The Power of the President is the title of a great new report by the Center for American Progress on some of the things President Obama can and should do that do not require Congressional action. It is important to keep a laser-like focus on this topic because it could not be clearer that the Republican House will not be passing anything useful in bringing our economy back to life. Whether because of not wanting to help the President improve the economy to weaken him going into 2012, having a completely screwed up economic theory, being terrified of their own off the wall base that wants no compromise on anything with Obama, or (most likely) all of the above, Republicans coming to the table to help Barack Obama improve the economy is not happening, no way no how.
Progressives and Democrats need to spend less time commiserating over all the good things that Congress should do but won’t. Another stimulus will not happen in the next two years, so we need to move on. Instead, we need to spend more time thinking about the things Obama could do if he aggressively seized the reins of government that he possesses and pushes forward.
The biggest thing that could be done to help the economy and the middle class immediately is to focus on stabilizing and revitalizing the housing market. If struggling homeowners had their mortgages written down, and mass foreclosures stopped wracking neighborhoods all over America, housing prices would finally stabilize and be poised to start going back up. If the shadow housing inventory of the homes that have already been foreclosed on were converted into rental properties, housing costs for working class younger and unmarried people who can’t afford to buy a home yet would start to go down. If families finally got their mortgages renegotiated they could get their own finances in order again, and would gain the confidence to start spending money in the economy again. All of these things would improve the economy, and all of them could happen without Congress doing anything: all that needs to happen is for Treasury, HUD, FHA, Fannie and Freddie, and DOJ to start exerting the very considerable authority they have over the banks to push them to start writing down mortgages, and for the President to start issuing the executive orders on housing and financial regulation the CAP report proposes.
Another area that the administration could move aggressively in without congressional action is in regards to manufacturing. CAP has one outstanding idea, which is an executive order related to developing a new strategy around promoting competitiveness, especially in terms of manufacturing policy. While this would help more in the long run than short term, having such policies could do things that would promote manufacturing jobs in the short run as well. Another place the federal government can move now is in instituting a stronger, more assertive Buy America policy in contracting, and making sure federal government contractors pay decent wages. This would make a big difference in promoting American jobs and improving the incomes of American workers. Finally, Treasury needs to get far more assertive with trading partners, especially China, in dealing with currency manipulation, and needs to look at their own policies that keep the dollar so high, which hurts our manufacturing base.
Another big thing this administration could do immediately with no help from Congress is to accelerate the implementation of the Small Business Jobs Act just passed by Congress right before the election. CAP has some great ideas about implementation which have the potential to really speed up job creation in the small business sector.
There are plenty of other great policy ideas I’m not even touching that the Obama administration could do to make a difference on the economy, but my central point is that the President needs to lead, and he needs to act. Republicans and corporate Democrats like Doug Schoen keep bleating about how all Obama has to do is just compromise with the Republicans the way Clinton did, but there are some big problems with that. For one thing, the Republicans have no interest in compromising, only in capitulation. For another, they have no policy ideas that would actually create any jobs. But most of all, it ignores what actually happened in 1995: what Schoen forgets is that he and Penn and Morris all were advocating giving in to the Republicans on the budget fight in 1995. Had Clinton caved without a fight, he would have been seen as weak, and his base would have demanded a primary. Instead, he painted Gingrich and Dole as extremists, stood tall on the fight, and cleaned their clocks. Clinton went from being 10 points down to Dole before the budget fight to 10 points ahead afterwards, he ended any chance of a serious primary challenge, and he never looked back.
President Obama needs to be strong in taking the action he needs to take to make the economy better, and he needs to stand up to Republicans and force them to compromise on his terms, not theirs. He needs to stop bragging about an economic recovery no one feels, show leadership on making the economy better, and show the Republicans to be the do-nothing Congress they intend to be. Obama needs to take what action can be taken, pick some important early fights with the Republicans, and show people the difference between his vision for the economy and the far right wing Republican vision.
The battle immediately in front of us, of course, is this fascinating, unpredictable election season. Everyone in Democratic and progressive politics is doing everything they know how to turn back a Republican tide, and the polling shows some interesting possibilities: it is ugly out there, but still not impossible to imagine Democrats avoiding the worst. Smart folks like Stan Greenberg, Bob Creamer, and Simon Rosenberg see some signs of life out there. I think voters are still trying to decide which party they dislike the most, and these last couple of weeks there will be some last minute trend one way or the other that will make things far worse or quite a bit better than anyone is predicting right now.
