Barack Obama rode an economic crisis into the White House in November 2008. Now he’ll have to ride out the last of that economic storm if he’s to keep his own job in three years.
But with unemployment surging and the President’s poll ratings sinking, there’s growing debate about what—if anything—the President can do about the situation.
“There's nothing new here," says crisis management expert and former senate aide Larry L. Smith. “We have become a very impatient people. When things don’t turn around overnight, we get impatient.”
The President took his first public step in confronting the issue as well as restless voters Thursday, saying he would hold a December summit to joblessness. The brief news conference also appeared to signal that the administration had ruled out another stimulus package.
Nevertheless, the President is facing his greatest test to date and how he handles it depends on a complicated mix of economic, political and personal considerations as well as how much faith he is willing to place in historical precedence.
A look at the labor market and election cycles over the past five presidencies shows timing is indeed everything, and in this case time appears to be on the president's side—with or without any new measures to stimulate job growth—even if the economy costs Democratic seats in Congress in the next November’s midterm election.
At this point, the real economy is by far the biggest factor in the equation yet also the one that Obama can least influence. What's more, it may need the least tinkering.
Like President Reagan in the early 1980s, Obama inherited a horrible economy, which eventually took unusually high approval ratings to their lowest level of his presidency. Bill Clinton and George W. Bush, also two-term presidents, both survived bad economies of varying severity and duration in their first terms.
Politics And Policy
Party politics, though few like to admit it, is also a consideration. What the president does or doesn't do, as well as its success or failure, will affect the re-election chances of Congressional Democrats.
“The election issue of next year is going to jobs,” says former Republican Congressman Bill Frenzel, whose ten-term career spanned several presidencies. Though Frenzel detects a distinct "nervousness" among Democrats running for re-election, he says, “I don’t think he (Obama] has worries yet.”
That difference is likely to test ten months of unusual unity between the White House and Congressional Democrats.
“He’s let congress have its way—almost to his peril." says Lawrence White, a former White House economist and federal regulator now at NYU's Stern School of Business.
Worries about the skyrocketing national debt may be sufficient enough to discourage any new spending measures, especially with the growing skepticism about the effects of the near $900-billion dollar stimulus program.
"He's got a real problem," says Frenzel of the Brookings Institution. "He has to look like someone who has some fiscal sense and that's going to put him squarely at odds with Congress."
Some in Congress are well aware of the political tightrope.
“The county has no appetite for actions that would increase the national debt,” says Rep. Brad Sherman (D-Calif.), a senior member of the House Financial Services Committee. “The best course is stimulus or job creation that is fast and does not increase the national debt. Don’t call it a stimulus bill--we've done already done that.”
Sherman cities such possible measures as federal guarantees for the issuance of state and local debt and short-term tax refunds for businesses that could be offset by higher taxes later.
The administration, among other things, is considering diverting some of the $200-plus billion remaining in the TARP program, which is not part of the regular budget.
“I think they would like to be do more,” says Dean Baker, co-director of the Center for Economic and Policy Research. “It’s unclear what form it will take but whatever they do it will be called something other than stimulus. [The President] has to weight if there is something he can plausibly do and say, ‘Hey, I've really made a big dent.’”
Some say that’s not possible. Even additional extensions of jobless benefits, similar to that approved by a wide margin a week ago, won't create jobs. They are also very expensive. Tax credits for companies that create new jobs have been floated, but economists are divided about their effectiveness.
Character And Communication
Given those options, some analysts say Obama will have to rely on words, not deeds, at this point, which might serve him very well.
"Ultimately, all a president can do is exploit his core talent, " says Eric Dezenhall., a crisis management expert who got his start in the Reagan White House. "Reagan and Obama are similar in the sense that the core talent is largely rhetorical."
"Sometimes you have to bite the bullet and tell the public a little bit of what it doesn't want to hear," says Smith, who now runs the Crisis Management Institute. "I think the president's message has to to be: 'We're not out of the woods yet and it's going to take perseverance and trust."
Like Reagan, Obama must exploit his personal popularity and hope his confidence is contagious.
In a typically expertly crafted, well delivered, yet unusually brief, speech Thursday, Obama essentially did that, while also touching all the other key bases, such as the stimulus plan and the deficit problem, without directly mentioning them.
He balanced words and phrases like "determination" and "consider every additional responsible step" with others such as "limits to what government can and will do" and "ill-considered decisions...when our resources are so limited."
Most importantly, Obama was quick to remind people that "hiring often takes time to catch up to growth."
"Sometimes it's more dangerous to do something for the sake of showing movement," says Dezenhall. "All you can do is buy time rhetorically."
That's what the Reagan administration tried to do with its "stay the course" mantra in the mid-term—and it wound up working.
Economics and History
Two years in, with unemployment at 10-percent following a massive decline in the nation's GDP, Reaganomics was widely derided. Dezenhall remembers the President’s limo getting pelted with rocks one day.
Not too soon after that, “all the talk about the one-time presidency evaporated,” he says and “it was a direct consequence not of anything strategic but that the stock market rallied and the recession ended.”
Around that time, the economy had shed two and a half million jobs under Reagan’s watch. Two months before the President’s reelection, payrolls were 4.3 million higher than when he took office. The jobless rate was down to 7.2 percent.
To a much lesser extent, both Clinton and George W Bush also survived economic downturns early in their terms. Bush, in particular, survived a jobless recovery that lasted well into his first time. From February 2001 to June 2003, the economy shed almost 4 million jobs. By the re-election victory of November 2002, all but 300,000 had been replaced.
This time around, payrolls are down 3.5 million since January of 2009, versus 3 million during the Jan.-Dec. 2008 period. During the same periods, the jobless rate went from 7.6 percent to 10.2 percent, and 4.9 percent to 7.2 percent, respectively.
Many economists expect a similar pattern for Obama’s first term. The difference between the technical end of a recession and the beginning of a recovery—particularly in the form of job creation—can be subtle, sometimes almost indistinguishable.
“We're behind schedule in putting jobs back on,” says economist Robert Brusca of FAO Economics, citing the deep nature of the most recent recession. “I still think we’re going to see strong job recovery when its comes.”
The consensus is for job growth to begin sometime in the first quarter of 2009, with marked acceleration a few months after that. The strongest job growth typically come 8-12 months into the recovery.
Brusca says a recent analysis shows jobs tend to be replaced at the same rate and in the same amount of time as they were lost. So, if 6.5-7.0 million jobs are lost during the Jan. 2008-2009 peak-to-trough period, then roughly the same amount will be created during the 2011-2012 period.
That’s a positive environment for Obama to win re-election. The wildcard may be the jobless rate.
“Unlike jobs, which tend to be V-shaped, the unemployment rates moves like molasses in January, even when you have strong job growth,” explains Brusca.
That dynamic precluded a a second term for George H.W. Bush in 1992. Even though the recession was over and the economy has been creating jobs for months, by election time the jobless rate had improved very little from its post recession high of 7.8 percent in June 1992.
“I think people have been consistently overly optimistic [about unemployment]," says Baker, who is among those who expect the rate to top out near 11 percent, sometime in the late winter or early spring.
“Come 2012, people are going to care about the unemployment rate," he says. "If he [Obama] can get that down to a level people think is acceptable, then the chance of re-election is good.”
The same can't be said about Democrats in the mid-term election next November, at which time many economists expect the jobless rate to still be around 10-percent.
By then, the message will have been clear. “You guys had your shot, now I need to be Mr. fiscally responsible,” is how Frenzel puts it.