Obama’s Lack of Focus Could Be Politically Fatal

Obama’s Lack of Focus Could Be Politically Fatal

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There is still a deep reservoir of good will among the American people for Barack Obama. Every poll shows that he is well liked personally. But even Democrats are starting to wonder whether he is up to the job of dealing with the most economically challenging environment since the 1930s. I think his lack of focus, more so than the failure of his policies, is responsible for this perception, which may prove to be politically fatal.

Central to Obama’s political problem is the failure of his economic policy, the 2009 stimulus in particular. When I call the stimulus a “failure,” I am not echoing the Republican critique that it was ill-conceived in the first place. There is no question in my mind that the Republican alternative of doing nothing or only cutting taxes would have made matters worse. Rather, I am referring to the size and structure of the stimulus.

By way of analogy, suppose you went to your doctor for an illness and he prescribed the correct medicine. But for some reason, you were given a dosage only half as big as necessary to cure your condition. Consequently, while you got better, you were not cured and continued to suffer. Under these circumstances, it is clear that the problem was not the medicine itself, but the dosage. Had you been given the correct dosage in the first place you would have been cured.

I think this accurately describes the problem with the 2009 stimulus. We now know that Obama’s economic advisers wanted a package twice as large as the $787 billion bill that was enacted. But his political advisers opposed it on the grounds that it would have been impossible to enact anything larger than what they got.

Some liberals have been critical of the political advisers, but I think they were right. There’s no way a stimulus package bigger than $787 billion was ever going to pass the Senate. Nor was it obvious that this figure was insufficient to turn the economy around. I think it’s fair to say that it appeared adequate to the bulk of mainstream economists. It only became apparent with the benefit of hindsight that the economy was in much worse shape than it appeared at the time and that its downward momentum was more severe than anyone realized.

It’s now clear that the nature of the
economy’s problem was not correctly
understood....The financial sector
was far worse than anyone realized.

Furthermore, it’s now clear that the nature of the economy’s problem was not correctly understood. Economists now see, better than they did in early 2009, that the problems in the financial sector were far worse than anyone realized. There is still no consensus even among liberal economists on what the appropriate policy should have been. Moreover, it may be that there was a specific moment in time when certain actions needed to be taken and it was too late to go back once the moment passed. For example, it now appears that the decision to let Lehman Brothers fail was a momentous one whose critical importance was not recognized by anyone at the time.

Finally, it is now clear that the 2009 stimulus was poorly structured to deal with what appears to have been the economy’s core problem. Too much money was wasted on tax cuts that did no good whatsoever. It’s now forgotten that 40 percent of the stimulus went for the Making Work Pay Credit, which was so ineffective that Democrats jettisoned it for a temporary cut in the payroll tax last December. And much too little of the spending went for public works and other measures that would have stimulated spending and employment.

Where I differ from many of Obama’s critics is that I think these were defensible errors. Having worked in the White House, at the Treasury and in Congress, I am well aware of how often actions must be taken without adequate information and analysis. It’s necessary to put yourself in their shoes, knowing only what they knew or could reasonably have known or done, before pronouncing judgment.

Health reform, the environment and energy
policy, occupied an enormous amount
of White House attention in 2009 and 2010.

This brings me to my central criticism of Obama. Once the stimulus was enacted, he turned his attention elsewhere. He appeared to believe that he had done quite enough to turn the economy around and thus moved on to other issues such as health reform, the environment and energy policy, which occupied an enormous amount of White House attention in 2009 and 2010.

I think this was a mistake, not because I think the Affordable Care Act was inherently bad policy, as Republicans do, but because it diverted Obama’s attention from the economy and caused him to take his eye off the ball. In fact, I think on balance ACA is good policy that will improve the health of millions of Americans at a very reasonable cost. But it wasn’t something that needed to be done until after the economy had recovered. Obama should have put first things first.

Some of Obama’s defenders argue that there really wasn’t anything else he could have done to stimulate the economy once Democrats lost their 60-seat majority in the Senate and then lost control of the House of Representatives in the 2010 election. I think this is wrong because it takes the political circumstances as a given, whereas I think those circumstances might have been quite different had Obama acted differently.

Imagine that instead of wasting months on health reform and other non-economic and non-time-sensitive measures in 2009 and 2010, Obama had single-mindedly kept his attention on the economy. If the time he spent being briefed on health reform had instead been spent with his economic advisers, then perhaps he would have been more aware than he appears to have been that the stimulus was insufficient. Perhaps there might have been opportunities during the appropriations process to raise and redirect funds into more economically stimulative channels. Perhaps the Federal Reserve could have been pressured to be more aggressive in terms of monetary policy

Even if it turned out to be politically impossible to increase the stimulus, people would have known that Obama was fighting for what mattered to them and Republicans would have been on the defensive. The political dynamics might be quite different today.

Of course, we can never know if a different strategy would have yielded better results and it’s easy to second-guess those forced to make decisions in real time, under severe constraints and inadequate information. But I think it’s important to understand the nature of Obama’s mistakes before the Republican critique becomes written in stone. Also, it’s never too late to learn from one’s mistakes and try to correct them. That’s Obama’s challenge in what may be the last 15 months of his administration if current trends continue.