In good times, a President without clear economic policies may not suffer for it. But in shaky and uncertain times like today, failing to advance a coherent strategy to ease peopleâ€™s genuine economic troubles can be fatal politically, for a president or his opponent. Yet, it happens with some regularity, often because the candidate simply prefers to talk about foreign policy or other things. Consider the first George Bush in 1992, dismissing peopleâ€™s economic worries to return again and again to his Gulf War success. Think of John McCain in 2008, with no plan to stem the financial meltdown but eager to talk about his opponentâ€™s character failings. And reaching further back, there was George McGovern decrying the Viet Nam War, but with little to say about the inflation and slow growth.
Both parties will certainly have economic programs for 2012. Yet, both parties are in danger of passing lightly over the core issues of jobs, housing values, and incomes. The problem for the Republican nominee is the Tea Party, which may well force him or her to embrace its radical bromides. That assumes, of course, that the GOP doesnâ€™t nominate Rick Perry or Michelle Bachman, who wonâ€™t need to be convinced. Whoever the nominee is, he or she will have to stand for abolishing the minimum wage. On the budget, the nominee will have to support moving Medicare towards vouchers with spending caps that donâ€™t take account of health care costs, and a balanced budget amendment that wonâ€™t take account of recessions. The nominee also will have to stand for the repeal of Wall Street regulation and more tax cuts to frost the cake of the rich.
This prospect presents President Obama with two choices. He can run against the Tea Party platform and insist that a minimalist approach is preferable to the other sideâ€™s eccentric agenda. One catch is that the GOP nominee almost certainly will have a â€œSister Souljahâ€ moment when he ostentatiously distances himself from some loony piece of the Tea Party platform. (My personal favorite is the call to abolish our â€œfiatâ€ currency and revive the long, well-buried gold standard.)Â And if the GOP nominee can weave a story about how a balanced budget and less government will help create jobs and restore housing values, and repeat that story often enough, it could be sufficient to trump Democratic minimalism.
But the President has another choice. He can offer up a new program of â€œBig Ideasâ€ that directly takes on jobs, stagnating incomes, housing values, and the nationâ€™s debt. The conventional wisdom is that this is too risky, because it would tacitly acknowledge that his first-term program didnâ€™t deliver the prosperity his economic team promised. But since everyone in the country is already aware that it didnâ€™t deliver as promised, acknowledging it would be a small concession.
To be sure, the Tea Party-dominated House probably wouldnâ€™t pass anything that Obama proposes before the election. The economy will get a little more support from the Fed, but essentially will be on its own. Nevertheless, the President can lay a foundation for stronger job and income gains in a second term â€” if heâ€™s reelected â€” by campaigning for a new economic program.
With persistent, high unemployment, Obama needs to show that he knows how to reduce the costs for businesses to create new jobs and preserve old ones. One direct way to do that would be to cut the employer side of the payroll tax by half, and then he could propose to pay for it through tax reforms that include a carbon-based tax to help address climate change. He also can show that he knows how to help create new, small businesses which, in turn, will create new jobs. Since our major financial institutions have largely stopped providing credit to small entrepreneurs, he could propose a new government-sponsored enterprise that could float bonds for community banks to finance those business loans.
The biggest obstacle to a stronger recovery remains the sick housing market. Nearly two-thirds of American households, in effect, grow poorer every month as the values of their homes decline and, with it, any equity they built up. And people who feel theyâ€™re becoming poorer donâ€™t spend, which in turn keeps this recovery anemic. The best leverage we have to stop the decline in housing prices is to bring down home foreclosure rates. The President can show he knows how to do that too, by proposing a new temporary loan program for homeowners with mortgages in trouble. To be sure, this is treacherous territory, politically and economically, since it could enrage homeowners who donâ€™t qualify and induce moral hazard for those who do. But the President can address both problems with some tough love. Homeowners who receive the loans would be on the hook not only to pay them back. On top of that, 10 percent of any capital gains from an eventual home sale could go back to the taxpayers.
Finally, the President can show that he knows how to help Americans prepare for the new jobs that the rest of his program would help create. Nearly half of all working people age 35 and over today still have only the most rudimentary computer skills, leaving them unprepared to perform well in most 21st century jobs. The President could propose a new grant program for community colleges that will keep their computer labs open and staffed in the evenings and on weekends: Any adult would be able to walk in and receive IT training at no personal cost.
This program wonâ€™t assuage the Tea Partyâ€™s followers â€” in fact, it will likely incense them. Letâ€™s hope so. The President should welcome a debate â€” okay, a pitched battle â€” over a genuine and understandable strategy to improve the lives of Americans. Even if unemployment is still well over 8 percent, a serious plan to bring it down should trump the grab bag of far-right nostrums that passes for policy in the Tea Party.