President Barack Obama spent much of 2012 calling for "an economy built to last." His plea, however, didn't.
Obama's second inaugural address contained the requisite broad-brush references to his priorities for the next four years: a strengthened middle class, improved equality, decisive global leadership, political pragmatism in Washington. As his second term begins, however, one thing missing from Obama's agenda is a clear plan for reviving a stagnant economy, a primary issue that dominated his first term.
Obama begins his second four years with a modest economic tailwind, especially compared with the tsunami he faced when he first took office in 2009. Back then, a brutal recession was near its nadir, with the economy shedding 500,000 jobs per month. Today, the economy is growing and employers are adding about 150,000 jobs per month. The housing market is finally recovering after a six-year bust. The stock market keeps drifting upward.
But it remains a lackluster economic performance, far weaker than the recoveries that followed earlier recessions. At current rates of growth, the unemployment rate won't drop to pre-recession levels until 2016 or later. Growth rates one to two percentage rates below the historical norm will worsen Washington's budget problems and force tax hikes and spending cuts that come sooner and hurt more than they would otherwise. The competitive position of the U. S. economy may continue to erode.
Obama's economy-built-to-last program involved a lot of traditional spending on roads, bridges and other types of infrastructure, with more federal funding to hire teachers and improve schools. It also called for government-backed investments in clean energy, innovation in the manufacturing sector and other pet projects.
As well-meaning as those ideas may have been, Obama proposed them knowing that they were highly unlikely to be approved by Congress, where House Republicans are skeptical of conventional stimulus spending and determined to curtail expenditures funded by more federal borrowing. It doesn't take much cynicism to conclude that Obama's economy was mostly a set of campaign talking points that have now outlived their usefulness.
So what is Obama's economic plan for the next four years? He hasn't really said yet. His second inaugural address contained references to reforming the convoluted tax code, protecting Social Security and Medicare, empowering citizens with modern skills and ensuring fair play. But those are flag-waving concepts every politician supports in theory. Simply talking about them does nothing to invigorate the economy.
Obama also suggested he might pursue more of the government activism that hit a dead end in Congress during the last two years. He said in his inaugural address that "preserving our individual freedoms ultimately requires collective action," while calling for more road building, teacher training and scientific research. Nice concepts, but he had just one such program—$50 billion in fresh stimulus spending—batted down as part of the compromise deal to avert the "fiscal cliff." Obama didn't even seem to fight for it.
Obama still has time to present detailed economic proposals in his upcoming State of the Union address and in his proposed federal budget for 2014. But he also knows the next year or two will likely be dominated by battles that are already looming: extending the government's borrowing limit, cutting spending and tackling the national debt. Any economic proposals beyond those issues might simply get buried in Washington's political muck. Meanwhile, Obama seems to be shifting to other priorities, such as gun control legislation, immigration policy and ways to address climate change.
The economy can grow over the next four years even if Washington does nothing in particular to help. If there were some kind of deal to reduce the size of the national debt, that alone would probably boost the economy in the long run. Better still would be a more rational tax code with fewer special-interest giveaways and reforms to costly entitlement programs that make Medicare and Social Security more affordable for taxpayers. Obama has mentioned all these things, but we still don't know if he's serious enough about them to spend his political capital fighting for them. If he did, he might get his economy built to last after all.
Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.