Is Obama finished?

As the economy sinks and hope turns into despair, the president’s odds of re-election are fading fast

Is Obama finished?

Kevin Lamarque/Reuters

Two and a half years into Barack Obama’s presidency, Obamamania has given way to Obamamisery. Fourteen million Americans are out of work. The unemployment rate remains stuck above nine per cent. The net number of new jobs created last month was exactly zero. And nearly one in six Americans live in poverty—the most in 27 years.

Sure, the former Illinois senator was dealt a raw hand—elected in the midst of an economic crisis and two long, costly wars, at the burst of a credit and real estate bubble that would take years to unwind. In his inaugural address, the new President acknowledged “a nagging fear that America’s decline is inevitable.” But Obama had promised to be the man of hope and change. “Starting today, we must pick ourselves up, dust ourselves off, and begin again the work of remaking America,” he told the millions people who had travelled from around the country and the globe to witness him take office and end the era of George W. Bush.

In January 2009, the unemployment rate was 6.9 per cent and Obama’s approval ratings were over 60 per cent. The question that framed his presidency was whether he would lead the country out of crisis the way Franklin Delano Roosevelt led the country out of the Great Depression, or whether he would become the next Jimmy Carter—a weak, one-term president done in by economic malaise and failures abroad.

This week the Congressional Budget Office revised down its projections of U.S. economic growth. It expects an anemic rate of 1.5 per cent in 2011 and 2.5 per cent in 2012. The U.S. unemployment rate will remain close to nine per cent through the end of 2012, the CBO predicted—a number that could spell political defeat for Obama in the next presidential election.

Some Democrats now worry he is turning out more Carter than FDR. “I’ve just done six town hall meetings. People are shaking their heads and saying ‘I don’t know if I’d vote for him again,’ ” Peter DeFazio, a Democratic congressman from Oregon, told his local TV station after spending the summer recess consulting constituents. “One guy asked me, ‘Give me 25 words what he’s about and what he’s done for me.’ I’m like, ‘It could have been worse.’ ”

Among the African-American community, where unemployment is almost 17 per cent, there is also growing frustration with Obama. “Our people are hurting. The unemployment is unconscionable. We don’t know what the strategy is,” said Maxime Waters, a Democratic lawmaker from California. “We’re supportive of the President, but we’re getting tired, y’all, getting tired,” she told a jobs forum in August.

Connecticut Sen. Joe Lieberman, an Independent who caucuses with Democrats, said Obama’s re-election is not a given. “Just going by the numbers—the rate of unemployment in the country, the lagging growth in our economy and, of course, the public opinion polls—the election next year, in my opinion, is a toss-up,” he told MSNBC.

A key turning point came in the summer of 2009, after Obama pushed for a major health care reform legislation that included a legal requirement for all Americans to buy health insurance. The aggressive policy push reinvigorated the beaten-down Republican party, whose most fervent supporters found their voice in angry town hall meetings and rebranded themselves as the Tea Party. The political backlash fuelled the Republican takeover of the House of Representatives in November 2010.

In early 2011, though, things were looking up again—the worst of the recession seemed to be over and the economy was gaining steam. In May, Obama ordered a Navy SEAL team into a high-risk raid of a compound deep inside Pakistan that succeeded in killing the United States’ nemesis, al-Qaeda leader Osama bin Laden, with no American loss of life. But economic threats still lurked—the Japanese earthquake had already scrambled supply chains and became a drag on the U.S. economy, the U.S. real estate market slowed again after tax incentives for homebuyers expired, and turmoil in European debt markets created new economic uncertainty and anxiety for American banks.

In the meantime, the Tea Party pushed concerns about joblessness aside to place debts and deficits centre stage. First, a fight between the White House and Republicans over funding the federal budget nearly led to a government shutdown. Then, this summer, a battle over whether to raise the limit on what the U.S. government can borrow brought the country to the brink of default, leading to an unprecedented downgrading of the United States’ debt rating. The American economy just couldn’t seem to catch a break. Indeed, some analysts are already using the word “depression” to describe the U.S. situation (see “The dreaded D-word,” page 33).

