It has been a bad couple of weeks for President Obama and his signature health care overhaul package. Now help may be on the way in the form of a reviving economy. But if prosperity is returning, did the Obama Administration really have anything to do with it? And will the recovery save the President’s legislative proposal? It doesn’t deserve to, but it might.
First, the bad part for the Administration. It was barely a month ago that Mr. Obama issued a series of “here I stand” statements, demanding that Congress pass a health care reform bill before the August recess. The President was so insistent that it became received wisdom in the Washington that he and his advisors feared allowing members of Congress time to hear what their constituents thought about the proposal when they went home for summer break.
Of course, members didn’t really need to go home to know what voters were thinking. They could and did read the tanking poll numbers for the White House and its legislative package. So in the past couple of weeks, more than a few toes have erased that August line in the sand.
But now an unlikely cavalry may be riding to Mr. Obama’s rescue, or so we are told. The Administration’s bad poll numbers, the received wisdom holds, were thanks to other bad numbers — the rising unemployment rates that accompanied the falling economy. Just in time, as Newsweek magazine trumpets on it current cover, “The Recession is over”.
The President was quick to pick up the beat. Mr. Obama led off his recent press conference asserting, “As a result of the actions we took in those first weeks [of his Administration], we’ve been able to pull our economy back from the brink…. And the Recovery Act will continue to save and create more jobs over the next two years — just like it was designed to do.”
And, yes, the economy does appear to be recovering. Housing prices look to have bottomed out. Most leading economic indicators have turned around. But here is the catch: it is a virtual certainty that credit does not belong to the stimulus bill or any other government action since Inauguration Day. Instead, the Obama Administration may have guaranteed a shallower, slower revival than we might otherwise have experienced? How could this be?
Start at the beginning. Though brought on by mistaken Federal Reserve interest rate movements and Congressional housing policies, the financial crisis was nevertheless a classic monetary event. In early 2008, with the fall of Bear Stearns and the seizing up of the derivatives markets (which in the prior two decades had become an alternative banking system), the U.S. experienced a massive round of monetary destruction. The Federal Reserve and the Treasury were slow to respond, waiting until the final quarter of last year and then acting in what appeared to be panic. Still, between Labor Day 2008 and Inauguration Day 2009, Fed money creation and Treasury direct injections into bank reserves were almost certainly enough to repair the damage. Now, in the six to nine months that Milton Friedman taught it takes for monetary changes to be felt in the economy as a whole, we are starting to see the results.
In February I made this same argument prospectively (see here: http://tiny.cc/HbjRh ). I concluded that “following the massive actions the Treasury and Fed took between September and December last year, the economy should rebound between May and September this year” (I also warned that the new administration’s policies could undo the return to expansion that had been set in place). Still, don’t count on the Obama crowd or its media cheerleaders to give credit to measures taken during the Bush Administration’s closing months.
The political danger now is that, as they see the economy reviving, wavering Democrats in Congress will start to dismiss the low poll numbers for Mr. Obama’s program. As his popularity revives, they may well decide to cut deals that end up making a terrible health care reform program only slightly less terrible. Indeed, in committee last week, they began to do just that.
We are in an extraordinarily fluid period in American politics. The country’s doubts about Mr. Obama go beyond the state of the economy to the overreaching of his entire program. Multiple trillions of dollars in spending and the takeover of numerous industries have at least as much to do with doubts about both him and his legislative package as do unemployment numbers – probably more. Still, the tide of political battle in Washington may be turning his way (at least for a time).
With it, defeat or victory of the White House’s plans for an indirect and direct federal take-over of the medicine, medical device and health delivery sectors of the U.S. economy will surely be – as Wellington said of Waterloo — a near run thing.
Clark S. Judge is managing director of the White House Writers Group, a high-stakes policy and communications consulting firm based in Washington. He was a special assistant and speechwriter to President Reagan.