His reelection behind him, President Obama can worry about his legacy, which is a priority of most second-term leaders. He can admit to himself now that he will not be remembered positively on economic issues. The deck is stacked too much against him.
Mr. Obama’s own Office of Management and Budget consistently has forecast only very modest economic growth for the next several years. It also has predicted the deficit will move only slightly in a positive direction during the next decade. The evaluation of the Congressional Budget Office is even more pessimistic.
The Federal Reserve has forecast that unemployment will remain at unacceptable levels through 2014. Consequently, the central bank is prepared to keep interest rates near zero for the entire period between now and then.
The persistent fantasy that Congress and the President can iron out disagreements before the fiscal cliff is reached will last until, at year’s end, there is not agreement. Whatever mandate a second term may give him, the Republicans can ignore it. They believe too strongly in their own philosophy on taxes and spending. The CBO has forecast a recession early next year without a solution. President Obama will then be able to preside over a U.S. economy that will have two recessions on his watch.
Beyond the president’s reach entirely are a resolution of the recession and sovereign paper problems in Europe. Many U.S. companies have reported that trouble in Europe has crippled their earnings. The blow-back from this is lower capital spending and suspensions of job additions. And employment numbers could even move in the wrong direction, if the European trouble mushrooms more.
President Obama’s single greatest economic and budget hurdle will be any attempt to alter entitlement programs. Members of Congress, who have to run for reelection in two more years, and a third of the Senate, which will be up for reelection at the same time, do not want to go to sullen baby boomers who vote in great numbers with a plan to cut the benefits they believe they have earned by decades of work and paying into the system.
An improvement in the economy, a sharp change in the deficit, a solution to Europe’s problems and an entitlement reduction based solution to the rise in U.S. debt are all well beyond the reach of the president’s solutions. His legacy on the economy already is set in stone, and he has not even started his second term.
Douglas A. McIntyre