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The Democratic Strategist

Political Strategy for a Permanent Democratic Majority

TDS Co-Editor William Galston: While Obama Speechified, His Political Predicament Got Worse

This item by TDS Co-Editor William Galston is cross-posted from The New Republic.
In his State of the Union address, President Obama executed his well-advertised double pivot toward job generation and fiscal restraint. Almost lost in the pundits’ babble was the release of a CBO report, “The Budget and Economic Outlook: Fiscal Years 2010 to 2020,” coupled with CBO director Doug Elmendorf’s testimony to the House and Senate budget committees. CBO’s analysis makes it clear just how daunting the employment and fiscal challenges are over the next decade . . . and how perilous the political terrain will be for the Democratic Party.
Let’s start with jobs. For a variety of structural reasons, despite the severity of the recession, CBO predicts a slower-than-average recovery, with fourth-quarter to fourth-quarter GDP growth of only 2.1 percent in 2010 and 2.4 percent in 2011. This means that unemployment this November is likely to be about where it is right now—namely, 10 percent. At the end of 2011, it will stand at 9.1 percent. As growth accelerates in 2012, unemployment will decline more quickly, but it will still be high by historical standards—between 7.5 and 8 percent—on the eve of the next presidential election. Assuming no new recession, we won’t return to full employment until 2016.
These projections are very bad news for middle-class Americans—and for politicians as well. A midterm election conducted in these circumstances is likely to go poorly for the majority party, all the more so because no one thinks that the short-term measures the president proposed will make much of a difference over the next ten months. And no president wants to begin his campaign for reelection with unemployment over 9 percent.
What about the fiscal situation? Using the legally required baseline assumptions, the budget deficit is expected to average about $600 billion a year between 2011 and 2020, and the debt-to-GDP ratio would rise from 53 percent to 67 percent. Using more realistic assumptions, the annual deficits would be much larger, and the debt would reach nearly 100 percent of GDP. Almost no one thinks that our economy could sustain this level of borrowing and debt accumulation without severe damage, including soaring interest payments that would crowd out needed public and private investment.
It’s hard to avoid the conclusion that, while Obama has accurately identified the economic challenges we face, the responses he has proposed thus far are woefully inadequate. Last week, he told Diane Sawyer that he’d rather be a successful one-term president than a mediocre two-term president. Unfortunately, there’s a third possibility. To avoid it and become the transformational president he clearly wants to be, he must challenge his administration, his party, and the entire political system to acknowledge the true scope of our ills and embrace solutions commensurate with the problems.

One comment on “TDS Co-Editor William Galston: While Obama Speechified, His Political Predicament Got Worse

  1. zlotocha on

    The CBO projections do point to a pretty dire political terrain. However, it’s important to note these are just projections. That doesn’t mean ignore them, but it means there’s more hope than the numbers suggest.
    For instance, at one year further along into Reagan’s presidency (and closer to re-election) in comparison to Obama right now, Jan. 1983, the unemployment rate stood at 10.4%, and the CBO released a report that month that pointed to projections that the rate would only decrease to 9% by the end of 1984, re-election time (see p. 83). In reality, by Nov. 1984, the rate was down to 7.4% and dropping, driving — in part — Reagan’s landslide victory that year.
    That’s not to say we can count on the same this time around, and no matter what the news probably won’t be good enough to save the Dems in the elections this fall, but it’s important to keep in mind that projections are just projections, and there is a historical precedent for a president winning reelection (handily, no less) w/ an unemployment rate in the mid-7% range, assuming the trend is downward.
    Full link to CBO report:
    http://www.cbo.gov/ftpdocs/50xx/doc5054/doc04a.pdf

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