Can Obama Pull a Clinton on the GOP?

bill clinton barack obamaAfter a bruising midterm election, the president moves to the political center. He distances himself from his Democratic base. He calls for cuts in Social Security and signs historic legislation ending a major entitlement program. He agrees to balance the budget with major cuts in domestic discretionary spending. He has a showdown with Republicans who threaten to bring government to its knees if their budget demands aren’t met. He wins the showdown, successfully painting them as radicals. He goes on to win re-election.

Barack Obama in 2012? Maybe. But the president who actually did it was Bill Clinton. (The program he ended was Title IV of the Social Security Act, Aid to Families with Dependent Children.)

It’s no accident that President Obama appears to be following the Clinton script. After all, it worked. Despite a 1994 midterm election that delivered Congress to the GOP and was widely seen as a repudiation of his presidency, President Clinton went on to win re-election. And many of Mr. Obama’s top aides—including Chief of Staff Bill Daley, National Economic Council head Gene Sperling and Pentagon chief Leon Panetta—are Clinton veterans who know the 1995-96 story line by heart.

Republicans have obligingly been playing their parts this time. In the fall of 1995, Speaker Newt Gingrich was the firebrand, making budget demands that the public interpreted as causing two government shutdowns—while President Clinton appeared to be the great compromiser. This time it’s House Majority Leader Eric Cantor and his Republican allies who appear unwilling to bend and risk defaulting on the nation’s bills—while President Obama offers to cut Social Security and reduce $3 of spending for every dollar of tax increase.

And with Moody’s threatening to downgrade the nation’s debt if the debt limit isn’t raised soon, Republicans appear all the more radical.

So will Barack Obama pull a Bill Clinton? His real problem is one Mr. Clinton didn’t have to contend with: a continuing terrible economy. The recession in 1991-92 was relatively mild, and by the spring of 1995, the economy was averaging 200,000 new jobs per month. By early 1996, it was roaring—with 434,000 new jobs added in February alone.

I remember suggesting to Mr. Clinton’s then-political adviser, Dick Morris, that the president come up with some new policy ideas for the election. Mr. Morris wasn’t interested. The election will be about the economy—nothing more, nothing less, he said. He knew voters didn’t care much about policy. They cared about jobs.

President Obama isn’t as fortunate. The economy remains hampered by the Great Recession, brought on not by overshooting by the Federal Reserve but by the bursting of a giant housing bubble. As such, the downturn has proven resistant to reversal by low interest rates. The Fed has kept interest rates near zero for more than two years, opened the spigots of its discount window, and undertaken two rounds of quantitative easing—all with little to show for it.

Some in the White House and on Wall Street assume the anemic recovery will turn stronger in the second half of the year, emerging full strength in 2012. They blame the anemia on disruptions in Japanese supply chains, bad weather, high oil prices, European debt crises, and whatever else they can come up with. These factors have contributed, but they’re not the big story.

When the Great Recession wiped out $7.8 trillion of home values, it crushed the nest eggs and eliminated the collateral of America’s middle class. As a result, consumer spending has been decimated. Households have been forced to reduce their debt to 115% of disposable personal income from 130% in 2007, and there’s more to come. Household debt averaged 75% of personal income between 1975 and 2000.

We’re in a vicious cycle in which job and wage losses further reduce Americans’ willingness to spend, which further slows the economy. Job growth has effectively stopped. The fraction of the population now working (58.2%) is near a 25-year low—lower than it was when recession officially ended in June 2009.

Wage growth has stopped as well. Average real hourly earnings for all employees declined by 1.1% between June 2009, when the recovery began, and May 2011. For the first time since World War II, there has been a decline in aggregate wages and salaries over seven quarters of post-recession recovery.

This is not Bill Clinton’s economy. So many jobs have been lost since Mr. Obama was elected that, even if job growth were to match the extraordinary pace of the late 1990s—averaging 300,000 to 350,000 per month—the unemployment rate wouldn’t fall below 6% until 2016. That pace of job growth is unlikely, to say the least. If Republicans manage to cut federal spending significantly between now and Election Day, while state outlays continue to shrink, the certain result is continued high unemployment and anemic growth.

So Mr. Obama’s challenge in 2012 has nothing to do with Mr. Clinton’s in 1996. Most Americans care far more about jobs and wages than they do about budget deficits and debt ceilings. Even if Mr. Obama is seen to win the contest over raising the debt limit and succeeds in painting Republicans as radicals, he risks losing the upcoming election unless he directly addresses the horrendous employment problem.

How can he do this while continuing to appear more reasonable than Republicans on the deficit? By coming up with a bold jobs plan that would increase outlays over the next year or two but would credibly begin a long-term plan to shrink the budget. To the extent the jobs plan spurs growth, the long-term ratio of debt to GDP will improve.

Robert ReichElements of the plan might include putting more money into peoples’ pockets by exempting the first $20,000 of income from payroll taxes for the next year, recreating a Works Progress Administration and Civilian Conservation Corps to employ the long-term jobless, creating an infrastructure bank to finance improvements to roads and bridges, enacting partial unemployment benefits for those who have been laid off from part-time jobs, and giving employers tax credits for net new hires.

