Obama's Hurdles Down the Track

By Steven Pearlstein
Friday, November 7, 2008

Now comes the hard part.

Come January, President Obama will inherit the weakest U.S. economy in 25 years, with output shrinking, unemployment rising, the federal deficit out of control and a financial system on government life-support. The new president will probably spend his first year in office careering from crisis to crisis, throwing lifelines to hard-hit households, local governments, industries and developing countries. The job will feel a lot less like that of a ship's captain and a lot more like that of a triage nurse.

Parallels have been drawn to Franklin Roosevelt and Ronald Reagan, two presidents who came to office in the midst of economic crisis and wound up reshaping and redefining American capitalism for the ensuing generation. Obama now has the same opportunity, along with a strong mandate to pursue it.

Obama's immediate challenge is to not allow himself to be trapped by his victory.

He will need to make clear that though he intends to pursue the broad agenda he laid out during the campaign, the timing and details -- many of which were laid out more than a year ago -- may need to be adjusted in light of dramatically changed circumstances.

This next year, for example, is probably not the ideal time to try to tackle the politically complex issue of health care. Better to focus on laying the foundation for reform by investing serious money in research into cost-effective medical treatments, as well as into information technology infrastructure that could control costs and improve quality.

And rather than engender the enmity of the business community right off by pushing labor's top priority -- allowing unions to organize workers by collecting pledge cards from half of a company's workers -- he might first try to repair the current system of secret-ballot elections that has been rendered useless by thuggish union-busting techniques.

Indeed, given enhanced Democratic majorities in both the House and Senate, Obama will need to demonstrate, early on, a willingness to stand up to traditional Democratic interest groups -- and the ability to beat them back if necessary by reaching out to moderate Republicans. Appointing Joel Klein, New York City's crusading schools chancellor, as secretary of education might be one place to start. It would send a strong signal that teachers unions will not have a veto over education policy.

Obama will also need to remind the transition staff that he won the election because he promised a fresh approach, not a restoration of the Clinton administration. The lists of candidates for economic jobs that have been floated so far reflect a stunning lack of diversity in terms of background, geography, political loyalties and academic pedigree. Having some old Washington hands is surely important, but an Obama economic team also needs to reflect the entrepreneurial sensibility of Silicon Valley, a Rust Belt urgency about global competitiveness, a healthy skepticism toward Wall Street and a community organizer's passion for social justice. The pool of talent that could contribute to economic policy extends well beyond the names on Bob Rubin's speed dial.

Most importantly, Obama needs to avoid the instinct to try to undo the past or refight the same pitched battles among interest groups and ideologues that have stymied action for much of the past decade. The current crisis offers a rare opportunity to reframe the questions, challenge old assumptions and bring a new vocabulary to the economic conversation.

One good place to start would be taxes. Contrary to the Republican gospel, taxes are not always a drag on the economy. Raising them doesn't necessarily destroy jobs or discourage risk-taking, and lowering them can't reliably bring an economy out of recession. It all depends on how the taxes are raised and how the money is spent. As should be evident from the recent housing bubble -- the biggest misallocation of capital by free markets the world has ever seen -- a dollar spent or invested by the private sector is not necessarily better for the economy than the same dollar spent or invested by a wise and efficient government.

Obama now has a golden opportunity to reframe the stale debate over taxes and spending.

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