Now, the economic storm clouds of the government debt crisis in Europe, where Greece teeters on the verge of default, further threaten the United States. A financial crisis overseas would quickly spread across the Atlantic and bring the fragile U.S. economy down with it. It does not bode well for a President whose disapproval rating has rocketed to a high of 55 per cent, and who is fighting for his political life.

The economic anxiety among Americans is palpable. Polls show that only 17 per cent of Americans are satisfied with the economy, and after 2½ years in office, even Obama’s own aides concede that he now “owns” it. But after months of Democrats complaining that Obama has looked weak and bullied by Republicans in the debt battles, a different President appeared on the scene on Sept. 8. In front of a national television audience, Obama transformed himself from the wooden, professorial president into an energized leader with new-found focus. In a fiery speech to a joint session of Congress, he laid out a new job creation plan—and called on Congress to pass it immediately.

The US$447-billion plan includes $253 billion in tax cuts and $194 billion in spending. The proposed tax cuts included an extension of a payroll tax cut for employees, as well as a reduction in the payroll taxes paid by employers, and tax cuts for hiring new employees. There were tax credits to encourage companies to hire veterans and workers who have been unemployed for more than six months. The spending proposals also included aid to states to hire teachers and firefighters, as well as money to modernize schools and create an “infrastructure bank” to update roads, bridges and other infrastructure.

After two years of deferring details of his policy initiatives to Congress and compromising with intransigent Republicans, Obama began to draw a line in the sand. It was his attempt to take back the initiative from Republicans who had dominated the debate over the economy with their laser focus on debt and deficits, and to rehabilitate himself with voters who keep telling pollsters that, by far, their number one concern is jobs, jobs, jobs. Obama emphasized that every policy in the plan had been at one point or another supported by some Republicans as well as Democrats. At first, House Speaker John Boehner said some of the proposals “merit consideration.” But within days it became apparent that Obama wants to pay for his plan with tax measures that have already been rejected by Republicans. They include limiting tax deductions for upper-income earners and closing “loopholes” that would result in increased tax bills for investment fund managers, oil and gas companies, and owners of corporate jets.

Republicans quickly declared the package dead on arrival in the Congress. Boehner dismissed the proposal as being paid for by “permanent tax increases put into effect in order to pay for temporary spending.” The Senate minority leader, Kentucky Sen. Mitch McConnell, portrayed the plan as “a hodgepodge of retread ideas” that Obama was “daring Republicans to vote against.” Former New York City mayor Rudy Giuliani, campaigning for a Republican congressional candidate in New York state, called Obama’s American Jobs Act a bucket of “warmed spit.”

Obama seemed to relish their rebukes. He was staking his political future on either the possibility that the plan works and the economy improves—or that Congress rejects it and he can run against a “do-nothing Congress” that turned its back on the jobless. “Should we keep tax breaks for millionaires and billionaires?” he asked. “Or should we put teachers back to work so our kids can graduate ready for college and good jobs? Right now, we can’t afford to do both,” Obama declared in his speech. “This isn’t political grandstanding. This isn’t class warfare. This is simple math.”

Gleeful Democrats said the hitherto laconic President sounded like he’d finally had a cup of coffee.

But even in the unlikely event that Congress passed the whole plan, could it actually work? The administration has been reluctant to predict an exact number of jobs that would be created by the new policies. Mark Zandi, chief economist at Moody’s Analytics, concludes that “President Obama’s jobs proposal would help stabilize confidence and keep the U.S. from sliding back into recession.” In a report following the speech, he wrote that the plan would add two percentage points to GDP growth next year, add 1.9 million jobs, and cut the unemployment rate by a percentage point. The Economic Policy Institute, a liberal-leaning think tank in Washington, calculated that the plan will save or create around 4.3 million jobs.

