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CNBC Guest Blog
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Greg Valliere
Chief Political Strategist
Stanford Group Co.
We'll remember the stretch just before Thanksgiving as the beginning of the turnaround. After watching the dysfunctional, bickering Congress and a Bush Administration that looks out of gas, there are finally legitimate reasons for optimism coming from Washington—and when was the last time you heard that?
1. Barack Obama has a first-rate team.
Of course he wasn't going to appoint rookies and neophytes; he wants pros who know what they're doing. And guess what? They're largely centrists! The left wing is grumbling, but they got no place to go. All the pre-election anxiety about Obama being a closet Socialist was ridiculous; he will govern as a pragmatist.
2. The medicine will work.
The staggering injection of $800 billion into the credit markets on Nov. 26 will be followed by a stimulus package of at least $500 billion that may be ready to sign when Obama is sworn in on Jan. 20. Key members of Congress already are working on a massive stimulus, which could be finished by late January.
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3. Taxes are coming down.
The stimulus package will contain a huge cut in taxes for most Americans; it could come via a Social Security payroll tax cut, or it could come via a reduction in individual rates. And while tax hikes on the rich are inevitable, they may come later rather than sooner.
4. The infrastructure will be a major priority.
The bridge collapse in Minneapolis last year was a wake-up call that the country's crumbling infrastructure needs help. Obama will spend freely in this area, because it's a "two-fer." It will provide jobs while refurbishing highways, bridges, big city water pipes, etc.
5. Ben Bernanke gets it.
The Fed Chairman is one of America's leading experts on the Great Depression (as are several top Obama advisers), and he knows what NOT to do—no spending cuts, no big tax hikes, no protectionism, combined with a very loose monetary policy. The fed funds rate will get to 1/2 percent, and may stay there for all of 2009.
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6. Perceptions are almost as important as policies.
Obama surely knows that Bill Clinton won public support by making it clear that he "felt your pain," and was working 24/7. Consumer confidence was at historic lows in November, so Obama knows that there's nowhere to go but up. Obama's greatest skill is his rhetorical prowess—and at the very least, he'll make people feel more hopeful.
7. Congress will go slow on big new programs.
Obama may only ask for a downpayment on health insurance—an expansion of the State Children's Health Insurance Program (SCHIP)—rather than a massive national health insurance program. He doesn't have the money, and doesn't want to over-reach on health or perhaps major new energy programs.
8. The Democrats can't over-play their hand.
Even a casual student of recent political history has to acknowledge that the Democrats have to go slow. Bill Clinton suffered a terrible retribution in 1994 after Hillary's health care fiasco; Newt Gingrich led a revolution that year in the House. The Democrats will not over-reach, largely because they're already thinking about consolidating their gains in 2010.
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9. Obama and the U.S. may get a global honeymoon.
It would be naive to conclude that geopolitical threats have dissipated; they still are very real and very dangerous. But Obama is such a fresh face, literally and figuratively, that most world leaders will cut him slack for many many months. Besides, any U.S. enemies planning on taking advantage of a new administration will have to confront some prominent hard-liners: holdover Defense Secretary Robert Gates, hawkish National Security chief James Jones, and Secretary of State Hillary Clinton, who voted for the Iraq war.
Obviously, there will be bumps in the road in 2009; economic statistics will look terrible for months to come, Al Qaeda has not gone away, etc. But we're now in the middle of a genuine turnaround, and I reiterate that things will look better by summer. Some people will contend that Obama will inherit a thankless job, but I'll take a contrary view; the bar is set very, very low, all he has to do is show modest improvement. And we can think of at least nine reasons in 2009 to be optimistic that Washington finally will be part of the solution, not part of the problem.
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Greg Valliere is the chief strategist at the Stanford Washington Research Group, and was previously Managing Dirctor and Chief Strategist with the Schwab Washington Research Group. He is a regular CNBC contributor.
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