Senator Carl Levin of Michigan has done heroic work pointing to the hundreds of billions of dollars lost to revenue collections through the use of tax havens. This is low-hanging fruit. By cracking down on tax evasion, the government can narrow the budget deficit without raising rates. A crackdown also conveys an important ideological and political object lesson in terms of who the tax evaders are. Not surprisingly, they are the superrich. Nobody else goes to the trouble to set up offshore accounts and shell corporations.
Making a big push to go after high-income tax cheats also jams the GOP. Republicans have been urging Congress to close loopholes rather than raise rates. Offshore evasion by the superrich is the biggest and least defensible loophole of all.
Either Republicans put their money where their mouth is, or they remind Americans that they side not just with the 1 percent but with the tax-evading 1 percent.
The more the government collects of this money, the less it has to raise other people’s taxes. But Levin, despite being a senior Senate Democrat has found little receptivity in the Obama White House or at the Treasury. At the Internal Revenue Service, the recently departed commissioner, Douglas Shulman, was a Bush administration holdover (the IRS commissioner gets a five-year term). Shulman, who came from the financial industry, is credited for a few high-profile actions but showed no particular interest in aggressive enforcement of offshore tax evasion. Nor did Obama’s political appointees at the Treasury. The appointment of a new IRS commissioner gives the president a chance to make both a symbolic and substantive difference on an issue that is a winner politically and fiscally. He should find himself a tough cop, and he should have Senator Levin at the press conference.
Another use of executive power is the exercise of presidential authority to crack down on corporations that repeatedly break labor laws. Many corporations violate not just workers’ rights to join or organize a labor union but also engage in systematic wage theft and misclassification of permanent jobs as contract work, which moves hundreds of billions of dollars from the pockets of working Americans to corporate executives and financial engineers.
Under Franklin Roosevelt’s War Production Board, a corporation that violated labor laws was ineligible to bid on military contracts. Presidents John F. Kennedy and Lyndon B. Johnson, in a period before there were the votes in Congress to pass civil-rights laws, issued executive orders requiring bidders on government contracts to recruit, hire, and promote qualified minority workers and to overcome present effects of past discrimination. President Obama could use his executive power to defend labor standards and labor law.
Early in his first term, Obama pledged to use the government’s contracting power to raise labor standards. He issued an anodyne executive order requiring contractors to post notice of workers’ right to organize unions. With much fanfare, he set up a task force under Vice President Joe Biden on middle-class jobs. The task force turned out to have a staff of two and no authority. Now, with the mandate of re-election, Obama could make these token initiatives real.
In 1989, William Galston and Elaine Kamarck wrote the influential manifesto for the centrist Democratic Leadership Council, “The Politics of Evasion.” They argued that the “liberal fundamentalism” of “litmus tests” and identity politics were killing the Democratic Party. Well, nearly a quarter-century later, at the 2012 convention, identity politics was not only triumphant; it was on display at the podium, where the right to marry whomever one loved was celebrated, as was the heroism of Latino immigrants and African American strivers and the struggle of Lilly Ledbetter to win equal pay and of feminists to defend gains on reproductive rights. What used to be disparaged as minority politics was in fact the American mosaic that re-elected Obama and pushed him to the left on social issues.
These diverse groups had in common movements for social justice. The challenge now is to strengthen movements for economic justice. The Occupy moment gave the country a slogan but not a durable movement. The choreography is just what it was in the (probably apocryphal) story of Roosevelt’s injunction to a group of activists after a high-blown presidential policy speech: Now, make me do it.
Obama needs to move quickly. Other things being equal, he will be up against the six-year jinx. Traditionally in American politics, the president’s party performs badly in the midterm after his re-election. Either the president overreaches, miscalculates, or suffers from battle fatigue, or the public just hankers for a change. This time, other things are far from equal because of a fragile recovery and a vulnerable 2014 Democratic Senate class.
In 1938, the sixth year of the Roosevelt presidency, the Democrats got clobbered, because of two disastrous presidential misjudgments. Roosevelt not only tried and failed to pack the Supreme Court; he took the advice of fiscal conservatives and cut spending, triggering the recession of 1937. Democrats lost 72 House seats. In 1958, the sixth year of the Eisenhower administration, Democrats made a huge comeback, picking up 49 seats in the House and an astounding 16 in the Senate.
Ronald Reagan, fresh from a 49-state re-election triumph in 1984, also lost ground six years into his presidency; in 1986, Democrats took back the Senate with a gain of eight seats. The one exception to the pattern was 1998, a year of prosperity and peace, when the Republican effort to impeach Clinton backfired and the Democrats picked up a few House seats.
Obama’s Democrats will be doubly vulnerable in 2014, both because of the lingering economic slump and because several Democrats who squeaked into the Senate in 2008 will be at risk. Democratic Senate candidates managed to beat even longer odds this year, but the electorate will be smaller and whiter in 2014, as it was in the disastrous Democratic defeat in the off year of 2010. As many as nine vulnerable Democratic Senate seats are up in 2014: Mark Begich (Alaska); Mark Pryor (Arkansas); Mary Landrieu (Louisiana); Al Franken (Minnesota); Jeanne Shaheen (New Hampshire); Kay Hagan (North Carolina); Jeff Merkley (Oregon); Tim Johnson (South Dakota); and Jay Rockefeller (West Virginia)—and no vulnerable Republican ones. Should Susan Collins retire in Maine, Democrats might pick off that seat. But of all the Republicans defending seats in 2014, only Minority Leader Mitch McConnell of Kentucky won last time by less than ten points. Barring a miracle, the Democrats will lose at least two or three net seats.
If Republicans take back the Senate in 2014, Obama will be stymied in his final two years. All of this is reason for our president to pursue a much stronger recovery program right now, so that even if the economy is not all the way back to high growth and full employment, at least it will have turned the corner.
When Barack Obama was elected in November 2008, he had the opportunity to be a transformative president, because the financial collapse had discredited both laissez-faire ideology and Republican stewardship. Instead, Obama tried to seek common ground with an opposition determined to destroy him. He got too cozy with Wall Street, leading the Tea Partiers to champion populist frustration. In 2012, he won re-election by 3.7 points against a divisive Republican nominee, Mitt Romney, who seemed to personify everything that voters resented about the clueless rich.
Now, Obama has a chance for a do-over. The Republicans are on the wrong side of public sentiment on a broad array of public issues, ranging from taxing the rich, to cutting Social Security and Medicare, to same-sex marriage, gun control, and immigration. The country’s demographic shifts are also against the Republicans. As the January vote on the fiscal cliff showed, they are divided on whether to respond pragmatically or as purists. Once again, history has given Obama a chance to lead rather than follow public opinion. We will soon learn whether he seizes it.