But for the purposes of this post, I want to take a moment to look ahead to the next big battle that will face us no matter what happens on election day. Our next big battle is an unavoidable fight about economics that goes to the core of whether the economy will start to improve, and whether the big banks will be in control of our government. It will be at least initially less a legislative fight than a battle over how Obama and his team will respond to the latest huge challenge in front of them, the foreclosure mess. Our economic system has been done far more damage by the last decade of recklessness in the financial industry than most conventional economists and policy makers understand, and the Bernanke/Paulson/Geithner rescue revived but did not restructure the financial industry. The toxic assets on the books of the big banks, which are primarily in the terribly damaged real estate sector, were never resolved, and are still sitting there like a huge millstone hung around the necks of these banks. The only reason the banks looked healthier in the last 18 months is that their lobbyists were able to get the accounting board to change the rules so they could value those real estate assets at whatever imaginary number they needed to in order to get profits and bonuses showing up on their books again.
The banks’ strategy for getting this mess cleaned up was to run huge numbers of people through this fraudulent and obscene foreclosure mill process, but the law and community organizations have caught up to them, and the process is bogging down into a slow moving morass that, for the second time in 2 years, is threatening the very existence of these big banks. Herein lies our country’s next big political and economic battle. The bankers who got themselves and all the rest of us into this mess will once again argue that they are too big to fail, that the health of our entire economy depends on their ability to cut legal corners with homeowners’ legal rights, and that they might even need other kinds of bailouts from the government to survive. The argument will be that if we don’t push all these foreclosures through ASAP, the entire housing market will sink even lower into the pit it is already in, and the economy will go from weak to terrible. And if these banks themselves fail, we will be told, we will see another great depression set in.
There are other policies that could be pursued, though. Thoughtful economists have been putting out a mix of proposals that could be successful in keeping more people in their homes, stabilizing home prices, and other measures that would help rebuild the middle class that has been so harmed by the last decade’s economic trends. These policies include a large scale principal reduction program for distressed homeowners, creating a right to rent for homeowners whose home prices have fallen so much their mortgages are under water. Such policies would create big losses for the banks, but given all their profits and bonuses over the last decade, I’m certain the Wall Street tycoons and government regulators could figure out a way to keep these banks going. The cowboy traders for these companies probably wouldn’t be getting any bonuses for a while, and that would cause some howling, but I think our system would survive their having to cut back purchases of $6,000 bottles of wine for a while. It might even force these banks to restructure themselves, perhaps even breaking themselves apart (there would be nothing more healthy for our economy than that event). So the bank lobby and their sycophants in the media will be in high gear, trying to make sure nothing happens that would scale back their power and profits, threatening us with the end of the world, but we need to push back hard against them.
This debate is different from the one we went through a couple of years ago, the main reason being what we went through over the last couple of years. There is no political will in either party, no matter how much many politicians and policy makers want to help their banking industry friends, for another big bailout of Wall Street. If the bank lobby could sneak something through without anyone noticing, as they came very close to with this mortgage modification bill Obama vetoed, that could work, but having failed at their first attempt and the foreclosure fraud crisis now being in the center of the public eye, that will be tougher to do now. With tea party populists and progressives united in not wanting to bail out the banks again, and with the immense unpopularity of TARP, straightforward bail out bills will be very tough to pass. Bernanke will use all his tools to help grease the wheels for the industry, but he doesn’t have as many tools in the toolbox as he used to, and if the actual law on these foreclosure proceedings is not changed, Bernanke may not have the ability to help as much as he would like. The biggest question at this point is the Obama administration, and they are genuinely divided on how to move forward. There are still those in powerful positions inside the administration who believe that the fate of the economy is inextricably tied to the financial well being of the Wall St financial sector. There are others inside, especially Elizabeth Warren but also influential people like Volcker and Goolsbee, who are more skeptical about the big banks being the end-all and be-all of the country’s economic health.
How all this plays out will be the central, fundamental issue by far in how the next two years of this administration turns out. The economy is too damaged to get healthy without a restructuring of the housing sector in a way that actually benefits the middle class. If the banks win this battle, I fear we are stuck with deflation, high unemployment, and low housing prices stretching several years out, and in that circumstance, the President’s future political prospects look pretty bleak. However, if the President sides with homeowners on these issues, and creates a path out of this mess that actually helps strengthen the middle class, he will have new momentum going forward. Whatever Congress is elected a couple of weeks from now, this issue will be mostly resolved within the administration, and if Obama proves himself a champion of the middle class in opposition to the bank lobby, he will be well-positioned for future fights no matter how the 2010 elections turn out.
