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The Democratic Strategist

Political Strategy for a Permanent Democratic Majority

A New Economic Strategy for President Obama

This item is a guest post by Sheri Rivlin and Allan Rivlin, Co-Editors of CenteredPolitics.com. Allan Rivlin is also a Partner with Hart Research Associates/Garin Hart Yang.
Now that the White House has announced that it plans to announce a new set of jobs proposals in September we can see it as a welcome sign–but not if it is just an effort to give President Barack Obama a new economic message heading into the 2012 presidential election. Obama doesn’t need a new economic message for the 2012 campaign; he needs a new economic strategy right now, because America needs strong economic leadership today as much as at any time during Obama’s presidency.
Consider these facts:
The economy, stupid: Obama was elected to do just one thing, fix the economy. He hasn’t. The economy is still stuck in that ditch he was talking about last year and there are real signs beyond stock market gyrations that the economy may even be slipping backward. It is certainly not moving forward at an acceptable pace, and the latest Gallup Poll pegs Obama’s job approval on the economy at just 26%.
Small is not beautiful: The sorts of limited talking point proposals the President and surrogates have been mentioning recently will help create an impression that he is doing something about the economy, but that is not the same as actually doing enough to get the economy moving. The US economy and the world economy need bold action to increase liquidity and increase demand. The vicious cycles must be turned virtuous. People need money to spend to create the demand that will cause businesses to hire workers.
Democrats do not know what they believe. Democrats have lost their identity when it comes to economic philosophy, with doubts and divisions about how to balance the need for job creation with concerns about long-term debt. Congress waited all winter, and then all spring, and now all summer for the White House to take the lead on a job creation agenda – and it seems the White House was waiting for Congress to lead. Right now, only Obama can lead the party back to confidence.
The next deadline is now. Many have been focused on the next act in the debt ceiling showdown, as members were named to the “Super Committee” set up to report in November. But federal government funding runs out at midnight on September 30, and the government will shut down unless Democrats and Republicans agree on a new plan to fund FY 2012 which starts October 1.
The Tea Party has peaked. It is clear Obama feels constrained by House Republicans but their influence peaked with the last deal. Some excellent reporting by the Washington Post lets us appreciate the well-planned and executed Republican maneuver to use the vote to raise the debt limit as an opportunity to exert influence over the federal budget. But it was an ambitious act without an encore. The peak moment of Tea Party influence was timed for that conflict but that moment has passed.
Democrats will have all the leverage this fall. House Republicans had all the leverage in the debt ceiling battle because Republicans knew Democrats could not accept the risk of a government default. An October government shutdown would not be so bad for President Barack Obama or House Minority Leader Nancy Pelosi but it would be intolerable for House Speaker John Boehner. (More on this below because it is the key strategic point.)
All of this points to the imperative for President Obama to re-take leadership of the global economy by putting forward a new economic plan that sets a goal not of stopping deterioration, but of returning America to what Americans believe is their right: economic growth and prosperity.
A bold but balanced economic vision. What is needed is a clear articulation of what Obama believes and all Democrats can defend. Both of necessity and providence it must balance the economy’s need for job creation in the short term with realistic plans to control the long term deficit. But it cannot be a compromise that fails to do either well. There has to be enough job creating activity to get the economy moving forward in the next 12 to 18 months – even if there is also enough serious deficit reduction to keep America on a sustainable path over the next 20 to 50 years.
The two goals are not contradictory. Rather, they are mutually reinforcing as President Obama said: “The good news here is that by coming together to deal with the long-term debt challenge, we would have more room to implement key proposals that can get the economy to grow faster.” Democrats need to be bold and creative in making the case for billions of dollars in short term economic job creation. And Democrats must be just as bold in addressing the long term debt in order to have credibility and capital to address our needs today and in the future. We must continue to be willing to make reasonable changes in government programs to keep our promises in line with our resources over the long term. We can and must do both.

Obama must redefine Modern Keynesianism for 2011. If only Democrats could turn to advisors who had faced down both economic and political challenges like the ones we are now facing. The good news is that we can, but the bad news is that they are all dead. More than a few economic analysts, most notably Paul Krugman in the New York Times, have noted similarities between these times and the Great Depression years of the 1930’s.
President FDR’s adoption of the ideas of the English economist, John Maynard Keynes, was slow and halting and took several years. But after succumbing to intense pressure to cut spending due to the size of the deficits he incurred, eventually in 1939 FDR fully embraced Keynes’s ideas for increasing borrowing and spending, which went unquestioned once America entered World War II, and which put America on a path to a period of unprecedented prosperity.
Obama, and all Democrats, must re-commit to the successful “New Deal” Keynesian economics now, but it must be a modern Keynesianism for today’s global economy, and economic realities. The same policies that worked in 1939 and helped stave off a great depression — after Republican economic policies failed in 1929 — also worked in 2009 — after Republican economics failed again in 2008. Democrats have earned the right to believe their economics works even if experience tells us sometimes it works only painfully slowly when the hole is a deep one.
But wouldn’t bold proposals be DOA in Congress? No. Republicans had a veto this summer but not this fall. The House Republicans will never be able to match their level of influence in the next rounds of negotiations. Their leverage was based in the knowledge that Obama had zero willingness to let the government default, so they could call his bluff. But the threat of a government shutdown reverses the leverage because it would be entirely unacceptable to Boehner and the Republicans. As Boehner learned firsthand in 1995-96, Republicans lose shutdown battles because even though many Americans complain about government in general, Americans like a lot of specific things government does. Many voters may view Washington as a sea of acronyms, but take away the FAA for a few days and people notice. The same would be true of USDA and FDA food inspectors, and the Veterans Administration, and on and on. Republicans are realizing this, as reflected in House Majority Leader Eric Cantor’s warnings to his own troops to be more flexible in the fall.
Knowing this, Obama must join House Minority Leader Nancy Pelosi in realizing the Democrats have to fight for job creation in the next budget battle and be willing stand firm for their approaches and values. Obama needs to put forward an aggressive but balanced plan for short-term, medium-term, and long-term economic policy now because there is a very good chance that after some posturing, some brinkmanship, and even a week or two of standoff in the form of a government shutdown, the Republicans will end up accepting something quite close to the next plan Obama puts on the table.
Of course, there is no leverage if no one uses it. Obama had a similar advantage in the spring budget negotiations, but there was no shutdown. Perhaps if Obama had realized how little leverage he was about to have in the debt ceiling negotiations, and how ruthless the Republicans would be in pressing their advantage, he would have changed that trajectory by taking a firmer line in the spring. But sometimes life gives second chances, and this fall, if Obama knows where he wants to lead on the economy, he will have the leverage to pass the policy.
The key to success for Democrats is to learn the correct lesson from the Republicans’ debt limit negotiating strategy, and stick together. Many wrongly conclude that firm demands and clear line-in-the-sand ultimatums helped Republicans in the debt ceiling battle. But Democrats had plenty of lines in the sand. We just did not have the leverage or unity to hold them. What we need to succeed is common goals and mutual respect. Democrats who worry about jobs and Democrats who worry about long-term debt have both been right all along, and they each need to acknowledge the legitimacy of the others’ points of view. Excessive line-in-the-sand political posturing designed to preserve campaign issues in 2012 are ill-timed and ill-advised. Far more than campaign issues in 2012 to make it possible to govern in 2013, Democrats need leadership and cooperation now so we can show America and the world that we can solve the problems that confront us today.

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