President Obama — the Defeated One

Things are not bad for U.S. President Obama. His approval ratings are favorable, but a victory in the next presidential election is not certain by a long shot. Obama’s unclear economic policy could be his downfall.

Psephologists and party researchers on both sides of the Atlantic have geared up for Obama’s possible second term as American president to be confirmed in the coming year. Since Osama bin Laden is dead and the Democrats have surprisingly won an almost hopeless special election in New York, Obama’s approval ratings are not stunning, but acceptable. More than 50 percent of Americans are now pleased with his administration. And because the array of possible Republican candidates looks pretty awful, Obama’s electoral victory seems like a sure thing for some people.

All of this speculation is premature because it disregards one central factor: the state of the American economy. “It’s the economy, stupid,” Bill Clinton once said — American elections will be won or lost based on the economic issues.

After the 2008 collapse of Lehman Brothers, Obama’s electoral victory against Republican John McCain had become almost inevitable. The financial crisis and recession are indeed over, thanks to Obama’s policies, but unemployment has barely gone down. Since Franklin D. Roosevelt, no president has won re-election when the unemployment rate on election day was higher than 7.2 percent. What’s bad for Obama is that the rate has risen to an alarming 9.1 percent in the last few months, and that’s two years after the end of the recession.

The situation isn’t improving, but is getting worse. The recovery is anemic — after the Internet and housing boom this is a new, bitter experience for the American public. That said, this weakness comes as anything but a surprise. It was predicted by many economists. Recovery phases after a severe financial crisis are always weak because the excesses that led to the crisis first have to be slowly reduced. That costs growth. Thanks to excellent exports Germany is currently a fortunate exception, but in the USA the rule applies in every economic area.

Consumption is weak because of the fact that over indebted households have to cut back on their expenditures. High oil prices are also taking away purchasing power. Companies are hiring too few people: In May, only 54,000 new jobs were added. Long-term unemployment, a European problem for many years, is now afflicting America. The prices of houses are decreasing, which further destroys wealth.

The public is blaming the president for all of that. The people expect him to create jobs somehow. These expectations must be done away with. Theoretically, another debt-financed economic stimulus package would probably help a little bit, but another one won’t happen given the precarious position of the U.S. budget on its own — not to mention the fact that there would be no majority in Congress for that. New tax cuts — a hit for the Republicans — would be just plain irresponsible. The Federal Reserve has been pushed to its limit. The Fed is still pumping money into the economy, but this program will end this month. If Fed chief Ben Bernanke proposed the idea to extend the money-creation policy once again, he would probably cause an uproar in the financial markets.

So Obama couldn’t create jobs in the short-term even if he wanted to. Many elements of his economic policy — encouraging innovation, improvement on the export front — are right, but they seem to be only temporary.

At the moment, he seems to be defeated. The Republicans have control of the debt. The populists on the street are demanding that the president does something about the high gas prices, which in comparison to Europe are ridiculously low — at least that he allow new deep-sea drilling in the Gulf of Mexico. The White House isn’t prepared for all of that: Obama has replaced his entire economic team, with the exception of Treasury Secretary Timothy Geithner. Now nobody knows what the president stands for anymore.

Obama must learn to communicate about the economy with his supporters — or former supporters. First, he must make the core of his economic policy clear: What’s important to him? How does he want to solve the country’s difficult problems? And secondly, he has to show that he’s ready to fight for what is right.