It’s been quite a month so far for President Obama. A weak economy getting weaker. Government unions routed in blue-state Wisconsin. Romney rallying in the polls. At this rate, not only will the Supreme Court throw out Obamacare, they’ll rule Dodd-Frank unconstitutional just for the heck of it.
How can Obama prevent his Mensis Horribilis from becoming an Annus Horribilis — and avoid becoming a one-term president? Forget about an October Surprise, Obama may not have that long to turn things around. Here are some potential game changers that might help him recover from his summer swoon:
1. Embrace Simpson-Bowles. Why Obama might do it: Lots of talk about this in Washington these days. In one fell swoop, Obama would have a ready-made and reasonable economic agenda — one already praised by some top Republicans — that cuts tax rates, raises tax revenue, reforms Social Security, and slashes debt. Obama the Centrist Technocrat returns! Budget wonks and editorial pages would sing his praises. And the move would help make the election a choice about the economic direction of the next four years rather than a referendum about the previous four.
Why he won’t: So the candidate who’s been talking about how business and the wealthy don’t pay their fair share is suddenly going to sign up for a plan that sharply cuts tax rates for both? The S-B plan also limits spending to 21% of GDP, a level far below what liberal economists think American needs to spend for entitlements and new public investment. Hardcore Dems would go nuts. Simpson-Bowles is, in key ways, an utter rejection of Obamanomics. Bill Clinton, of course, would triangulate this deal in a heartbeat, which suggests Obama won’t.
2. Extend all the Bush tax cuts. Why Obama might do it: A weakening economy makes any plan to raise any taxes look off point. No wonder both Bill Clinton and Larry Summers have suggested at least temporarily extending the Bush tax cuts. A weak economy created the rationale for Obama doing it in 2010, and things are worse now than they were then. GDP growth was 3.0% that year vs. 1.9% in the first quarter of this year. A temporary extension also would provide Obama with an opportunity to show he can put his ideology aside — unlike with the Keystone pipeline — and do what’s best to create jobs.
Why he won’t: Again, it cuts against Obama’s neo-populist, “people vs. the powerful” campaign theme. Even after the weak jobs report came out, Obama was still talking about tax increases on wealthier Americans.
3. Propose a major new stimulus plan. Why Obama might do it: Obama almost certainly believes the $800 billion American Recovery and Reinvestment Act helped prevent a second Great Depression. And liberal economists like Summers are saying the U.S. could borrow a lot more money right now without alarming financial markets. So maybe Obama proposes another $800 billion stimulus plan, $600 billion in new infrastructure spending and other “public investment” and $200 billion for a two-year extension of the payroll tax cut. He could portray it as a way of helping the struggling middle-class “right now” as well as creating an economy “built to last.”
Why he won’t: Voters are dubious about the effectiveness of Stimulus 1.0, and such a move would again open Obama up to further criticism that he is a big spender who doesn’t care about deficits. And Obama might worry that markets aren’t as copacetic with bigger U.S. deficits as Summers believes.
4. Call for a homeowner bailout. Why Obama might do it: It’s the slow-healing, oozing sore of the U.S. economy. Home prices are still drifting lower with nearly a quarter of mortgages underwater. The Great Recession may be over, but the Great Housing Depression is most certainly not. Obama could do what many liberal groups are asking him to: a) replace Fannie and Freddie overseer Ed DeMarco with someone who will authorize mass principal writedowns of underwater mortgages; b) call for banks to reset their deeply underwater mortgages; and c) get moving on his mortgage-backed securities fraud task force. Big, bold, and populist – and a sharp contrast with Romney whose housing plan merely calls for speeding up foreclosures so the market can clear.
Why he won’t: The base would love it, but what a turnoff for independents who might view the plan as rewarding people who bought too much house at the expense of those who were frugal and played by the rules. And recall it was the whiff of a homeowner bailout that birthed the tea party movement. The potential cost might also spook fragile financial markets.
5. Endorse a break up of the big banks. Why Obama might do it: It’s the missing ingredient from Obama’s Occupy-lite campaign that has already called for sharply higher taxes on wealthier Americans. It’s also an idea with support both on the left and right that would put Romney — who has already dismissed the idea — in the position of defending financial giganticism. Maybe Obama could endorse a financial transaction tax to cut down on speculative trading, too.
Why he won’t: It would further estrange Obama from his Wall Street backers, pushing them and their wallets further into the Romney camp. It would also make Dodd-Frank seem like a waste of time that failed to solve the Too Big To Fail problem. And Romney could counter by saying the move would cost high paying jobs and make America a second-class financial center. Also, many voters are already worried that Obama is too fond of government intervention. It would be McGovern to China instead of Nixon to China.
Of all those game changers, endorsing Simpson-Bowles — which, after all, was a commission Obama created — might be the most likely given the president’s need to appeal to independents who thought they were voting for Clinton 2.0 in 2008, not Carter 2.0. But if the economy slips back into recession — or even has a single negative quarter — even doing all five might not be enough to get Obama another four years.