Thursday, January 28, 2010

Obama's shift to political centre

Business Times - 29 Jan 2010


Obama's shift to political centre

He seems to be moving his focus away from healthcare reform and climate change to rising deficit and joblessness

By LEON HADAR
WASHINGTON CORRESPONDENT

SHIFTING gears for the second year of his administration and responding to the growing economic discontent among American voters who seemed to be turning against him and the Democrats who now control the White House and Congress - demonstrated in the loss of the Democratic Senate seat in Massachusetts - US President Barack Obama seemed to be moving towards the political centre during his first State of the Union address late on Wednesday night.

He shifted his focus away from healthcare reform and climate change to the more immediate concerns of the American people - the expanding deficit and the continuing high rate of unemployment.

While he still remains a popular president, Mr Obama has spent much of his first year in office and most of his political capital on what has proved to be an unpopular agenda, including the controversial and costly healthcare reform plan. Wednesday night's address provided him with an opportunity to outline what he hoped to do next year in order to get the economy back on track and regain the trust of the American people.

Touting his economic recovery plans, Mr Obama was trying to recast his message by addressing the American people's daily concerns. He called for swift action on bills that would provide tax cuts for job creation and proposed a major increase - as much as US$4 billion - in federal spending on education.

Mr Obama also laid out plans for tax measures for small businesses that are expected to include a credit for small business new hires, the elimination of capital-gains taxes for small business investments and an extension of tax cuts and credits for the purchase of new equipment or facilities. These ideas enjoy strong support among both Democrats and pro-business Republicans on Capitol Hill.

The White House hopes that by appealing to American voters and discussing programmes that will help them directly, including nearly doubling the child tax credit, assisting with student loans and developing ways to help the job market improve, Mr Obama and the Democrats could accentuate their commitment to protecting the interests of Main Street at a time when many Americans think that Washington, through its massive bailout of America's big banks, has been siding with Wall Street.

But the size of these and similar federal spending programmes falls short of the kind of ambitious new economic stimulus programmes that have been proposed by lawmakers and economists associated with the progressive wing of the Democratic Party.

Instead, Mr Obama, in a somewhat dramatic shift to the political centre, stressed during his speech that one of the major goals of his administration - a goal which is supported by Republicans as well as many independent voters and conservative Democrats - would be getting America's fiscal house in order in the next three years.

He called for a three-year freeze in spending on many domestic programmes and signalled his renewed commitment to cutting the US federal budget deficit which has been swelling in recent months as a result of costly fiscal and monetary policies that Washington has adopted since the start of the Great Recession.

Mr Obama framed the spending freeze and the effort to cut the deficit as part of the larger goal of restructuring and strengthening the American economy. He declared: 'I do not accept second place for the United States of America' and compared the economic crisis to the greatest challenges of the nation, declaring that 'history's call' demanded the years-long freeze on huge components of popular government spending programmes.

In fact, the spending freeze would exempt the budgets for the Pentagon, foreign aid, the Veterans Administration and homeland security, as well as the entitlement programmes that make up the biggest part of the federal budget.

Thus, the freeze will end up saving only about US$250 billion over 10 years - which is less than one per cent of what the government spends, leading some critics to describe it as nothing more than an election-year gimmick.

And while Republicans and conservatives have criticised Mr Obama for not cutting nearly enough federal spending, critics on the political left have responded to his call to freeze spending by questioning Mr Obama's economic and social priorities, arguing he should have proposed increasing investment in America's advanced manufacturing sectors as part of an effort to promote technological innovation and create new jobs.

'Freezing spending will essentially forfeit America's growth future to China,' according to Steven Clemons, director of the American Strategy Program at the New America Foundation, a Washington-based think tank.

'China has been massively investing in its high-speed rail, its science labs, its educational system, its roads, its energy grid and its information super-duper highway and has been obsessed with job retention and job creation,' said Mr Clemons, who is also the publisher of the popular Washington Note blog. 'And the President of the United States, one year into his job, and still dealing with the tail winds of the worst economic disaster in global markets and the US economy since the Great Depression, is saying that he is going to freeze spending on virtually everything but the wars we have on hand. America needs to invest in itself,' he stressed. 'Obama's team, content to have bailed out Wall Street, seems to now run the rest of the economy on a cash accounting basis, which is a self-defeating policy.'

The president and his aides insist, however, that getting Americans back to work remains Mr Obama's top priority. Hence, yesterday, Mr Obama was scheduled to award US$8 billion in stimulus funds to develop high-speed rail corridors and sell the programme as a jobs creator. Mr Obama was to announce grants for 13 major rail corridors during a town hall meeting in Tampa, Florida, the president's first public appearance following his State of the Union address.

But in the aftermath of the stunning Republican victories in recent elections in Virginia, New Jersey and Massachusetts - three states Mr Obama had swept in the 2008 presidential election - and after spending his political capital in the campaign for healthcare reform, it is not clear whether the plans outlined in the president's address will help him renew the Americans' confidence in him and in themselves.

Most economists do not expect the unemployment rate to fall under 9 per cent before midterm elections in November and there are no signs that the housing market is going to recover any time soon. This gloomy economic reality is bound to hurt the Democratic Party in the November elections.

At the same time, any aggressive efforts by Mr Obama to embrace a populist agenda and bash the 'fat cats' in Wall Street as a way of winning public support could antagonise investors and threaten the recovery of the financial system, especially if one considers that Mr Obama's professorial and 'cool' persona could make it difficult for him to play the role of a populist 'man of the people'.

In a way, Mr Obama is damned by the economy if he runs against Wall Street and is damned politically, if he does not.


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