Gloom offensive

The politics of trying to get America's economy out of its coma


FOR a man whose bumper stickers promised “Hope not Fear”, Barack Obama knows how to scare people. “If we don’t act immediately,” he told the citizens of Elkhart, Indiana on February 9th, “our nation will sink into a crisis that, at some point, we may be unable to reverse.”

No one doubts that America’s economy is in a bad way. But the notion that it might never recover was previously entertained only by bearded survivalists stockpiling beans and ammunition in remote log cabins. Queried by a reporter about his “dire language”, he could have admitted that he exaggerated a bit. Instead, he launched a waffly attack—three times longer than the Gettysburg address—on all those who doubted his warnings.
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It worked. On February 10th, at Mr Obama’s urging, the Senate passed an $838 billion stimulus package designed to jolt the economy out of its coma. That Senate bill then needed to be reconciled with an $819 billion bill that the House of Representatives passed on January 28th. The two measures are broadly similar, but include a different mix of spending and tax cuts. The Senate bill has more tax breaks, including temporary relief for the middle class from the alternative minimum tax and incentives to buy houses and cars. The House bill has more help for cash-starved states to build schools and provide health care.

House and Senate negotiators got straight to work haggling over a compromise. Harry Reid, the Senate majority leader, said on February 11th that a deal had been reached, in which the package was scaled back to $789 billion, partly by squeezing the tax break for homebuyers. But some details remained unclear. Since the House bill passed comfortably (without Republican support) but the Senate bill passed with only a vote to spare, Mr Obama still needed to keep the support of at least two of the three Republican senators who backed the bill—Olympia Snowe and Susan Collins of Maine and Arlen Specter of Pennsylvania—if the reconciled bill were to pass.

Also on February 10th, Tim Geithner, the treasury secretary, announced an outline of a plan to shore up the financial sector. Investors, who had been led to expect something clear and bold, panned it as vague and woolly. The stockmarket plunged by almost 5%, tarnishing the new president’s shine.

But Mr Obama remains far more popular than any party or political institution, and is campaigning hard for both packages. He hammers a few simple points relentlessly. America is in a terrible crisis. Only government can break the vicious cycle. If we don’t hurry, things will get much worse. But if we act now, we can “save or create” up to 4m jobs.

A daily barrage of awful news supports his case. In January alone the economy shed 600,000 jobs, bringing the toll to 3.6m since the recession began in late 2007. Most Americans are either suffering or know someone who is.

Mr Obama uses wretched backdrops for his bully pulpit. On February 9th he visited Elkhart, a town racked by job losses since the local recreational-vehicle factories started cutting back. At a packed town-hall meeting, he was introduced by an unemployed father of seven. He bewailed the “families who’ve lost the home that was their corner of the American dream” and the “young people who put that college acceptance letter back in the envelope because they just can’t afford it.” The next day, he went to Fort Myers, Florida, a town where many people have lost their homes, and spoke to a family who live in a car.

A stimulus bill is both difficult and easy to sell. On the one hand, Americans like tax cuts and handouts as much as anyone. On the other, few understand the logic of borrowing your way out of financial difficulties. That is not how prudent households operate, they figure.

Republicans, who generally favour a smaller stimulus with more tax cuts, decry Mr Obama’s bill as wasteful. For sound bites, they point to the $3m for golf carts, $1.65 billion for renovating government buildings and the requirement that many projects pay union wages. During more sustained fusillades, they denounce the “generational theft” of borrowing from one’s children for a bill that may not work.

They cite an analysis of the first draft of the Senate bill by the non-partisan Congressional Budget Office. It predicts that it would boost the economy in the short term but make America slightly poorer than it would otherwise have been by 2019, because the immense debts incurred would have to be honoured. Democrats retort that the CBO describes its own predictions as “very uncertain”. The predicted impoverishment is small (0.1% to 0.3% of GDP). And the stimulus might prevent a total calamity, they say.

Egregious “Buy American” provisions in the stimulus bill have been watered down. Mr Obama says he will make sure that the bill conforms to World Trade Organisation rules. But free-traders are far from content. The bill still encourages the government to indulge in whatever protectionist measures its lawyers may say it can get away with. That sets a terrible example for the rest of the world, says Gary Hufbauer of the Peterson Institute for International Economics, a think-tank.

Republicans also worry that the bill marks the start of a big expansion of government. Some recall that, when Franklin Roosevelt unleashed the New Deal to tackle the Depression, government grew beyond recognition and stayed big. They fear that Mr Obama plans to hire an army of bureaucrats, who will never be sacked and will mostly vote Democratic. And they fear a “tax tipping-point”, when a majority of Americans pay little or no taxes and discover that they can vote themselves goodies paid for by others. Currently, the top 20% of earners pay 69% of federal taxes, and that share is rising.

Mr Obama has a holster of quick-fire retorts. To the Republicans’ earnest discussions of history, he scoffs: “They’re fighting battles that I thought were resolved a pretty long time ago.” When they warn of the dangers of fiscal irresponsibility, he snorts that George Bush presided over a doubling in the national debt. Which is true, but dodges the point. His strongest weapon is to declare, falsely, that his opponents want to do nothing whereas he favours bold action. One thing is certain, though. When the economy recovers, which it surely will, he will get the credit.



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