Barack Obama wanted too much

Irwin Stelzer: American Account

It started out like a song … we knew we had a good thing going. And if I wanted too much, was that such a mistake?

President Barack Obama’s answer to composer Stephen Sondheim’s question would be “yes”, were he the sort who readily admits error — which he most definitely is not.

We are six months into the Obama reign, and he did have a good thing going until very recently. He pushed through what voters thought was a stimulus bill. He held numerous press conferences at which an adoring media allowed him to display his rhetorical skills — no mumbling George W Bush, he. He toured the world, to the applause of adoring masses from London to Paris to Cairo. He tackled perceived global warming by urging Congress to pass a cap-and-trade bill aimed at showing he could lead the way to a cooler, greener world. He bailed out General Motors and Chrysler, rewarding the United Auto Workers for delivering key states to him in last year’s election.

Then he did what Sondheim warned of — he “wanted too much” — and Congress went into recess without passing the president’s so-called reform of the nation’s healthcare industry, a $1 trillion (£600 billion) restructuring that would turn effective control of one-sixth of the American economy over to government bureaucrats. Too many congressmen learnt that almost 90% of Americans are satisfied with their healthcare, that a majority of voters think the deficit is already the nation’s biggest worry, and that 42% of Americans think the Obama plan is a bad idea, and only 36% that it is a good idea (22% have no opinion).

It is too early to say that the presidential agenda is dead in the water. But it is not too early to say that he made some serious errors. The stimulus not only failed to keep the unemployment rate to 8%, as Obama promised (it is now 9.5%). It also unleashed a flood of red ink that shifted voters’ attention to the dire implications of the deficit for their children’s and grandchildren’s standard of living. So when the president insisted that Congress pass a cap-and-trade programme that would drive up energy costs, and a healthcare plan that would add more than $1 trillion to the deficit or the tax burden over the next decade, Congress heard from unhappy constituents, and momentum shifted from the president to more centrist Democrats.

It is important to remember that it is not Republicans who have thrown a spanner into Obamacare. The president has a 78-seat majority in the House of Representatives, and a filibuster-proof majority in the Senate. He does not need a single Republican vote to pass any bill he sends to Congress. But the Democratic leadership in both houses is far to the left of centrist Democrats from marginal, conservative districts. These centrists’ unwillingness to risk their political lives by supporting Obama and the party’s left will inevitably slow the president’s efforts to “transform” (his word) the American economy.

But slowing is not the same thing as derailing. The president remains personally popular. He is articulate, assured and, more important, black and not George W Bush. No Republican has his communication skills, although he is subject to some ridicule for his ever-present teleprompters. Most of all, the economy seems to be recovering.

Share prices are about 20% higher than when Obama took the oath of office. The index of leading economic indicators is up. Inventory liquidation is slowing and manufacturing activity seems to be recovering. Business investment is up, and the Federal Reserve Board chairman reports that the Fed’s support for the commercial-paper market has fallen to one-third of crisis levels. Some banks — most notably Goldman Sachs and JP Morgan Chase — are profitable enough to repay government bailout money. Sales of existing homes, especially those under $250,000, are at the highest level since October 2008, and sales of new homes rose 11% in June. The much-watched Standard & Poor’s Case-Shiller index of house prices rose in May from the previous month for the first time in three years. Vacancy rates are down, as is the supply of unsold homes. Housing starts rose 3.6% in June, and I am told that some builders in the hard-hit southwest have begun buying land in anticipation of constructing new homes. There is even talk of the “exit strategy” the Fed will adopt to reduce the money supply when the recovery proves durable.

Against all this, voters are weighing the fact that the unemployment rate has risen from 7.6% to 9.5% since Obama took office — with some 3m more people out of work now than earlier in the year. Perhaps even more crucially, there is that soaring deficit and the prospect of large tax increases or inflation.

And the president cannot be certain the economy has turned. The banks still have $30 billion in commercial property loans to write off this year. Government efforts to modify mortgages so as to reduce repossessions are floundering. Consumer sentiment fell in June, as consumers decided the jobs market will not improve soon and “see little reason to believe that the economic stimulus package will improve their finances any time soon”, says Richard Curtin, director of the Reuters/University of Michigan consumer surveys.

So Obama has much to think about as he tallies his successes and failures. Other than the stimulus package, passed during the euphoria following his inauguration, his legislative programme is stalled, and by members of his own party. The economy is doing better, but the indicator that most matters to voters — the unemployment rate — is heading up, rather than down. And the market sent a powerful signal last week: the auctions of government bonds did not go well, forcing the Treasury to pay higher interest rates than in the recent past. That is a bad sign for a president who needs low rates to encourage business investment and sustain the fragile green shoots that must flower if the Democrats are to hold their gains in next November’s election.

It just might be that Obama had “a good thing going, going, gone”. (Irwin Stelzer, The Sunday Times) http://business.timesonline.co.uk/tol/business/columnists/article6735991.ece

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