STATE OF THE UNION FEBRUARY 13, 2013
President Obama’s strong re-election victory last November—he is only the third Democrat, along with Andrew Jackson and Franklin Roosevelt, to surpass 51 percent of the vote in two presidential campaigns—marked the indisputable arrival of a new and vibrant coalition in American politics. The coalition’s outlines have become familiar to us all: minority voters, younger voters from the Millennial generation, professionals, singles (especially women), seculars, socially liberal, college-educated whites, and urbanized Americans, especially in large metropolitan areas. This powerful coalition—call it the Obama coalition—has the potential to dominate politics for a generation.
The key word here is “potential.” And judging from last night's State of the Union address, Obama isn't yet committed to doing enough to turn that potential into reality.
There are two keys to achieving real political dominance for the new Obama coalition. First, it must be mobilized beyond presidential elections—in congressional elections, where turnout patterns don't yet align very closely with presidential elections, and between elections, in the struggle to achieve legislative victories. Second, the Obama coalition must be widened to take in a larger share of the white working class. Otherwise, the hostility of these voters will undercut public support for the president’s agenda, as well as remaining a lurking threat in every election, particularly congressional ones.
The Obama team is not unaware of these necessities. But the strategy they've developed to address them isn't entirely adequate. It seems to consist of emphasizing particular fights like immigration reform, gun control, same sex marriage, and climate change that appeal most strongly to different elements of the Obama coalition. This strategy does have merit. The thought is that even if all these fights don’t yield legislative victories (and they won’t so long as Republicans control part of Congress), they will nevertheless serve to generate more enthusiasm among key parts of the coalition, without imposing much of an electoral cost. Moreover, these fights are all substantively important in policy terms, so any victories attained will be important breakthroughs.
But the strategy has serious limitations. To begin with, even if these issues do little damage to Democrats’ standing among white working class voters, they will also do little to win their support. These voters are primarily looking for material improvements in their lives, improvements that are not possible without strong economic growth and the jobs, tight labor markets, and rising incomes such growth would bring. In a low-growth environment, these voters will remain exceptionally pessimistic and inclined to blame Democrats and government for their lack of upward mobility.
Even more serious, core groups of the Obama coalition will be weakened by continued slow growth. Obama was well-supported by these groups in 2012, but a sluggish economic environment, where unemployment continues pushing 8 percent, will try these voters’ patience. How much enthusiasm will Hispanics, blacks, youth, single women, etc., whose unemployment rates are considerably above the national average, continue to have for a party that cannot do more to improve economic conditions? Attrition in support will be inevitable in such a scenario and the opportunity to consolidate a dominant coalition will be lost.
How likely is it that slow growth will continue? Unfortunately, it appears to be a very serious possibility. The last quarter of 2012 actually saw the economy contract by .1 percent. And CBO’s latest economic projections, just released on February 5, anticipate that the economy will grow by only 1.4 percent this year (halving CBO’s previous projection) with an average unemployment rate of 7.9 percent. They project 2014 to be slightly better—2.6 percent growth and 7.8 percent unemployment—but the economy doesn’t really pick up until 2015. Even then, unemployment remains above 7 percent in 2015, above 6 percent in 2016, and doesn’t approximate full employment until 2017.
The reason for these gloomy projections is fiscal drag—that is, lower spending and higher taxes are subtracting demand from the economy, thereby slowing the still-fragile recovery. The fiscal cliff deal did considerable damage, chiefly due to the expiration of the payroll tax cut, which raised taxes 2 percent for middle and low income earners. The sequester will do more damage if implemented, indiscriminately cutting $85 billion from federal spending this year and every year thereafter for 10 years. And then there is possible further damage from whatever deal might be struck around the next extension of the debt ceiling, due in a few months (damage not included in the CBO projections).
It’s a bleak picture to be sure. What the economy really needs is something like Obama’s initial offer on a fiscal cliff deal. That offer included, besides tax increases on the wealthy and long-term cost reductions for Medicare, extensions of both unemployment insurance and the payroll tax holiday, as well as a roughly $50 billion jobs plan focused on infrastructure spending. The Republicans rejected the offer out of hand, of course, and the administration quickly yielded on the payroll tax cut and the jobs spending, leaving just the unemployment benefits extension. Rescinding the Bush tax cuts for those with $450,000 in income and higher was the laudable centerpiece of the deal, making the tax code fairer and helping to reduce long-term deficits, but that did nothing to alter the contractionary nature of the deal.
Now Obama has to deal with the extremely contractionary sequestered spending cuts. One of his stated operating principles on dealing with the sequester is to “do no harm” to the economy. However, the only way to really do that would be to avoid short-term spending cuts altogether.
Will he try to do that? It’s possible. But it doesn't help matters that he has consistently evoked the possibility of a Grand Bargain with the Republicans that would, in a “balanced” way, attain $1.5 trillion in debt reduction over ten years. In all likelihood, that would mean agreeing to hundreds of billions in cuts (Obama would be lucky if only half ($700 billion) of the total savings was from spending cuts; Republicans will demand much more), starting this year and continuing until 2023. Leaving aside the content of the cuts, we know this means one thing that is indisputably bad—subtracting demand from the economy while it is still struggling, thereby making CBO’s gloomy economic projections more and more likely.
It therefore seems that another contractionary deal, despite Obama’s stated commitment to “do no harm,” is a distinct possibility. He would be well-advised to forget about such a Grand Bargain-type deal, which is not necessary in the short run (the deficit is already declining, as the CBO report notes, and will continue to do so for several years) and concentrate on what is necessary: growth. This starts with delaying or ending the sequester. As Paul Krugman points out, “kicking the can down the road,” so derided by Washingon commentators and elites, is in reality the responsible thing to do, given the state of today’s economy.
Then Obama should move to actually getting the economy some help. One obvious way to do this is through infrastructure investment. As Neil Irwin recently noted, low interest rates, millions of unemployed construction workers, and high economic development payoffs make such investment amazingly close to a free lunch. Obama did call for more infrastructure investment in his SOTU, including a new proposal for infrastructure repair called “Fix-It-First”, but this was in the wish list portion of his speech and had no clear urgency or timeline attached to it. These investments need to be moved up to short-term priority number one.
Indeed, if any deal is cut with the Republicans, it should be to put such investments immediately in the pipeline. We need a Grand Bargain for growth far more than we need a Grand Bargain for deficit reduction. Besides as many analysts have noted, the best medicine for deficit reduction is a higher growth rate, so the two goals are intimately and virtuously related. Add a half point to the growth rate and you knock $1.5 trillion off the national debt over ten years, thereby achieving Obama’s current debt reduction target.
And then there is the political payoff. The faster we move into a high growth economy, the better the opportunities for consolidating and expanding the Obama coalition. Conversely, if we stagger along for the next several years, the coalition has an excellent chance of falling apart. A very simple equation captures what’s at stake here:
Demographics + Growth = Dominance
Democrats have the demographics part of the formula already. Now what they need is the growth part to achieve electoral and policy dominance. That is the real challenge for Obama and his party if they wish to see the many worthy ideas in his State of the Union become reality.