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The Democratic Strategist

Political Strategy for a Permanent Democratic Majority

TDS Co-Editor William Galston: What Obama Should Do Next

This item by TDS Co-Editor William Galston is cross-posted from The New Republic.
President Obama has an opportunity on his hands. Now that he’s cut a grand tax-cut bargain with Republicans, the time is ripe–from both a policy and a political standpoint–to shift toward a comprehensive program of fiscal stabilization and economic growth, integrated into a narrative of American success in the twenty-first century. He should do so during next year’s State of the Union address, which, if used correctly, may well be the pivotal speech of the Obama presidency.
This is how the situation stands: Because of the tax deal, Congress no longer needs to worry about passing additional economic stimulus to boost job creation, since in tandem with the Fed’s $600 billion bond-purchase program, Obama’s agreement offers a substantial short-term injection of cash that could increase growth by 1 percent or more. There is now zero excuse for legislators to ignore the long-term budget problem and put off measures that would repair America’s economic competitiveness. Additionally, Obama has a political window in which to make substantial progress on those goals, because many of the necessary policies have at least some bipartisan support. The following is a point-by-point look at what he should say in January and at the policies he should pursue during the next two years.
Substantively, Obama’s new agenda should focus on two overriding objectives: Stabilizing our long-term budget situation, and laying the groundwork for sustainable economic growth. This is easier said than done, of course, but it’s possible to come up with some immediate proposals that would take us a long way toward success. Let’s start with the budget:
Discretionary Spending: First, as budget veterans predicted, the president’s early pledge to scrub the budget line-by-line has come to naught. There’s only one way to trim discretionary spending: Obama should propose multi-year caps or freezes, defended by rigorous budget procedures. To make this work politically, defense and domestic programs must be treated symmetrically. Starting no later than 2015, all foreign combat commitments should be fully paid for, with a war surtax if necessary.
Tax Reform: The most encouraging surprise of the past year has been the development of an emerging consensus on structural tax reform. Liberals accept the concept of broadening the base and lowering rates, while conservatives acknowledge that many tax preferences represent backdoor spending. Done right, tax reform–corporate as well as individual–can both accelerate growth and increase revenues. Obama should announce the goal of getting reform done before the end of the 112th Congress.
Social Security: While Social Security reform that stabilizes the program for the long-term would have virtually no impact on the budget over the next decade, getting it done would begin to restore confidence–now lacking abroad as well as here at home–that we are capable of governing ourselves. President George W. Bush’s failed 2005 effort made it clear that there is little support for changing the program’s basic structure. A consensus on a package of modest benefit and revenue adjustments is within reach–if Obama commits to it.
Medicare: Many budget-watchers will point out that is not mainly Social Security, but the astonishing explosion of Medicare costs that are at the heart of our long-term fiscal difficulties. They are absolutely right, but nonetheless, this is not a problem that Obama should attempt to solve during the next two years. There’s a reason for this: During that time period, there is no possibility of consensus. The president should frankly acknowledge that disagreement. During the 112th Congress, he could say, Democrats will be trying to promote–and the Republicans to prevent–the implementation of his health reform law. But at some point, the argument must end, and we must work together within some shared framework to foster coverage and quality while lowering costs.

Obama’s agenda should be equally zealous about promoting long-term economic growth. Here, again, are some initial steps he might call for in his State of the Union:
The Infrastructure Bank: As a candidate, Obama repeatedly called for a National Infrastructure Bank that could mobilize private capital on behalf of projects that contribute to economic efficiency. As the “Build America Bonds” program ends, that proposal is more important than ever. The president should make it a centerpiece of his agenda.
Free Trade: Having negotiated a revised trade treaty with South Korea, the president should commit to ratifying it–and other long-stalled agreements–with substantial bipartisan support. He should frame that commitment as essential to his announced goal of doubling American exports. If Germany, which pays higher wages than we do, can successfully export in a global market, then so can we.
Immigration Reform: With the emergence of populous, dynamic lower-wage economies in China, India, and Brazil, we can only thrive by accelerating innovation. To do that, we need a highly skilled workforce with as many entrepreneurs as we can get. In that context, our current immigration policy makes no sense. As New York Mayor Michael Bloomberg put it in a recent speech, “We educate the best and brightest from around the world, and then we tell our companies that they can’t hire them. We ship them home where they take what they learned here and use it to create companies and produce that compete with others.” And Bloomberg drew the obvious conclusion: “Any person with the skills our companies need ought to be able to work here. And any entrepreneur with capital to invest ought to be able to immigrate here.” If President Obama is serious about boosting business confidence as a key to growth, adopting Bloomberg’s proposals would make a pretty good start.
Education Reform: The president should couple this pro-growth, pro-innovation immigration policy with others that move us in the same direction–and that means refusing to back down on his education reform agenda. Obama should underscore and defend his efforts to improve high schools, invest in community colleges, and increase graduation rates. Working out a reasonable regulatory modus vivendi with the private sector, which is increasingly becoming involved in education reform, would help too.
All of these efforts lend themselves to a single, coherent narrative. Obviously, President Obama has his own speechwriters, but here are some building blocks that he could use to shape what he says in the State of the Union:
First, Obama could say, we’ve faced our current challenges–and worse–throughout our history. From time to time, we’ve succumbed to pessimism and toyed with the possibility of national decline. We’ve always snapped out of it and gone on to greater things. That’s America’s story, and it’s up to us to write the next chapter. We can do it.
In the past few years, we’ve all learned a painful lesson: There’s no short-cut to prosperity. We can’t rely on paper profits, financial wizardry, or even rising home prices. Nor can we rely on ever increasing consumption. We must get back to basics, by saving and investing more and producing goods and services with real value to customers at home and abroad.
What makes us special is the diversity of our population, our openness to innovation and entrepreneurship, our willingness to reinvent ourselves, our commitment to liberty and opportunity. It is on these enduring strengths that the future of our economy and society must be built. In short, the president should turn American exceptionalism (which the public continues to endorse) to his own purposes.
There’s nothing wrong with a touch of nationalism either. After World War II, the president should say, we reached out a hand to our defeated foes. Through the Marshall Plan, we gave a prostrate Europe the chance to get back on its feet. Throughout the Cold War, we fought communism with international economic aid. Today, we’re helping countries provide their young people alternatives to involvement in terrorism. We’ve rebuilt everyone else; isn’t it time to rebuild the United States of America?
This is just one option for the State of the Union address; there are many others. But all the good ones have some things in common: They speak directly to our economic circumstances and to our fears; they are equal in scope and ambition to the magnitude of the challenges we face; and they embed specific policies that make sense in a broader success story–a narrative that points the way to a brighter future. At the beginning of the next Congress, we will find out if Obama is able to seize his historic opportunity.

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