As midterms loom, Democrats work to shore up faltering recovery

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By Lori Montgomery
Wednesday, August 25, 2010

A rapidly weakening economy threatens to undermine President Obama's assertion that he has set the nation on a path to prosperity and, with barely two months until congressional midterm elections, Democrats find themselves with few options for reviving the faltering recovery.

The latest sign that the economy is losing steam: Home sales fell 27 percent in July, the steepest one-month drop since figures were first compiled in 1968, according to a report released Tuesday. Analysts had expected sales to decline following the expiration of a federal tax credit for homebuyers this spring, but the drop was nearly twice as large as forecast.

The housing report punctuated a wave of bad news that has been building all summer. The number of jobless claims has risen in each of the past four weeks and last week hit its highest point in nine months. Private-sector job creation is trending well below the level needed to keep up with population growth. Retail sales have also been disappointing.

Economists generally do not expect a dip back into recession, although many say the risk has grown with each new piece of disheartening data.

Obama and congressional Democrats have been working frenetically to counter the trend, winning a series of relatively small initiatives to extend unemployment benefits, avert state layoffs and cut taxes for firms that hire unemployed workers.

But with the budget deficit soaring and polls showing deep skepticism about the impact of Obama's economic policies, even many Democrats are reluctant to support additional spending on the economy. That has left Obama with few alternatives for improving the trajectory of the recovery and reducing a stubbornly high jobless rate, which was stuck in July at 9.5 percent.

"They have played their policy hand, and they've got to hope it's good enough," said Mark Zandi, chief economist at Moody's Analytics who has been advising congressional Democrats. Given the political environment, he said, "there's nothing they can do to make a significant difference in the next six months, or even a year."

Republicans quickly sought Tuesday to capitalize on the gloomy news. Addressing the City Club of Cleveland, House GOP Leader John Boehner (Ohio) blamed Obama for "an economy stalled by 'stimulus' spending and hamstrung by uncertainty." Casting the the November election as a referendum on Obama's "discredited" policies, Boehner urged the president to fire his entire economic team, starting with Treasury Secretary Timothy F. Geithner.

"The American people are asking 'where are the jobs?' and all the president's economic team has to offer are promises of 'green shoots' that never seem to grow," Boehner said. Noting that Obama's budget director and chief economist have already announced their resignations, Boehner said Obama "should ask for - and accept - the resignations of the remaining members of his economic team," including Geithner and Lawrence Summers, head of the National Economic Council.

Boehner offered few ideas for turning the economy around. House Republicans have not released a detailed economic agenda, and Boehner's speech - delivered amid a bus tour of battleground House districts in Rust Belt states - did little to expand on the GOP's long-standing platform of lower taxes and less federal regulation.

Vice President Biden, who stood in for a vacationing Obama, derided Boehner's economic plan as a rehash of the laissez-faire policies the led the country to the brink of a financial meltdown in the final days of the Bush administration. "Mr. Boehner is nostalgic for those good old days, but Americans are not," Biden said during an event called to showcase the success of last year's $814 billion stimulus package.

His voice dripping with sarcasm, Biden also thanked Boehner for suggesting that the president fire his top economic advisers. "Very constructive advice," he said, "and we thank the leader for that."


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