Last week, Republican Scott Brown’s decisive win in liberal territory (Massachusetts) added another impediment to the would-be political machine that Democrats have been trying to build. Going forward, the Democrats’ future success depends crucially on how they respond ““ both directly and in their policy formulations ““ to this embarrassing occurrence.
The White House is clearly shaken. President Barack Obama’s aides have already begun talking about a presidential “pivot” in response to the party’s humiliating defeat, which followed other losses in Virginia and New Jersey last fall. Robert Gibbs’ hangdog expression at this week’s press conference highlighted the sense of shame and worry.
However, a pivot might be hard to come by ““ even for this president, who many still believe is unencumbered by the limitations of normal human beings. That is because while most presidents reserve their first years for themselves, Obama outsourced practically all of his power and important decisions to the legislative body ““ Congress ““ and its premiers ““ Harry Reid and Nancy Pelosi.
This loosening of political control created an impossible situation for the young president. Pelosi and Reid, realizing that they would likely never have such an opportunity again, went on a policy spree, selecting their favorite causes and narrowly tailoring every piece of legislation to suit their interests.
It is in the nature of our political system that every politician tries to enact policies that conform to the wishes of his or her constituents. With the exception of the president, however, no politician always has the interests of the entire nation in mind. Rather, each theoretically acts only on behalf of the people in his or her district, which can be large if you are a senator but small if you are a congressman.
With Congress truckling to the demands of all its separate constituencies, the interests of the country at large largely fell by the wayside. It is no surprise, then, that a health care bill, large portions of which were drafted by people from particular states, did not sit well with people from other states.
Congress is widely considered the greatest deliberative body in the world, but all those competing interests make it very difficult to devise something that covers the whole of the population and that everyone can still agree on.
Obama apparently did not consider this fact when he delegated the commanding heights of his power to Congress. The consequence of this myopia is that after a year of one-party rule, he still does not have anything he can claim as a resounding victory for his party.
Health care, as I already mentioned, is slogging on but has lost all of the considerable momentum it once had. Cap and trade passed in the House, but voter outrage has made its march to the Senate increasingly fraught with peril.
The one area in which Obama has played an active role, the economy, is now the place where there is the greatest fear.
While the positive performance of the stock market in the past few months is encouraging, other vital signs are pointing in the other direction ““ which is to say, toward a longer period of economic stagnation than we would expect from a country coming out of a recession.
Usually, periods of contraction like a depression or a recession are followed by periods of flywheel growth. This was the case following both World War II and the 1982 recession.
However, despite massive cash injections courtesy of the trillion-dollar stimulus package (which was supposed to be the Obama administration’s economic tour de force) the figures of economic prosperity have so far failed to mobilize themselves.
The unemployment rate, which should theoretically diminish when the economy is improving, has refused to recede from double digits and, as George Will points out, is still far less than the underemployment rate (which is pegged at 17.3 percent).
Even more eerily, the public debt has grown to such proportions (some say it could eventually reach 100 percent of gross domestic product) that we now have to begin thinking about future crises while we are still in the throes of the current one.
This wall of debt, in addition to hampering our ability to get out of future recessions, will undoubtedly also drive interest rates higher, ending the false illusion of prosperity created by the Fed’s current zero-rate policy.
Obama’s failure to recreate the post-recession boom is a serious indictment of his economic program, which makes it ipso facto an indictment of liberal economic theory in general.
After all, unemployment and debt are directly correlated both with the policies Obama has already put in place and those that he has only threatened to put in place (for instance, higher marginal tax rates).
The real question now is whether Obama will choose to stand behind these economic modalities or discover that his political salvation depends on adopting a new set of principles.
If he does the former, continuing to rely on government spending to ameliorate the economy, he will have to be much more vigilant about directing where the money goes. That is, it cannot simply take the form of a cash transfer from the federal government to the states (as in the case of the original stimulus package) where the states use these gifts to prevent axing entitlement programs. That is not stimulative.
The better part of wisdom says that it is preferable to stop spending altogether and take the other remedial approach ““ cut taxes. Liberals base their models of the country’s future economic performance on a Keynesian multiplier that many economists believe greatly overestimates the effects of government spending relative to tax cuts.
While most conventional models predict that every dollar of spending results in a dollar or less of added GDP, the Obama administration uses a wishful multiplier of 1.5 . Whatever it turns out to be, however, it is less than what has historically been accomplished by tax reductions. Indeed, this conclusion is even supported by one of Obama’s top economic advisers, Christina Romer, who contends in a research paper that every dollar of tax cuts in the past has raised GDP by almost $3 ““ far more than any spending models purport to do.
If Obama really intends to pivot this year, he will need to take power away from Congress and put it back into his own hands. More than that, he will have to break away from the liberal nostrums that have us trapped in a circle of high unemployment, and move toward a system of moderate reforms, including reduced spending and lower taxes.
This may be repugnant to Obama’s ideological instincts, but it’s easier than battling a myriad of economic demons for what’s left of his first term.
E-mail Pherson at apherson@media.ucla.edu.
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