Barack Obama and the Clintonism Temptation

Pierre de Gasquet is a corresponding journalist for “Les Echos” in New York. This analysis is the third in a series of seven dedicated to the current economic situation in large countries.

There will be a thankless return from vacation for Obama the reformer. While he thought he could tackle these midterm elections crowned with his health care system reform and his “no surrender to” Wall Street — not to mention the punishment of BP — doubt exists. What if the recovery plan of the Democratic administration proves to be inadequate? What if we had never come out of the recession, as proclaims the Nobel Prize winner for economics, Paul Krugman? At 63 days until the Nov. 2 election, the much-anticipated rebound is not there. Instead, the specter of “double dip” or of a “lost decade’’ like the Japanese in the ‘90s hovers over the U.S. economy, mired in a thick fog. Even more than the actual evidence from the economic indices, not necessarily very far from the expectations, it is the insidious onset of a climate of confusion that threatens the White House.

“The prospect of high unemployment for a long period of time remains a central concern of policy,” acknowledged Federal Reserve Chairman Ben Bernanke in Jackson Hole, highlighting the limits of monetary policy. According to Okun’s law (named after American economist Arthur Okun), without a minimal increase of 2 percent of the economy, jobs cannot be created. However, after the disappointing second-quarter U.S. GDP growth number (1.6 percent), according to the consensus of analysts, the U.S. GDP growth will not exceed, at best, 1 to 1.5 percent in the second half of this year. Certainly, no one really expected a significant slowdown in unemployment before 2011. But the recovery’s unexpected slowdown and the persistently sluggish housing market casts a harsh light on the economic record of the White House when it is least needed.

“Barack Obama, in contrast to FDR in the depths of the Depression, has failed as yet to restore confidence in the economy,” says Newsweek columnist Michael Hirsh, by taunting “Obama’s Old Deal.” In fact, according to the latest AP-GfK poll released on Aug. 18, only 41 percent of Americans now approve of the Democratic president’s economic management, as compared to 56 percent who are dissatisfied, even though his personal popularity remains relatively high (49 percent) at the midterm of his presidency. Not only are there doubts about the true extent of the fiscal stimulus of $787 billion issued in March 2009 — “too small” repeated Paul Krugman for several months — but the credibility of his economic team, co-led by Larry Summers and Tim Geithner, is also disputed. They are too inclined to spare Wall Street and to erase the “roughest” aspects of the “Volcker rule” in the eyes of some Democratic supporters. Even if the White House has managed to complete its Wall Street reform in July 2010, many analysts still see it as, at best, a modest framework to monitor Wall Street’s excesses — at worst, a stab in the water.

Facing the slowdown of the recovery, the White House has yet to launch a very audible signal. The White House still has two months to restore confidence and try to maintain control of Congress on Nov. 2. It is in the preservation of his “political capital” to continue reforms. In 1994, two years after the victory of Bill Clinton, the Republicans had regained control of Congress for the first time in 40 years, winning 52 seats in the House and eight Senate seats. This time, they would just have to take 40 seats in the House and eight to 10 seats in the Senate. Paradoxically, to avoid such a “humiliation,” Barack Obama still has two main options: “He needs to rally the nation around a big idea — a project that is worth sacrificing for, worth paying for, worth working for” (roughly, renovation of the infrastructure, high-speed trains and clean energy), as the New York Times advises him, or to opt for “returning to Clinton-style centrism,” as suggested by political scientist Douglas Schoen.

Trapped between the “Krugman” liberal frustration and a new Republican sling buoyed by the populist movement of the tea party, the Democratic president must still choose between the risky bet of “big government” or a withdrawal in the manner of “neo-Clintonism,” giving priority to reducing the budget deficit. At first, by suggesting on Aug. 30 that he would soon announce newly targeted economic measures, he did not waive the extension of tax cuts of George W. Bush’s middle class after 2010. But it does not say either that he will not initiate a “turning to Clinton” to increase his chances for the 2012 presidential elections.