IREF - Institut de Recherches Économiques et Fiscales
Pour la liberté économique et la concurrence fiscale
When will President Barack Obama own the economy ?
Bad economic news does not faze the president. He’s not gleeful about job loss reports and anemic growth numbers, but he does not shy away from them. He confidently announces the latest sign of bad times and clearly assigns blame to our past practices and the old regime. It’s George W. Bush’s economy, or the economy of greedy Wall Street.
But some day in the not-too-distant future, the president will squirm in delivering economic news, note defensively that the numbers really aren’t so bad and try to change the subject. That will be the day that the president’s fortunes are tied to the state of the economy.
With the president now cruising with high approval ratings and with Republicans as unpopular as they were in November, it is hard for some to imagine that a bad economy will have any negative effect.
Obama supporters have a couple of optimistic scenarios of how responsibility for the economy might benefit the president. The first is that the economy recovers just as the American people begin to say it’s Obama’s. Call it the "assigning credit instead of blame" theory. The president comes into office with dark economic clouds, but when it is no longer plausible to blame the other guy, the sun shines. Recent talk of green shoots and economic forecasts for growth in the fourth quarter play into this story line.
The second optimistic scenario is the FDR model. Here, the economy does not improve measurably, but the president is admired because he is trying everything in his bag of tricks to fix it. FDR won three elections and maintained a huge congressional majority in years of sustained high unemployment.
The American people appreciated FDR’s optimism and his frenzied introduction of new policies. He was a ball of energy ; you could not fault him for trying. And despite the continuing depression, the American people far preferred FDR to the discredited Republicans.
A third, more sober and more plausible scenario is the Reagan/Clinton start. Both inherited a bad economy upon coming into office. Both suffered defeat in midterm elections two years after winning the White House. But shortly thereafter, the economy recovered and both were able to win reelection at a time of prosperity. The economy took from the president in the midterm contests, but gave back in the bid for reelection.
But Obama may find that the economy hits him harder than he imagines. The quick recovery scenario is unlikely. Even if projections are right, growth may turn slightly positive in the fourth quarter, but unemployment may well increase through 2010. No president will want to go into the midterm election with nearly double-digit unemployment. And public perception of the economy tends to lag six months behind real developments, so a big, quick turnaround will be needed or else voters will be in a sour mood come November 2010.
Obama may also find that the economy hurts both his policy aspirations and his long-term popularity. The administration has so far been successful in using the crisis to push its agenda. Obama’s argument is that the large programmatic changes in health care and climate change are necessary as part of a package to address the economic troubles of today.
However, health care and climate change will not be taken up in earnest until later this year or into next year. By then, economic matters may cut against their adoption. With large deficits as far as the eye can see, will Democrats enact a health care plan that increases spending in the beginning with the promises of future reductions in outlays ?
And on cap and trade, Democrats not only from energy producing states but also from industrial states with high unemployment may find such a plan too hard to stomach in a bad economy. And the president is depending on his cap-and-trade program to bring in significant revenues to lower the deficit, so that failure on cap and trade might mean still higher deficits.
Finally, Obama has to face the possibility of prolonged economic difficulty. Since World War II, the U.S. has had only two consecutive years, 1982 and 1983, of more than 8 percent unemployment, and Reagan suffered politically.
Obama will almost certainly face that situation in 2009 and 2010, and perhaps beyond. Or what if economic recovery overshoots and inflation emerges ?
So sometime in the next 12 months, when you see the president hem and haw on an unemployment report, you’ll know that the bad economy is no longer good for Obama.