Obama's New Start

From Business Week, "Obama's Year Two: Time to Start Over":

After a tough first year, the President's economic agenda and standing will be challenged again in 2010 by soaring joblessness, ugly budget deficits, and Obama fatigue among independent voters

As President Barack Obama was preparing for a major policy speech on the economy in December, he erupted at his economic team. Budget Director Peter Orszag argued in a White House meeting that more emphasis should be put on reducing the deficit, while chief economist Christina Romer led a contingent advocating for a greater short-term focus on jobs. They were familiar refrains, and Obama was frustrated. "Why are we having this meeting again, the same discussion?" participants quoted him as saying. Welcome to year two, Mr. President. It won't require the same high-wire act as year one, when Depression 2.0 was staved off with a jumbo stimulus package, massive cash injections into the battered banking system, and bailouts of the auto industry. Instead, as he prepares to deliver his State of the Union address on Jan. 27 and his budget on Feb. 1, Obama has to clean up the damage done by the now-ended Great Recession: the budget deficits on the government's books and the sliding job market his aides were arguing over. Only after that will he be able to turn his full attention to his long-term "change" agenda.

For Obama, 2010 will be a year of finding 10% solutions. Last year's $1.4 trillion budget deficit is nearly 10% of the economy, and the unemployment rate is also stuck at 10%. And here's the dilemma: Cut the budget deficit by raising taxes or reducing spending and you risk slowing down the economy and pushing up unemployment. Spur job creation through tax credits for new hires or infrastructure spending and you blow out the budget.

"He's got a needle to thread," says John Podesta, an Obama confidant and head of the Center for American Progress, a Washington think tank. "He wants to try to get as much as he can done in 2010 on the economy while paying attention to the long-term debt problems of the country."

That job got a whole lot harder with Republican Scott Brown's surprise victory in the recent Massachusetts special election, robbing Obama's Democrats of their super-majority in the Senate and threatening the President's health-care overhaul push. The setback left Democrats questioning Obama's decision to focus most of the party's energy on health care, rather than focusing more on jobs and the economy. Now, with independent voters souring on Obama, vulnerable lawmakers are likely to be reluctant about casting votes on other controversial issues such as caps on carbon emissions, tax reform, and a revamp of entitlement programs ahead of November's midterm elections. The White House may have to pare this year's legislative wish list.
Obama, who frequently invoked Martin Luther King Jr.'s "fierce urgency of now" mantra during the Presidential campaign, doesn't have time to waste. The longer unemployment remains high, the more likely it is that discouraged job-seekers will drop out of the labor force. Government borrowing and debt, meanwhile, have reached "very worrisome" levels, says former Federal Reserve Chairman Alan Greenspan, risking a rise in long-term interest rates.

The President and his economic team have been brainstorming for months over how to solve the budget and job deficits and still move ahead with his broader economic agenda. One proposal: tapping the $700 billion bank bailout fund to help small business owners get credit. Another would lower the principal amount on underwater home loans, in which a house's value is less than the balance due.

More at the link.

Video Hat Tip: Nice Deb.