The Right Direction
He called for a freeze on annual pay increases for federal civil servants and negotiated a tax-cut compromise with congressional Republicans (leaving Democratic leaders watching from a distance in dismay). More recently, he named former Commerce Secretary William Daley, a moderate, as his White House chief of staff, and Vice President Joe Biden followed suit by hiring relentless centrist Bruce Reed to be his top aide.
Voters appear encouraged. Obama's overall approval numbers in the weekly aggregation of the Gallup Organization's nightly tracking poll had not exceeded 46 percent since June 7-13. But starting for the week of December 20-26, the president's approval ratings have been 47 percent, 48 percent, 48 percent, and 49 percent. Among self-described liberals, approval has strengthened from 69 percent to 75 percent, and among moderates the number has risen from 53 percent to 58 percent. For all Democrats, Obama's approval was up 4 points, from 79 percent to 83 percent; among independents, the uptick was 5 points, from 41 percent to 46 percent. A new ABC News/Washington Post poll recorded Obama's overall job approval at 54 percent, his highest since April.
This is not to suggest that the president is going to coast to reelection. He still faces a challenging economy, stubbornly high unemployment, and a housing crisis that has turned a sector that usually leads the country out of a recession into a gigantic anchor weighing down the economy.
Blue Chip Economic Indicators' latest survey of top economists forecasts a 3.1 percent growth rate in the gross domestic product for 2011 and 3.2 percent for 2012, scarcely above the 3 percent level that translates to meaningful job growth. The Blue Chip survey projects an unemployment rate of 9.4 percent for this year, and 8.7 percent for 2012, with a drop to 8.4 percent in the fourth quarter of 2012. Wells Fargo's economics unit is more pessimistic, anticipating GDP growth of 3.1 percent for 2011 and 3.0 for 2012; it projects an unemployment rate of 9.4 percent for this year and 9.0 percent for next year, with 8.8 percent unemployment in the fourth quarter of next year, at election time.
If the private economists are wrong and the economy and, most important, employment are beating these growth estimates, Obama's reelection prospects improve tremendously. But if unemployment is just barely above 9 percent going into Election Day, the president will have a very tough hurdle to overcome.
President Reagan is the patron saint of first-term political and economic comebacks. Unemployment was a horrible 10.8 percent in November and December of 1982, when Republicans lost 26 House seats and four Senate seats. It was 10.4 percent in January and February of 1983, when Reagan's campaign began planning what looked like an uphill reelection effort.
But by January 1984, unemployment was down to 8 percent; it dropped to 7.4 percent in October, a month before Election Day, and to 7.2 percent in November 1984. That impressive improvement was powered by a GDP growth rate of 4.5 percent for 1983 and 7.2 percent for 1984, numbers that the economy is extremely unlikely to replicate over the next two years.
Obama's move toward the center is the necessary first step in his effort to get re-elected, but it isn't the only step. Talk with key business leaders and economists, and they will tell you that the government can do little to fix the housing crisis right now. Improvement will take a slow and painful deleveraging process to unwind millions of underwater mortgages that resulted from imprudent building, lending, and borrowing.
But the S&P's 500 nonfinancial companies hold an estimated $1 trillion in cash, and medium-size and smaller enterprises are also sitting on profits. These businesses are holding back on investing because managers are fearful about the solidness of the recovery and about a public-policy climate that they view as hostile and decidedly anti-business.
In a perverse way, Obama's fortunes are tied to whether business leaders develop enough confidence in the economy and in the political and public-policy process to invest, spend, hire, and expand. Their lack of confidence in the economic outlook and in political leaders has taken its toll. The question is whether Washington will take steps to tip business leaders' willingness to let go of some of that capital and invest it to create jobs.
This pivotal question gets back to centrism. President Clinton once told his economic advisers, "I don't understand how someone can love jobs but hate the people who create them." President Obama has already been partially rewarded by his new approach. If he wants to get reelected, he will need to continue this course.