Obama's Economic Strategy
How will Barack Obama govern as president? One clue, I think, is the site where he chose to make his first post-election policy speech, laying out his economic stimulus plan last week.
Presumably he had many invitations and could have made it anywhere in Washington. But he chose to trek out to Northern Virginia, to George Mason University, a school known for its free market economics department. And the plan he unveiled there is not exactly what you might have expected from a politician who in 2007 had the most liberal voting record in the Senate, according to National Journal.
To be sure, he called for massive infrastructure spending, for alternative energy investment, for more health care spending – all items from the Democratic wish list. But he also called for tax cuts for individuals and businesses – the sort of thing Republicans usually press for. Three weeks ago, I put forward the guess that Obama would hold himself aloof from and above his party, much as Dwight Eisenhower did in the 1950s. It seems that, for the moment anyway, I guessed right.
All of which strikes me as good politics. Congressional Democrats are complaining about the tax cuts and calling for more public works spending – even though, for all their talk of shovel-ready projects, pretty much everyone knows that such spending won’t provide much in the way of an immediate stimulus to the economy. And that’s especially true if their environmental group allies gin up lawsuits to protect this or that supposedly endangered species from imperilment from this or that highway or bridge.
Republicans, pleasantly surprised by the presence of tax cuts, are scurrying away from the demands for all-out opposition from the likes of Rush Limbaugh and movement conservatives. They’re pleased that Democrats like Speaker Nancy Pelosi are displeased by Obama’s unwillingness to raise taxes on high earners immediately.
Obama seems to have drawn this lesson from recent and comparatively ancient legislative history: that both parties need to be drawn into the legislative negotiations, even though Democrats have sufficient majorities to pass a bill all by themselves.
Ancient history: Bill Clinton’s decision to pass his 1993 economic package only with Democratic votes cost him and his party critical support. Recent history: The failure to draw the ordinarily powerless House Republican minority into discussions resulted in the (temporary) defeat of the $700 billion financial rescue package last September.
After 1994, Clinton pursued policies by way of “triangulation,” standing above and separate from both parties and negotiating with each. Last October, Democrats and the Bush Treasury made concessions to the House Republicans. Obama is doing the same sort of thing ahead of time.
The likelihood then is that the final stimulus package will be supported by many in both parties. And that both parties will be held responsible for the results. Moreover, Obama was careful to note that good results may be long in coming. Just as he eliminated the possibility of a primary challenge by Hillary Clinton in 2012, so Obama seems to be trying to remove an issue that Republicans might run on in 2010.
Good politics, then. But is it good policy? That’s harder to say. We are in the midst of a financial crisis unlike any we’ve seen in many years and are facing the threat of deflation, of the sort that choked off economic growth in America in the 1930s and Japan in the 1990s. Federal Reserve Chairman Ben Bernanke probably knows more about the economics of the 1930s than anyone else on earth. Outgoing Treasury Secretary Henry Paulson and incoming Treasury Secretary Timothy Geithner know as much about financial markets as just about any two experts you could find. Obama’s lead adviser Lawrence Summers, in the opinion of others as well as himself, is one of the world’s most knowledgeable economists.
But it is not apparent that any of them knows how to produce the optimal economic conditions that Americans have become used to over the past quarter-century at the speedy pace that American voters are inclined to demand. In a time of deflation, prices tend to fall – and so it makes sense to hold onto your money and buy things next year. In a time when households are overburdened with debt, it makes sense to pay your credit cards and your mortgage down and not take on more.
Obama’s decision to include tax cuts as well as stimulative spending in his George Mason speech indicates that he’s not willing to bet on any one policy to succeed anytime soon – and that he’s interested in spreading any resulting political blame.
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