James Pethokoukis

Politics and policy from inside Washington

Is this the economic key to Obama’s reelection?

Jan 5, 2011 16:02 UTC

As a follow up to my post on how the tax deal might affect Obama’s reelection chances, here is a bit of insight from superanalyst Dan Clifton of Strategas Research:

Income growth is the key to
presidential reelections and will be the motivating factor of White House initiatives over the next two
years. Obama is starting from a position near President Carter’s, but with new growth initiatives, we
would expect him to slowly climb up the predictive trend line below

Income growth is the key to presidential reelections and will be the motivating factor of White House initiatives over the next two years. Obama is starting from a position near President Carter’s, but with new growth initiatives, we would expect him to slowly climb up the predictive trend line below:

2012

Walking on the supply side with Obama

Jan 5, 2011 15:43 UTC

Larry Kudlow likes what he see so far:

The point is, if Team Obama is moving towards an entrepreneurial incentive model of growth, and away from the false consumption model of big-government spending, it’s very good news. Already we have seen a new free-trade initiative. And there’s even talk of broad-based, personal-income tax-rate flattening that could be part of a big-bang tax-reform package.

And the congressional momentum is decidedly toward lower spending. Without question there’s going to be a huge budget-cutting exercise led by Paul Ryan in the House and Jeff Sessions in the Senate. Sen. Jim DeMint wants a showdown over the debt ceiling in order to force some kind of balanced-budget amendment. And Sen. Bob Corker has taken the bit in order to build a bipartisan group to make sure that Republicans a spending cap in exchange for raising the debt ceiling.

Keynesians do not understand the pro-growth benefits of lower government spending. But any time government resource absorption is reduced, potential investment for the private sector is unleashed.

Yes, once again, we must trust but verify. And there are going to be huge battles ahead over Obamacare and EPA regulation, both of which are anti-growth. But for starters in the new year, carrying over from the November elections, at least fiscal policy appears to be moving in a positive pro-growth direction.

No wonder stocks rallied almost 100 points in the first 2011 trading day. The Gipper must be smiling about all this.

The tax deal and Obama’s reelection chances

Jan 5, 2011 15:42 UTC

It looks like Robert Gibbs will be leaving the White House to run his own consultancy and work on Obama’s 2012 campaign. Ruy Teixeira, a politics guys not an econ guy, thinks the Obama-Republican tax deal makes it far more likely that campaign will be a successful one:

A significantly better economy is certainly the key to reaching voters in the white working class, which supported House Republicans by an unprecedented 30 points in 2010. To be reelected, Obama needs to bring that gap down to around its size in 2008 (18 points), and he simply won’t get there if these voters, unsympathetic to Obama to begin with, continue to see a lack of economic progress.

That much may seem obvious. But, in addition, it’s also true that Obama’s performance among sympathetic constituencies will depend to a very great degree on the economy. … The fact is that tens of millions of ordinary rank-and-file Obama supporters will end up basing their decisions on the state of their pocketbooks and the job market: Want 18-to-29-year-olds to turn out as 18 percent of the electorate and support Obama by anything like the 66-32 margin of 2008? Want minorities to turn out as 28 percent of the electorate and vote for Obama by a margin of 80-18? Want moderates to turn out as 44 percent of the electorate and support Obama by a margin of 60-39? Numbers near these will be impossible to achieve if the economy continues to stumble. Conversely, if a recovery seems to be kicking in, confidence will rise in Obama and his agenda, making it more likely that these voters will turn out and back the president.

It’s as simple as that. And Obama’s $858 billion package of tax cuts, tax credits, and unemployment benefits will in effect deliver a second economic stimulus, albeit not one any progressive—or sane—economist would have dreamed up on their own. In a world where unemployment barely budged and GDP growth couldn’t get above 3 percent, Obama’s re-election would be in considerable doubt. But with the tax-cut deal, there should be a significant decline in unemployment (though the absolute level will remain high) and a more robust growth rate, including during quarters two and three of election year, which political scientists tell us is particularly important to electoral outcomes.

If 3 percent growth and 9.5 percent unemployment is inadequate, will 4 percent growth with 8.5 percent unemployment be good enough? That, along with a lousy housing market and high national debt which makes the future especially worrisome? I have written repeatedly that there is a lag between when an economy improves on paper and when voters recognize improvements in their own standards of living. Just as the Bush (I) campaign team in 1992.

What Paul Ryan hopes to do

Jan 5, 2011 15:04 UTC

In honor of the Congress, the good folks over at e21 have republished a column by Rep. Paul Ryan on what he wants to accomplish. This is good stuff:

Let me be specific: I propose to modernize Medicare, Medicaid and Social Security so these critical programs can meet their mission in the 21st century; secure access to universal health coverage where patients and doctors – not government or insurance company bureaucrats – are the nucleus of the system; restructure Federal job training programs of the past century to better prepare our workforce for the challenges in today’s global economy. There are dozens of additional policy reforms in the Roadmap consistent with the mutually reinforcing goals of individual opportunity and income security.

