Obama's Economic Policy Needs to be Populist

Obama just promoted Austan Goolsbee to help run his economic policy but what he really needs, says Reihan Salam, is a fiery populist if the Dems are going to have any chance of proving the pollsters wrong in November.

Nate Silver, the statistical wizard behind FiveThirtyEight, has crunched the numbers and concluded that Republicans have a two-in-three chance of winning a majority in the House come November. It is hard to emphasize how crushing a blow this would be to President Obama’s domestic agenda. Even if Republicans fall short, the slender Democratic majority that would result would be hypercautious about offending the sensibilities of moderate and conservative voters. One could argue that Democrats are right to prepare for the worst, and to simply accept that there is nothing they can do to stop the tidal wave. It is au courant in D.C. Democratic circles to say that there is little or nothing the president can do to improve his chances at this late stage.

But that is wrongheaded in the extreme. A gutsier White House economic team could rescue the Democrats. Unfortunately for President Obama, he has chosen an economic team plagued by rivalries, and dominated by a hypercautious academic frame of mind that counsels caution when only bold populism will yield a favorable political result. What the president needs is an economic team dominated by obnoxious, domineering CEO types who aren’t afraid to condemn their fellow plutocrats in salty language. As Wall Street titans turn against the president, there may well be an opportunity to find at least one class traitor who will win the adulation of downscale and upscale progressives alike by bashing her or his fellow top-hats. I can’t imagine a brand of politics I would find more loathsome. But, depressingly, I also can’t imagine a brand of politics that is better suited to our angry and irascible national mood.

On Tuesday, The Washington Post published a poll that included a rather puzzling result. While 40 percent of Americans trust Democrats to do a better job in tackling the central problems facing the country and only 37 percent feel the same way about Republicans, Republicans lead 53 to 40 on the generic congressional ballot. There are many ways to interpret this result, but perhaps the most obvious is that while a large number of voters are willing to give Republican candidates a chance, they’re not exactly wildly enthusiastic about the prospect of a GOP revival.

In an effort to jump-start the economy, or rather to project a vague desire to jump-start the economy, the White House announced a number of small-bore tax tweaks. In a conference call with bloggers Felix Salmon, Mike Konczal, and others, Jason Furman, deputy director of the National Economic Council, made the case that the president’s proposals for new infrastructure spending, permanent extension of the research-and-development credit, and the small-business bill would have a meaningful impact on the immediate unemployment crisis. All evidence suggests that this is wishful thinking. The chief economist of the National Federation of Independent Businesses has said that the small and midsize firms he represents don’t need tax breaks for themselves—they need the federal government to put more disposable income in the hands of consumers. Whether or not this is the wisest course of action, it does seem more politically potent than a grab-bag of investment tax incentives. And let’s not forget that politics is what is at issue here. There is no chance of the president passing major legislation before the midterm elections, and so the point of any new proposals is to give the public an indication, even a vague indication, of where he intends to take the country.

Imagine if President Obama had called for a payroll tax holiday on Wednesday, and called out Republicans for backing tax cuts for the rich while opposing a tax cut that would put money in the pockets of tens of millions of working- and middle-class households. I would consider this argument unfair and short-sighted, but there’s no doubt that such an argument would resonate with the Democratic base and with many disaffected independents. Recall that voters in 2008 believed that Barack Obama understood their economic woes while John McCain did not. The president has tried to recapture that magic by portraying the midterm elections as yet another battle between hope and fear, only without a signature proposal that really resonates with persuadable voters. Calling for a payroll-tax holiday and defending it on the stump would create a clear, powerful contrast between the two parties that would work to the president’s advantage.

The president needs a younger, more charismatic Volcker as the face of his economic message. Armed with a full-throated call for a payroll tax holiday, this new populist tribune could become transform the midterms from a rout to a fair fight.

The central political virtue of a payroll-tax holiday is that it would absolutely flummox congressional Republicans, who’ve painted themselves into a corner. Indiana Gov. Mitch Daniels has backed a payroll tax-holiday, calling for commensurate spending reductions in various government departments. But House Republicans haven’t rallied around the idea, and it’s hard to imagine that they will. By making the case against fiscal stimulus, the GOP has committed itself to resisting a temporary payroll-tax cut that would cause the deficit to balloon in size. Another way to put this is that deficit-obsessed conservatives—like myself—could become a veritable punching bag for populist Democrats.

The blame for this squandered opportunity lies squarely with President Obama. But it also lies with his economic team. The appointment of Austan Goolsbee as chairman of the Council of Economic Advisers has garnered praise for the good reason that Goolsbee is a universally admired scholar and, by all accounts, a charmer. Goolsbee’s appointment suggests, however, that the White House doesn’t plan on shaking up its economic team. That is a mistake.

One of Goolsbee’s great contributions to the Obama White House has been his partnership with Paul Volcker, the former Fed chairman who has been the leading advocate of a more aggressive and populist approach to financial regulation as a member of the president’s Economic Recovery Advisory Board. More than anything else, the president needs a younger, more charismatic Volcker as the face of his economic message. Armed with a full-throated call for a payroll-tax holiday, this new populist tribune could become transform the midterms from a rout to a fair fight.

Reihan Salam is a policy adviser at e21 and a fellow at the New America Foundation.