How Obama Could Blow It

In his first two months in office, Barack Obama has crushed Republicans with the remorseless good cheer of the Stay Puft Marshmallow Man. Amazingly enough, the number of Americans who believe the country is on the right track has increased by 23 percentage points. The iPhone-entranced Democrats who descended on the District during the inauguration seemed convinced that Obama’s healing powers would cure what ails America. At the time, I thought they were nuts. But insofar as America has been suffering from an emotional rut, Obama’s mix of sobriety and optimism really has worked like magic. Eventually, though, the magic will run out, and I’m guessing it will run out before the next presidential election.

We’re only three months into the Obama era, and it’s worth remembering that the president’s Himalayan approval rating is hardly unprecedented. At 65 percent, the president’s approval rating is nowhere near the bizarrely high 83 percent Ronald Reagan reached after his first 100 days. Granted, Obama has the added advantage of facing a self-immolating opposition party. It’s extremely hard to imagine the Republicans getting their act together in the near future, and by the near future I mean “the next decade.” Yet Republicans don’t actually need to get their act together to defeat Obama in 2012. The coming economic apocalypse will do the job for them.

The Establishment is more invested in Obama than they’ve been in any president in decades. If Obama fails, a whole system will go down with him.

Despite my congenital optimism, I increasingly get the sense—a sense that’s reinforced by my conversations with economic pointy-heads—that the economic crisis is actually accelerating, and that the latest round of good news represents the beginning of a pseudo-recovery that might actually make matters worse over the long run. You might say that President Obama has the distinct misfortune of having taken office a few years too early.

When FDR took office in 1933, the economy had already been in a spiral of decline for years, and his first term saw a fairly dramatic fall in the unemployment rate. There’s no doubt that Roosevelt’s New Deal policies helped generate jobs, yet it’s not clear that his policies would have worked as well right after the Crash. And Obama isn’t taking office in 1933. Rather, he’s taking office in 1929, right after another massive financial collapse. Chances are that the sharp increase in unemployment has just begun.

In January, when Obama took office, the unemployment rate was 7.6 percent and it has increased in the two months since. Few observers doubt that the unemployment rate will soon reach double digits, and there’s reason to believe that it won’t stop there. FDR could honestly tell his battered and bruised Republican rivals that the unemployment rate was never as high as it was when he took office. Obama, in contrast, might be placed in the awkward position of acknowledging that the unemployment rate has never been as low as it was when he first took office.

Obama’s challenge is to carefully calibrate his rhetoric, to avoid sounding too sunnily glib or too wrist-slashingly dour. When he was selling the stimulus bill, Obama talked about creating and preserving jobs. The beauty of this formulation is that it’s totally unfalsifiable. “Mr. President, job losses are mounting!” “Yes, my son—but how many jobs have I preserved!” Ronald Reagan did an excellent job of riding out a monster recession, which was popularly known as “the Carter recession.” Obama and the Democrats will absolutely blame the deepening economic crisis on George W. Bush. There is a big difference, however. Reagan managed to kick-start a recovery before he ran for re-election. It looks very unlikely that Obama will manage the same feat.

Together with then-Fed chairman and ruthless bastard (I mean that as a compliment) Paul Volcker, Reagan imposed economic pain that no self-respecting Democrat would tolerate in the Age of Obama. Reagan’s attitude was, basically, “You’re going out of business? What do you want, a cookie?” He softened his stance later in his presidency, but not when he was trying to beat back stagflation. Obama’s attitude is very different: If the nation’s biggest banks face the prospect of going under, they’ll be bailed out. The same goes for the Big Three automakers, and the list will go on. There may well be good reasons for Obama’s itchy intervention finger, but there’s a real danger that we’ll be left with zombie banks, zombie industries, and a zombie economy that limps along, bleeding jobs and growth for years. Think of this as removing a Band-Aid really, really, really slowly.

What happens next? Honestly, what happens next is even scarier. The Establishment—the academic and policy elite, Wall Street, famous sexy people—are more invested in Obama than they’ve been in any president in decades. If Obama fails, a whole system will go down with him. The Republicans will win by default, and they’ll have learned nothing from over a decade of borderline-imbecilic unforced errors.

Trust me, I hope I’m wrong about all of this.

Reihan Salam is a fellow at the New America Foundation and the co-author of Grand New Party.