He might be the most powerful elected official in the world, yet the president of the United States is remarkably hamstrung when it comes to mending a tattered economy.
Americans are learning this lesson, even as President Obama readies yet another package of tax cuts, infrastructure investments, and other measures meant to reduce the 9.1 percent unemployment rate and forestall a double-dip recession. Polls show that voters expect less and less help from the government on the economy, or on anything, for that matter. Wall Street is deeply discounting anything Obama may propose over the last 14 months of his first term, since congressional Republicans have vowed to squelch just about any new stimulus measures. "The likelihood of new fiscal spending passing Congress is virtually zero in today's environment," UBS analyst Art Cashin wrote in a widely distributed research note. "Traders don't have high hopes of a passable package being produced."
With the economy barely growing and unemployment far too high, however, the White House has to try something new. As a guiding principle, it's worth keeping in mind what Washington cannot do very well. No matter what Obama might propose, for instance, the government is unlikely to:
Make a meaningful dent in unemployment. The government actually can create jobs. The problem is that it's very expensive and probably not the best use of taxpayer money, even if Congress would somehow agree to more stimulus spending. The 2009 stimulus package is a good example. Many voters consider that to have been a failure, even though the nonpartisan Congressional Budget Office says that it created somewhere between 1.4 million and 3.6 million additional jobs when the flow of stimulus funds was at its peak, in mid 2010. Even now, the CBO says, the unemployment rate would be somewhere between 9.6 percent and 10.4 percent without the stimulus spending, instead of 9.1 percent. But the stimulus plan added about $825 billion to the national debt, which means that in the best-case scenario, the government spent more than $200,000 for every job created. That's far too pricey, and any plan that sounds like a miniaturized version of the 2009 stimulus deal is bound to be unpopular. Even if a new stimulus plan did create some jobs by the time of the 2012 elections, it would be hard to come up with convincing proof of that if unemployment were still high and millions of voters felt dissatisfied, which seems highly likely come November 2012.
Persuade companies to hire workers they don't need. Many companies are in good shape, with lean payrolls, strong profitability, and cash on hand. If they needed more workers, they'd hire them. Problem is, business at many firms isn't picking up, so they're making due with the workers they've got. New tax breaks for companies that hire might put a few more bucks into the coffers of companies that were planning to hire anyway. But it still wouldn't give companies a reason to hire if they didn't need the workers. Companies just don't think that way. Why hire somebody if you don't have work for them to do, especially if it requires more paperwork to get a subsidy that won't fully cover your added expenses in the first place?
Get much credit for extending measures that are already in place. "Temporary" tax cuts start to seem permanent about a day after they go into effect, since it's politically difficult to repeal benefits once they're granted. Same with extended unemployment insurance for the jobless. Many economists feel it's necessary to continue these measures, since withdrawing them would take money straight out of people's pockets and remove one more peg supporting consumer spending. But voters take these measures for granted now and won't credit Obama (or the Republicans, for that matter) for keeping in place subsidies they're already getting.
Still, Obama isn't completely powerless, and there are some things he can do that would improve the economic climate and boost confidence. That's important, because the bungled handling of the debt-ceiling extension over the summer sent consumer and business confidence plunging. Not surprisingly, the stock markets nose-dived and hiring ceased after Washington politicians nearly triggered a default on U.S. debt. Here's how Obama could offer encouragement to businesses, which might indirectly boost hiring down the road:
Propose a clear way forward on debt reduction. While favoring some kind of amorphous "grand bargain," Obama has been extremely cagey about how, exactly, he wants to start paying down the $15 trillion national debt without hurting the economy in the short term. Confidence in Washington is now so low that business leaders generally expect the worst, believing that politicians won't address the debt problem until it's a full-blown crisis, while posturing for personal gain until the last possible second. Many businesses are preparing for more politically induced economic damage, like we endured over the summer. Obama can't drag Republicans along, but he can at least propose an understandable debt-reduction plan that becomes a baseline for action. That's what business leaders expect the president to do: Get ahead of problems and come up with convincing ways to solve them.
Make concrete proposals that will help businesses. Obama pulled a surprise move recently by rescinding a new clean-air regulation that would have imposed billions of dollars in compliance costs on businesses in nearly every state. A few more moves like that might silence complaints about Obama's "anti-business" policies and perhaps generate some genuine savings—and goodwill--among business owners. There are overlapping federal, state, and local regulations in many areas, and Obama could thin the regulatory burden at the top without degrading health or safety or other things most people care about. He could also come up with new ways to spur small-business lending, perhaps without any need for congressional approval.
Help underwater homeowners. This would be controversial, because some people oppose any federal help for people who probably shouldn't have purchased homes in the first place. But it's increasingly clear that the never-ending housing bust is a severe drag on the economy, and support is growing for a plan to aid homeowners whose homes are worth less than the mortgages on them. The main thrust of a plan would be to help more people refinance, so they can take advantage of record-low interest rates. To do that, the government would have to guarantee several million new loans, so that already troubled banks don't have to risk additional losses. This wouldn't create jobs directly, but it might be one of the best ways left to put new spending money into people's pockets and increase economic activity. Some experts believe it could be done at no cost to the government, which means it wouldn't require congressional approval.
Move to the right. The odds of the economy getting some new help from the government would increase if Obama made the Republicans an offer they found hard to refuse, by agreeing, say, to some of their spending caps or regulatory rollbacks, or opening new areas to oil and gas exploration. If political cooperation improved in Washington, businesses might be less concerned about future showdowns over debt reduction, spending cuts, and tax policy, and be more willing to take risks by hiring or investing in the near future. Obama would further antagonize his liberal base if he adopted some GOP policies, but the bigger concern at this point may be giving businesses something to be optimistic about. Businesses, after all, may hold the key to the 2012 elections, by deciding whether to start hiring by then, or not. That's whose vote Obama needs right now.