Obama Needs Wake-up Call on Jobs Before 2012

Nov 23, 2010Jeff Madrick

No matter what else happens, a high unemployment rate will spell defeat in two years.

There are ongoing discussions in Democratic circles since the Republican electoral victories about how the president can get re-elected in 2012. The few I've attended ignore the most salient and disturbing fact of them all: the unemployment rate come election day will almost certainly be well above 8 percent, and perhaps hovering near 9 percent. Can a sitting president win with even an 8 percent unemployment rate, the best that can be hoped for? It would be setting a post-World War II precedent, by far.

The current unemployment rate is 9.6 percent. In February 2010, the president's annual budget forecast that the average unemployment rate in 2012 would fall to 8.2 percent. But it almost certainly won't drop that far, because the rate of real GDP growth is already slower than the president's budget staff forecast for the remainder of 2010. And they were counting on GDP growth rising to an annual rate of well above 4 percent in both 2011 and 2012. Highly improbable.

This will be quite a mountain to climb. The unemployment rate has never been above 8 percent in November of a presidential election year. It has been above 7 percent only four times. In three such cases, the incumbents lost -- Gerald Ford, Jimmy Carter and George H.W. Bush. Ronald Reagan won reelection with an unemployment rate of 7.2 percent, but it had fallen more than three and a half percentage points from its high two years earlier at the worst moment of the steep Reagan recession.

Looking back farther, when unemployment rates were tamer, the well-known vice president Richard Nixon lost to the upstart Catholic John Kennedy in 1960 when the unemployment rate rose to 6.1 percent from 5.1 percent half a year earlier. Nixon was famously furious that his boss, President Dwight Eisenhower, wouldn't step on the fiscal gas to help him win after he had asked him to.

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Obama has to step on the gas again. But he won't. He has bought into the budget deficit alarms.

And the Republicans won't let him step on the gas, anyway. They showed themselves to be deficit enthusiasts a few years ago as President Bush piled them up. But now they are born again -- or born again and again -- and decry deficits. They say they are fiscal moralists, but they also know that raising the alarms will stymie any quick return to growth and more jobs. They seem to have all the cards.

Obama had better wake up to this reality. The Republicans are bad enough, but he has been his own worst enemy. He appointed the fiscal commission to cut the deficit, playing into short-term fears, and now they will report on December 1. Will he accept proposals to cut spending too soon? It is his commission, after all. The president of course has to fight for major stimulus programs and fight even harder to stop any spending reductions now. Even in 2012, spending cuts would dangerously damage the economy.

My bet is Obama will grasp at straws -- a mildly stronger GDP report, like the one today, and maybe a pick-up in the rate of job creation in 2011 and 2012. His advisers will tell him that he has momentum on his side. Let me repeat the harsh facts, however. Even if the economy's growth rate starts climbing and momentum is on his side, it is highly unlikely he will get the unemployment rate down by November 2012 to a winnable level.

He had better start preparing far bolder action than he now contemplates. Place the onus for high unemployment on his political opponents. Talk up the need to invest in the economy, including an infrastructure bank. Establish more aggressive jobs programs. And so on.

Some think he just has to talk back to Republicans. Confront them. Don't give in on lower tax rates for the high-end earner. That will help. But this is a mountain he faces, not a hill. Obama may not know that, but it seems most Democratic analysts don't know it, either.

Roosevelt Institute Senior Fellow Jeff Madrick is the author of The Case for Big Government.

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