Can the centrists hold?
From The Economist print edition
As politics reverts to its usual fractious state, Barack Obama’s centrist advisers, the unions and the angry left in Congress are all competing for his ear
IT HAS been a rough few days for Barack Obama. He has lost, in Tom Daschle (see article and Lexington) a close ally on whom he depended for his health-reform plans. Mr Daschle is now the third of his planned appointees to fall by the wayside; Mr Obama’s carefully cultivated image of competence and coolness is starting to fray. Worse, as The Economist went to press the new president’s vast stimulus plan (now worth around $900 billion) faced the prospect of substantial change if it is to pass the Senate where Republicans hold a blocking minority; it was rammed through the House without attracting a single Republican vote in favour.
But the re-emergence of the usual partisan sound and fury obscures a much more interesting question. Mr Obama amassed a solidly liberal record as a senator, then moved towards the centre during the campaign and surrounded himself with centrist advisers. Is his party now dragging him back to the left?
It is early days, but those who see a leftward tilt have a case. On January 29th Mr Obama gave a clue to his priorities by making the first bill he signed into law the Lilly Ledbetter Fair Pay Restoration Act, which gives workers substantially more time to file suits claiming pay discrimination on the basis of sex, race or religion. The US Chamber of Commerce claimed it would “dramatically expand the number of frivolous and otherwise questionable” lawsuits against employers. The next day the president, in front of invited union representatives, signed executive orders making it harder for federal contractors to discourage union activities and requiring them to offer jobs to the previous contractor’s employees. “I do not view the labour movement as part of the problem; to me it’s part of the solution,” he declared.
Along with these pro-labour gestures came a series of broadsides against Wall Street. On January 29th Mr Obama attacked as “shameful” and the “height of irresponsibility” the $18.4 billion in bonuses that Wall Street bankers collected last year when their firms were receiving federal aid. On February 4th he announced that executives of companies receiving “exceptional” aid (there are currently only three such) would be restricted to $500,000 a year in pay. Earlier, Larry Summers (pictured above with the president), Mr Obama’s usually reliably centrist chief economic adviser, had told Congress that banks receiving additional bail-out money would face restrictions on mergers and dividends. Healthy banks would have to “increase lending above baseline levels”, a stricture that could lead to more bad loans.
Free-traders shuddered when, on January 22nd, Tim Geithner—then the nominee for treasury secretary but now confirmed in the job—accused China of manipulating its currency to gain a trade advantage. Whether it really does is debatable (see article), and his accusation antagonised China while stoking the fires of protectionism.
Still, there is less to all this than meets the eye. The Lilly Ledbetter Act more or less restores (though partly strengthens) the rights of aggrieved workers that a Supreme Court ruling circumscribed in 2007. Similarly, the Obama orders affecting federal contractors simply reversed Bush decisions, restoring the 1990s status quo.
Mr Geithner’s blast at China was a restatement of Mr Obama’s campaign position, and was buried in 102 pages of written answers to senators vetting his confirmation. It appears that his answer was prepared hastily, and administration officials have since played it down. And Mr Summers’s promise to judge banks against lending baselines was porous enough to allow considerable discretion in assessing whether a bank is lending enough.
The stimulus bill is itself a mishmash of Mr Obama’s progressive priorities and short-term expedience. In keeping with long-standing promises, it offers some $140 billion in “Making Work Pay” tax credits, worth up to $1,000 to families earning less than $150,000. Like his restrictions on executive pay, this will tilt the distribution of income away from the very rich. On the other hand, its health-care assistance to the poor and unemployed are piecemeal and temporary, designed for quick impact, not as a down-payment on Mr Obama’s more sweeping ambitions (see article).
Mr Obama made great show of his commitment to public infrastructure but the package spends almost as much on cash grants to states and the unemployed largely because this money can be spent quickly with a relatively large impact on gross domestic product (see table). It also includes a sprinkling of business tax cuts, in part to tempt Republicans to vote for it.
But the real litmus tests for Mr Obama are still to come. Labour’s priority is the “Employee Free Choice Act”, which would allow unions to organise without a secret ballot. Business is fiercely opposed. Mr Obama supported it as a candidate. But last month he told the Washington Post, “If we’re losing half a million jobs a month, then there are no jobs to unionise, so my focus first is on those key economic priority items.”
Whether Mr Obama has buried his past scepticism about trade will be revealed by whether he forces Congress to remove “Buy American” provisions from the fiscal stimulus bill; he has already persuaded the Senate (though not the House) to water them down. Federal procurement policies already include some provisions of this sort; the law would extend them to iron, steel, uniforms and potentially any manufactured products in projects paid for with stimulus money.
Gary Hufbauer and Jeffrey Schott of the Peterson Institute, a think tank, think they would create just 9,000 jobs while potentially costing far more through retaliation. Mr Obama said he opposes provisions that violate World Trade Organisation rules or “signal protectionism”. But if the provisions stay, will he veto the bill?
Another test will be whether the Treasury formally brands China a currency manipulator in a few months’ time. On fiscal policy, the president has yet to explain how the budget deficit, which this year will be the largest as a share of GDP since 1945, will be reined in, or how he will contain health and pension spending on the old. He has promised a “fiscal responsibility summit” to tackle those questions.
Mr Obama continues to seek sensible economic advice. It was emblematic of George Bush’s low regard for economists that in 2003 he moved the Council of Economic Advisers (CEA), the administration’s in-house think-tank, from the White House complex to a drab office building a block away. Mr Obama has moved it back. Each morning he gets a memo prepared the previous night by the CEA and the Treasury, then spends about 30 minutes with his economic team. In regular attendance are Mr Summers, Mr Geithner, Peter Orszag (the budget director) and Christina Romer, who chairs the CEA.
Mr Obama also continues to fill his administration with highly-regarded technocrats. They are said to include Gene Sperling, a former economic adviser to Bill Clinton; David Cutler, a Harvard health-care economist; Peter Henry, a Stanford University economist and advocate of free international capital movements; Jeremy Stein, a Harvard economist specialising in corporate finance; and Diana Farrell, who headed the think-tank affiliate of McKinsey. Joining Ms Romer on the council are Cecilia Rouse, a labour expert from Princeton, and Austan Goolsbee, a long-serving Obama adviser now grappling with the foreclosure crisis.
Mr Obama once called himself a “blank screen on which people of vastly different political stripes project their own views.” In the coming months, the world will have a chance to decide which image of Mr Obama is the right one.