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Obama’s economic agenda for re-election

US President Barack Obama was on "60 Minutes" last night in an interview taped on Thursday. He gave a synopsis of his thinking about the recent US mid-term elections. Here is a bit of what he had to say as written by CBS which televised the interview (see "Obama and the GOP Prepare for the 2012 Fight")

  • Mr. Obama gave his rationale for why his party lost so many seats in the House and Senate. "So, people are looking and saying, ‘Well government intervened a lot, spent a lot of money, and yet, I still don’t have a job or my neighbor still doesn’t have a job or that home is still being foreclosed down the block.’ And our argument was, ‘Well, we had to take these steps to stabilize the economy and things would be a lot worse if we hadn’t taken these steps.’ And people say, ‘Well, you know what? That’s not particularly persuasive to us.’"
  • "… the Republicans were able to paint my governing philosophy as a classic, traditional, big government liberal," Mr. Obama told Kroft. "And that’s not something that the American people want. I mean, you know, particularly independents in this country. But I think most Democrats and Republicans, they want a government that works, but they want one that’s lean. One that’s not wasting money. One that is looking after their interests, but isn’t engaged in a whole bunch of giveaways.
  • "And I think the Republicans were successful in creating a picture of the Obama Administration as one that was contrary to those commonsense, Main Street values about the size of government. And so, it I think it is fair to say that, you know, the American people don’t want to see some massive expansion of government. And I think the good thing is that having gotten through this emergency, I think what people will see over the next two years is probably a better reflection of the kinds of long term priorities that I want to set for the country."

The President understands that his party lost the mid-term elections despite exit polls showing no discernible difference in either party’s favourability because voters were incensed over the giveaways and the still poor economy. The snippets above go to his understanding of the former and a recent Reuters article interpreting the interview goes to his understanding of the latter. This is what I have also been saying:

The reason the President lost his change mantel and came to be seen as a ‘socialist’ was two fold:

  1. People sense the arrogance behind "deeply unpopular, deeply hard to understand." The Obama administration is getting it from the left and the right. Much of this has to do with the economy. But people also see the best and the brightest mentality at work in the Obama Administration – the viewpoint that says we know better than you. That’s what the bailouts were all about. And that is off-putting. It is condescending and demoralizing. This is why the "Professional Left" is apoplectic. This is why the Tea Party is raising a ruckus.
  2. The economy has been awful. The negative reactions to the NBER’s declaration that the economy ended 15 months ago tells you that. If the economy were better, Obama would have received more leeway on other aspects of his legislative agenda (like healthcare), both on the left and the right.

-Barack Obama, The Departure of Larry Summers, Voter Anger and the Bailouts

What does this mean for economic policy going forward. This is the part liberals won’t like (from "More on My Interview with Former President Bill Clinton").

  • Obama is not telegraphing a change in tone, but domestically... I think he will go pro-business. The Obama Administration must help quell voter anger if the Democrats are to have any chance in the mid-terms. Right now, Obama is getting beat up for not improving the economy and for being anti-business. My read is that Obama believes trade sabre rattling combined with a more pro-business tone is the only way to take care of both of these problems.  Watch who Obama picks to replace Summers. That might be a hint where the tone is headed on the pro-business front. The word on the street is that Obama will select a businesswoman i.e. not a man and not a person with too much ‘government’ or ‘academia’ on her CV.

Here is what I anticipate the Administration’s tone to be on specific policy agenda items.

  1. No Foreclosure moratoria or bank holidays. The Administration has now moved into re-election mode. Uppermost in their mind is the need to demonstrate that they have taken the right policy steps on the economy all along. And this means making the recovery stick. Foreclosure moratoria would be a threat to this number one agenda item and will not be pursued.
  2. Re-instituting the Bush tax cuts. Again, the economy is uppermost in the Obama agenda now. Therefore, he will want to demonstrate his ‘for-the-people’ bona fides by making the technical recovery stick in a way that benefits most voters.  Income tax cuts are the easiest way to do this given the way that the economic gains of GDP growth have been going disproportionately to upper-income households. Republicans have already warned they will reject any attempts to push through cuts that don’t also include upper income individuals using a small-business angle. The President, worried about this anti-business rhetoric will accede to across-the-board cuts, if only temporarily.
  3. Discretionary spending will be cut. The tax cuts will leave the Obama economic agenda open to criticism from deficit hawks. He will look to pre-empt this by cutting discretionary spending. These cuts will not be UK-style austerity because he has already indicated this is not something he intends to do.
  4. Defense spending will be spared. In US voters’ minds, the war on terror is integrally related to defense spending. Cutting defense spending means being soft on terror and this ‘soft on terror’ label is something Obama wants to avoid for the 2012 election. So he will not cut defense. He has already shown us he intends not to be soft on terror given his recent terror alert announcements, his stances on electronic mail privacy, executive privilege to defend Bush era programs, and the President’s own terrorist assassination list.
  5. Offering up Social Security and Medicare as Sacrificial Lambs. The combination of modest discretionary cuts and no defense cuts still leaves room for an assault by deficit hawks. So, the Obama people can only pre-empt this by offering up long-term budget deficit reduction through Social Security and Medicare cuts as envisaged by their Deficit Reduction Commission’s recommendations.
  6. Social agenda items are dead. The President has acknowledged that healthcare reform took a political toll on Democrats. He will shy away from similarly divisive social issues like immigration reform in his second term and focus on the economy.

That is my read of what is likely to occur. Below is the first part of the interview with Barack Obama.

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.