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Great Expectations

November 6th, 2008 . by economistmom

Let’s face it:  expectations for what President-elect Obama can do to “rescue” our economy are very, very high. 

CNN’s Elaine Quijano suggests that Obama will live up to our expectations if he follows through on everything he’s promised on the campaign trail:

When it comes to priorities, many polls suggest Americans want President-elect Barack Obama to fix the economy first when he enters the Oval Office in a little more than two months.

Getting Congress to approve tax cuts promised on the campaign trail may be a good start toward tackling the problem, analysts say.

If that goes well, experts say, the political momentum will help make it easier for Obama to keep his other campaign promises on alternative energy and getting health care for millions.

“In Washington, winning leads to winning, and losing breeds losing,” said Stuart Rothenberg of the nonpartisan The Rothenberg Political Report.

But is that the way President-elect Obama will really be our ”Superman” on the economy?  Does it take a “superman” kind of leadership to stick to campaign proposals that were laid out long before the current economic crisis?  And does it take a “superman” ability to say “yes” to any other deficit-financed proposals that will come his way?

Will President-elect Obama’s amazing ability to inspire and unite be wasted by staying on the ”politics as usual” course, where fiscal “compromises” typically amount to “I get my (deficit) spending if you get yours”?  Or does President-elect Obama understand the need to get back to “living within our means”–which means “living”, yes, but which also means caring about fiscal responsibility, in a broader sense?  Could Obama’s “superman” ability to inspire and unite be used to encourage the politicians to change their language of fiscal compromise to “I will sacrifice this bit of (deficit) spending I wanted if you sacrifice some of yours–for the sake of our and our children’s economic security” ?

Didn’t we just hear President-elect Obama say in his victory speech:

This victory alone is not the change we seek. It is only the chance for us to make that change. And that cannot happen if we go back to the way things were.

It can’t happen without you, without a new spirit of service, a new spirit of sacrifice.

As the Washington Post’s Lori Montgomery reports, everyone’s already lining up to ask President Obama for money, arguing that that’s what he can best do as our “Superman”–but there are still some who understand that it’s a fiscally-responsible approach our economy really needs for the long haul:

“You can do your energy plan. You can do a massive infrastructure investment that includes rebuilding schools and repairing schools. You can do public housing that helps poor people and gets the construction guys going,” said Robert Borosage, president of the liberal Institute for America’s Future. “There are a whole range of things that are progressive that liberals want that can come under this shelter” of stimulating the economy.

On the downside, stimulus spending will further bloat a budget deficit that already is spiraling toward a record $1 trillion in the fiscal year that began last month. And key lawmakers said they will demand that Obama keep his promise to restore fiscal responsibility to Washington by paying for any other new programs, including his marquee proposals, to permanently cut taxes for the middle class and to offer health-care coverage to the uninsured.

Democratic leaders “believe there’s a need for stimulus. But we also need to focus very carefully on the deficit in the long term,” said House Majority Leader Steny H. Hoyer (D-Md.). “We feel very strongly that we’ve done a lot of debt incursion, a trillion dollars this year. It’s probably necessary in the short term. But unless we get a handle on the long-term debt, it will do permanent harm to the country.”

Lori Montgomery goes on to quote my boss Bob:

Like his GOP opponent, Sen. John McCain of Arizona, Obama “made campaign promises that didn’t add up, and everybody knows they didn’t add up,” said Robert Bixby, executive director of the Concord Coalition, a nonprofit group that advocates deficit reduction. “He could say, ‘The situation is very bad, and I can’t do everything I wanted to do.’ And I think everyone would then breathe a sigh of relief and say, ‘Now let’s get down to work.’ ”

But others said abandoning the tax cuts would be politically devastating.  

And so that’s where I think we really need President-elect Obama to come through as our true “fiscal superhero”:  we need him to courageously pursue wise, fiscally-responsible ideas which may at first seem politically unwise, but which through his giftedness as a leader, a communicator, and a uniter, he can turn into politically popular ideas as well.

2 Responses to “Great Expectations”

  1. comment number 1 by: Jason Seligman

    A while back, Andy Rooney (of 60 Minutes) had a wonderful piece on the difference between the successful and the not so successful it was not in terms of talent or commitment but rather in execution–the order of operations. This moment is really is about learning to plan for the future once more. Everyone would seem to want big things from the nascent Obama administration, but what is gently emerging through reports; beginning with President Elect Obama’s victory speech is the message that we can have it all–just not all at once. That getting it will take sacrifice. In large part this sacrifice at the federal level, is likely to be manifest in being a little more thoughtful about planning our fiscal policy. If you look at the Rubin-Bernstein piece cited here a day or so ago, at comments herein, and at the main prescripts here offered by our sage host-blooger, the ideas can be summed up as ‘Fiscal stimulus is valuable right now, but what we need to spend money on are ideas that not only stimulate demand but that invest in better outcomes for our citizens, and for our nations fiscal health over time.’ This means investing in areas that enhance long term revenues above current projections, and investing in areas that reduce long term expenditures below current projections. For example investments in education tend to increase incomes, and thus income tax receipts. Investments in demonstration projects can be useful for identifying effective and humane policy chances in areas like social insurance that later curtail expenditures while leading to better outcomes.


    Coming from my own research a synthesis might be to run a demonstration project aimed to help baby boomers manage assets as they transition into and through retirement—there is much to be gained from a success in this area. A successful protocol would improve private capital management, and thus capital (the core of wealth creation and a basis for real wage growth in a modern capital intensive economy). Further, educated consumers are the soundest basis for the (re)building of efficient and transparent financial markets. Elderly Americans act as the stewards of our nation’s capital—let us give them the tools to manage our implicit endowment. Of course an idea like this is virtuous too in that it can reduce aggregate generational demand for Medicaid and other need-based social insurance programs like DI and SSI.

    Win-squared, perhaps. This is but one idea, there are others of at least equal merit that meet the short term needs to invest in human capital and physical infrastructure, while brightening long term public and private savings. But holistically what I think we see emerging gets us past the Keynesian ditch-digging and helicopter-drop exercises of the past. Get’s us past the rhetoric of an ever-manifest ‘invisible hand,’ for the truth is that only under resonant incentives do systemic tensions lead to the self-correction of virtuous circles. Indeed the past year or so has made ever more visible the regulatory jaundice that can distort asset prices and mar the hand—for all to see. Let’s be pragmatic, only when the order of operations is well reasoned can today’s investments yield the capital by which to make tomorrows.

    But the big question uderlying a lot of freting over speding money right now is “How will we know we are headed in the right direction, as the magnitude of our deficit fails us as a barometer over the next year or so?” The answer in part must come from the gut, but a look at bond yields should be instructional as well. Keep an eye on the long end of the US Treasury yield curve. Significant shifts upwards on the long end of the US curve relative to historic norms should be seen as uneasiness with the fiscal policy that emerges in the next 177 days or so. I sense that we’ll know the order of operations is responsible if lenders comfort with our long term promises holds steady, or improves.
    –Good luck to us!

  2. comment number 2 by: beebs

    We might as well be discussing plans to colonize Jupiter. The big spending plans of the politicians are going to be crowded out by fiscal realities. Where are we going to get the money?

    beebs