The fight over the debt ceiling will be over very soon. Most Washington hands know it will be raised. Political tacticians know President Obama will likely appear to win the battle, and his apparent move to the center will make Republicans look like radicals. But the Clinton script will take the president only so far. If he wants a second term, he’ll have to come out swinging on jobs.

Robert Reich
Robert Reich’s Blog 

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Comments

  1. says

    Mr. Reich is too kind to President Obama. After the great Wall Street/Banking scam of a housing bubble burst, leaving me & a lot of others with seriously ‘upside/down’ mortgages, and effectively removing us from the middle class, what did the President do do to help us out? Forget the rhetoric — he appointed the same Wall Street scoundrels to run his economic program that tanked the world economy; Messr’s Geitner and Brenneke come to mind.

    We got jobs all right. Wall Street banking jobs, propped up by the Fed loaning to the financial services industry at 0% so they could go out and buy Treasuries at 3% and pocket the difference. All the while cheapening the few dollars that the rest of us had left, and while these same banks refuse loans to virtually everyone.

    Not cool. No jobs, permanent 8%+ unemployment, and welcome to the Japan experience.

  2. says

    I have to agree with Hollis about one thing: Title IV of the Social Security Act, Aid to Families with Dependent Children. happened to have an announced ending in my home town in Wisconsin, although I was not there at the time. I read the follow up in The New York Times a few years later when I was living in Lancaster,Pa as a result of a cut-back of employees at Princeton Univ. Press by Poppy Bush when he realized he could apply the tax on inventory to wealthy Republican businessmen following his campaign canvassing observations prior to the Gulf War.

    My opinion is that Bill Clinton was able to do the same dastardly deal during his presidency that Scott Walker, governor of Wisconsin, under the Koch brothers made the Republican agenda for year 2011. He was at the time accompanying a U.S. visitor,Helmut Kohl of Germany, who was trying to make a trade deal for industrial equipment manufactured by a longtime family owned business ( whom I had not realized at the time had never employed anybody at their company who was non-white).

    Anyway, how better to make a trade deal than to arrive in Milwaukee accompanied by the man who gave us Nafta but today as an ex-president can sit and converse with the other ex-president at leisure who suggested to his Princeton friends that employees being let go from jobs with middle-class perqs of the best kind would enjoy the bucolic atmosphere of a Republican dominated state at jobs with no OSHA regulation, no collective bargaining as union workers, when moved there like colonial servants of the Persian Empire.

    It did leave me in a position where, as I sat at my computer,and after Bush,jr. was foisted off upon us, I could explain to various posters in forums available on-line, what conditions were like geographically as the transportation layout for the mother’s on Clinton’s Workfare who would no longer receive aid for the families of dependent children (Title IV)back home in Milwaukee. It was a rather callous move by the former president who continued to be praised in places like Philadelphia as the Black man’s best homey.
    Other people transited out of Princeton, met by on-line forum were those who had husbands who were phyicists doing research in alternative energy resources in the labs at Princeton. With their reserach stopped short, they found jobs for themselves on the faculty of universities in the Lehigh Valley.

    I was then in a position to do a lot of on-line campaigning preparing the way for Obama’s arrival in Eastern Pennsylvania in the Black middle-class suburbs north of Philadelphia. He swept through Lancaster hugging and kissing the Wilbur’s Chocolate Candy makers in their hair-nets and white toques who giggled at a first in their lives as rotund quite zoftig women who provide the best advertisement for their creations. I am utterly grateful that Obama brought Joe Biden into our lives; I now have heard rumor that he may be retiring from the Vice-Presidency although, I hope not, because he has added so much encouragement to those of us who are senior citizens up against the House Republicans who behave like children with their childish ways. The Cantor, Ryan, Bachmann debacle of appropriate behavior when addressing the senior citizens of their districts is outrageous. I worry for my sisters back in Wisconsin who have now become seniors as well and face the incongruity of that basically uneducated governor in the State House who is taking graft from two men who are worth 3 billion dollars together from their interests in the paper-industries supplied by Wisconsin forests and lumber-mills. Their employer/employee relations is akin to 1930s fascism.

  3. Hollis says

    Robert Reich does not seem to recognize the damage done to poor children by the ending of the Aid for Dependent Children. This is the problem with liberal Democrat pragmatists — most of them have much greater wealth than the poor and therefore they can’t see or feel the hurt that their policies create.

    Now the Obama Democratic pragmatists would like to hurt older citizens on Social Security and Medicare so they can give tax breaks to the rich and protect the on going wars that do nothing for this country. It must be assumed that the liberal elite is too wealthy and have lost the understanding of society that graced the White House during the time of FDR and he was no paragon of virtue but when he came to see the light then he moved on behalf of the nation instead of just for the wealthy few.

    The fact that the GOP now controls one house is no excuse — when the Dems controlled both houses for the first two years of the Obama regime the strategic word was capitulate to the right with the appointment of hold over GOPs for the White House Staff to do with the economy. Now the White House is so corrupt that they throw, it looks like, Elizabeth Warren under the bus. Gutlessness never won anything.

  4. -Nate says

    Just force the corporations & rich jerks who don’t pay any taxes to pay their fair share and all this trouble will end .

    Greed _isn’t_ good and there never has been a ‘ trickle down ‘ economy that worked ,in the history of time .

    A new WPA would be a good thing too .

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