Those who claim the mantle of compassion and concern for the working class should consider this: The greatest threat to our social insurance programs today is the icy indifference shown by those unwilling to have an adult conversation on how to avert their looming collapse. Not only are the major health and retirement security programs approaching bankruptcy; the looming debt crisis will hit hardest those most reliant on the safety net the Federal government helps provide.

As the budget’s ominous trajectory makes clear, by asking government to do everything, it will, in the end, barely be able to do anything. Who, then, will have set us on a path back to the future, to the days when there were no effective federal safety net programs in place? Those who offer modernizing reforms to strengthen these programs? Or those who stand on the sideline, tearing ideas down rather than proposing credible alternatives – all while the programs themselves drown in debt?

The issue is not whether we ought to “zero out the state” or whether “all government action is automatically dismissed as quasi-socialist.” The issue is rather more subtle and sophisticated than that. The real debate is about whether and how government ought to create the foundations for growth and prosperity, securing a safety net for those who need it most; about how government can act now to avert a catastrophe later.

The truth is that there are two stark, competing philosophies over this matter. I know better than most that the debate will at times be uncomfortable and unpleasant. In ordinary times, political debate concerns the means, not the ends, of government. But we do not live in ordinary times; we live in a time when the first principles of governing are on the table. Nor did we seek this debate; bipartisan failures of the past and our current leaders’ acceleration of their agenda have forced America to make this choice. So we cannot advance to the “day after tomorrow” until we decide today what kind of government we want our nation to have after tomorrow. And that is, right now, an open question.

Bill Daley to the White House? Business would love it

Jan 5, 2011 14:10 UTC

If President Barack Obama chooses JPMorgan executive William Daley as his next chief of staff he could at last build bridges with the disgruntled U.S. business community, both on Main Street and Wall Street. Daley’s pro-trade views are a big reason the buzz around his potential nomination is so loud. The pick would also bode well for reaching deals with Republicans on taxes and spending. A few observations (via my column for Reuters Breakingviews):

1. It might be a stretch to call Daley a potential “dream pick” for Corporate America — but not by much. He was President Bill Clinton’s point man on trade in 1993 and deserves much of the credit for steering the North American Free Trade Agreement through a hostile Congress. As president of SBC Communications from 2001 through 2004, his job was to schmooze top regulators and the Republican Congress. More recently, Daley said Obama — a fellow Chicagoan whom he knows well — made a mistake by focusing on healthcare reform rather than job creation. That’s a view shared by many pragmatic members of the president’s own party.

2. The Daley Scenario is more than just a bout of wishful thinking from CEOs still cranky about Obama’s accusatory tone and pro-regulatory policies during the past two years. And it’s more than just a White House trial balloon to gauge the intensity of liberal outrage over hiring a Wall Street banker for a key administration position. (The early result on that are already in: Liberals are most unhappy at the prospect.)  My sources confirm that Team Obama and Daley are having a serious conversation about the gig, though it’s hardly fait accompli. There’s even a chance Daley might instead replace Larry Summers as National Economic Council.

3. But Daley as chief of staff seems the more plausible outcome. It is certainly the more important job. When Rahm Emanuel held the position before leaving to run for Chicago mayor (replacing Daley’s brother), he was both White House gatekeeper and de facto chief economic policy adviser. Obama adviser Valerie Jarrett is the administration’s current liaison to business. But if Daley is the pick, it’s his phone number corporate bosses will dial if they need something from 1600 Pennsylvania Avenue.

4. The same would go for Republicans. Daley is a fixer, not a general for waging ideological war against the Republicans in the next two years of Obama’s term. If party leaders want to cut a sweeping budget deal with Obama, Daley’s probably the right guy to grease the skids and make it happen. Come to think of it, it’s hard to see why the White House hadn’t thought of bringing Daley in before now.

COMMENT

The Obama administration will continue its headlong dash to the right. What they don’t understand is that no matter how far to the right they run, the political right and the media will continue their shrieking about what a communist, socialist, marxist, business-hating, economy-destroying monster he is.

Obama would’ve been far better served simply pursuing his own agenda – even with healthcare “reform,” despite essentially passing the version Republicans promoted originally, he was still accused of “cramming it down the throat” of America.

Instead, Obama’s cowardice has him abandoning and alienating his base in a fruitless quest to garner the support of people who are totally committed to his destruction. It’s foolish.

I say this all from the perspective of a libertarian who didn’t even vote for the guy.

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