President Obama Needs A New Approach to Fixing the Economy (November 4, 2012)
Summary – Setting the right priorities, constant communications of those priorities and following up on those priorities may not be exciting, but they are essential to the nation’s well-being.
It should come as no surprise that the economy will be the key issue for the winner of the Presidential election. And the first step to fixing the economy will be to have a sound understanding of the situation.
We know that the economic situation in this country remains challenging, and that the President will face the following handicaps and obstacles to fixing it:
1) There is no real understanding by politicians or the public of the conditions that fueled the last recession and their current status;
2) Unemployment continues to remain high and growth job is relatively weak compared to previous recoveries;
3) Government debt is high relative to the GNP and the annual deficits of the federal government are about $1.3 trillion (or roughly 50% higher than the revenues collected);
4) Social Security and Medicare obligations are unfunded for the baby boomer generation and face enormous deficits if the numbers are stated under Generally Accepted Accounting Principles;
5) There is a great deal of uncertainty in the business community attributable to the debt ceiling, the fiscal cliff, the implementation of the new health care law, and the general inability of the federal government to address crucial issues on a bipartisan basis. This uncertainty is curtailing business investment; and
6) There are a never-ending host of issues that distract the President from focusing on economic issues, including wars, terrorism, and natural disasters, to name a few.
Given the situation, the newly-minted Administration should adopt the following principles to guide the new approach:
1) The government cannot afford to rely on further increases in deficit financing to solve the underlying problems of the economy;
2) The overall plan should be fashioned and positioned as being fiscally prudent in order to help restore confidence;
3) The economic leadership positions in the administration should take on a heightened visibility with the public; and
4) The burden for economic success and job growth should rest with the private, for-profit sector of the economy (and not with the government).
Of course, this assessment of the current situation and the principles in addressing it are not shared by the various political factions. Nevertheless, it is the responsibility of the President as the leader of the country to bring its constituents together to solve problems and make progress.
Accordingly, the first steps the President should take if re-elected is to change the structural dynamics in Washington, as follows:
1) Request the leaders of the House and Senate to commission an independent report describing the current status of the conditions that caused the last recession, including what actions helped and what additional actions, if any, are needed.
2) Request the leaders of the House and Senate to steer an oversight committee of government officials, business leaders and consumer organizations on the implementation of the healthcare act. These Congressional leaders should brief the President on a monthly basis on the progress of the implementation of the healthcare legislation and any unexpected developments.
3) Acknowledge the shortcomings of his first term, including: a) his inability to work effectively with Congress through negotiations or other means, b) his unwillingness to act with conviction when the situation warranted it and c) the lack of awareness of his administration of the need to instill consumer and business confidence as a key component of the recovery.
4) Sign a pledge that says that he will veto any law that extends the Bush tax cuts (which are scheduled to expire automatically). By so doing, he would render moot the pledge of Republicans to not increase taxes. That is, the President’s pledge would mean that taxes are going up. Thereafter, any legislation that would curl back any taxes from the pre-Bush tax levels effectively would be a tax decrease.
5) Be more aggressive in lifting the country’s debt ceiling. For example, the President should have the Attorney General file a Stay Order in the D.C. Court of Appeals seeking to overturn any ability of Congress to refuse to fund the country’s obligations given the severe economic impact such a refusal would have on the economy.
6) Finally, the President should appoint a strong leader as Treasury Secretary who has bi-partisan support and has the ability to convey confidence in the U.S. economy and the government’s role therein.
Once the above structural changes have been put into place, it will be up to the President to provide the strategic vision for the country so that it feels right for everybody. The key components of that vision should include:
1) Sound government oversight of the nation’s financial institutions to avoid future meltdowns;
2) Prudent bi-partisan implementation of the healthcare legislation;
3) A re-ordering of the federal government’s priorities in light of the economic constraints;
4) A budget for the federal government that reduces the existing annual deficit in absolute terms by $100 billion in the current fiscal year, $150 billion in the 2014 budget, and $200 billion in each of the 2015 and 2016 budgets;
5) A plan to improve the solvency of Social Security and Medicare without altering the fundamental structure of the plans (e.g., by increasing the age of entitlement for those now under 55 years of age); and
6) A personal commitment by the President and his Administration to work cooperatively with business leaders to overcome any obstacles that they are encountering that is preventing growth and/or additional investment.
Each of these components will need to be supplemented with a strong communications plan in order to be effective.
Which Presidential candidate is more likely to follow these prescriptions and fix the problems in the economy? In reality, a second-term President is more likely to make the tough, politically-unpopular decisions that are needed to fix the economy. Therefore, with the appointment of a new bi-partisan economic team, President Obama is the candidate better positioned to fix the economy in the next four years.