But Republicans don’t buy the numbers. After all, the administration had predicted that its first stimulus package, enacted in early 2009 at a cost of $787 billion, would keep unemployment below eight per cent. (The White House now argues that it simply did not appreciate how bad the economic situation was, and that without the stimulus, it would have been even worse.) But economists say the original stimulus plan had various flaws. Economist Garett Jones of George Mason University says that, among other things, the funds were “poorly targeted.” He blames the White House for allowing Congress to write the details of the bill, rather than presenting its own detailed plan, just as Obama let Congress write the details of the health care reform bill. “It does seem to be a theme with this White House,” says Jones. “That’s bad management. Why bother having great economists in the White House if you’re not going to use them?”

Perhaps the lesson was learned. The new proposal, written in-house, is better tailored to job creation, with payroll tax cuts for employers and a proposal to allow unemployed people to continue receiving unemployment insurance while participating in unpaid internships. “It’s the kind of job training that matters—sitting in a job, not sitting in a classroom,” says Jones. But whether it’s the most effective way to spend half a trillion dollars is another question.

And in addition to Republican opposition, Obama’s new spending plan faces the complication of coming at a time when Washington is fixated on also passing new austerity measures. The bipartisan deal that allowed the federal government to borrow more money came with an agreement to find $1.2 trillion from the deficit over the next decade. A group of lawmakers, dubbed the “Super Committee,” has begun meeting this month to hash out the cuts ahead of a November deadline. Republican leaders and some economists are now urging the committee to come up with even larger cuts, as much as $4 trillion over 10 years.

even with the economic doldrums and uncertainty on so many financial fronts, it’s too early to declare Obama definitively doomed. The current political environment is simply too hard to predict. “History would suggest that unemployment levels this high, if they continue into the spring, would be devastating to a president’s re-election chances,” says pollster Michael Dimock at the Pew Center for the People and the Press. But there is a big caveat: coming off the summer’s debt-ceiling debacle, the Republicans have taken a beating in public opinion even worse than Obama’s. “Every drop that Obama sees in the polls seems to be magnified for Republicans,” he said.

Approval ratings for Republican leaders in Congress is around 22 per cent—roughly half of Obama’s. Dimock sees this as a historical shift away from what used to be a partisan see-saw in public opinion: “When one party would go down, the other would go up in the public’s estimation. Right now everybody is going down,” he says. And things are not as bad for Obama as they could be, given the economy. Only 17 per cent of Americans are satisfied with the state of the nation—but despite Obama’s plummeting popularity, 43 per cent still approve of the President.

Obama’s approval rating has been more resilient than George H. W. Bush’s during the recession of the early 1990s, says Dimock. “His approval is exceeding other economic and satisfaction metrics by a substantial margin. The only other president who enjoyed that was Clinton,” he says. And surveys of partisan affiliation suggest that Republicans have not made great inroads. The percentage of Americans identifying as Democrats peaked in 2008 with Obama’s election and has been falling ever since—but Republican identification has not been growing. “What you have is a growing share of voters that are disaffected with both parties. It makes making predictions about 2012 tricky,” notes Dimock.

The President’s political strategist, David Axelrod, is banking on the notion that once Republicans settle on a nominee, the election ceases to be merely a referendum on Obama. “At some point these things become less about gauging the President, a referendum on the President, and more about a choice between two candidates,” he told MSNBC. And Axelrod gave a preview of the attack line Obama will use: “When you listen to the Republican party, they simply want to recycle the very same ideas that got us into this mess in the first place.”

With his eye on 2012, Obama has already been taking his plan to the so-called battleground states, such as Virginia and Boehner’s home state of Ohio. Whatever Congress does with his jobs plan, though, the fate of Obama’s re-election may ultimately depend on factors beyond the control of any elected officials in the United States. Will Federal Reserve Board chairman Ben Bernanke overcome concerns about inflation and juice the American economy by increasing the money supply at the board’s next meeting on Sept. 21? Will German Chancellor Angela Merkel stem the European debt crisis that could potentially push the U.S. over the economic precipice? In the end, the question may be less whether Obama can save himself, but whether others such as Bernanke and Merkel can save Obama.

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