Go Big, Mr. President
In the wake of a grim August jobs report showing zero job creation, and tied in knots by the obstructionist Republicans, Barack Obama is said to have no good choices, no way out.
Big-spending programs are ruled out by the establishment’s obsession with deficits. The president’s bipartisan entreaties are met with scorn by the GOP. Even some Obama supporters think his presidency is failing. His focus on the jobs crisis—the subject of the major address he’s poised to make as we go to press—was widely dismissed as too little, too late, even before he stepped up to the podium.
Notwithstanding the skepticism and the real political obstacles he faces, President Obama is not powerless to act. In fact, there are many ways he could brighten the darkening circumstances and reshape national destiny. A president has discretionary authority, especially in an emergency, to make seismic changes in fundamental policies—without receiving Congress’s approval or even consulting it in advance. Indeed, the Obama White House could point to the historical precedent set by Richard Nixon and Ronald Reagan. In far less dire circumstances, both Republican presidents imposed unilateral policy shifts—wage and price controls or emergency tariffs or arbitrary limits on imports—to halt economic deterioration and protect American jobs.
What could Barack Obama do that doesn’t require curtsying before right-wingers? Retired South Carolina Senator Fritz Hollings offered a provocative answer: “He can start by enforcing the laws already on the books.” Hollings meant unenforced trade laws intended to protect US jobs against violations by foreign industries. His point applies just as well to the administration’s failure to prosecute financial fraud and threaten bankers with prison.
Here are four big strokes Obama could take to stimulate job creation and improve prospects for recovery:
Write down mortgage debt for the millions of “underwater” homeowners facing foreclosure. Debt forgiveness would be highly stimulative as well as just. Reducing the capital owed by families would enable them to keep their homes, rebuild savings and begin to act like consumers again. Banks would take a hit on their balance sheets, but those loans could never be repaid anyway. The New Bottom Line, a national campaign of labor/liberal groups and grassroots networks like National People’s Action, estimates that writing down underwater mortgages to market value would pump $71 billion a year into the economy and create 1 million jobs. Because a huge portion of the failed mortgage securities known as “toxic assets” are now federally owned—purchased by housing agencies like Fannie Mae or the Federal Reserve—the White House can use its clout to engineer terms for a general write-down. Bank regulators can lean on bankers to comply.
Enact trade and tax reforms to shrink US trade deficits and penalize the offshoring of jobs. The swollen trade deficits are a persistent source of American economic weakness and indebtedness. The annual borrowing to pay for excessive imports has accumulated $6.3 trillion in new debt since 2000, according to trade analyst Charles McMillion. This year is on track to add another $500 billion, as US multinationals keep moving production overseas. Obama has pleaded with trade rivals to rebalance the system, to no avail.
The president should take unilateral action to institute new rules to cap the rising trade deficit, then gradually reduce it with an emergency tariff if trading partners do not cooperate. US multinationals that keep shifting good jobs overseas would be taxed at a higher rate, while companies expanding their US employment would get a preferential tax rate.
Let government create jobs if the private sector won’t or can’t. The Obama administration can demonstrate with pilot programs that public jobs are a concrete way to improve lives and boost the labor market. Congress can block big spending, but in a budget of $1.4 trillion White House experts can surely find $10 billion or $20 billion to devote to public employment. A growing popular campaign to “save the American Dream” is pushing public jobs and an ambitious strategy for job creation—the infrastructure bank Obama supports, and legislation that would devote $227 billion over two years to projects that generate 2.2 million jobs. If Republicans are against this, it becomes fodder for the 2012 election.
Let the Federal Reserve lend direct financial support. The central bank is in a vulnerable political position because it created the trillions of dollars devoted to rescuing the financial sector, including nonbank companies like AIG and General Electric. Yet the Fed insists it cannot do the same for the real economy of producers and workers. This hoary doctrine serves bankers and other financial interests, but rightly enrages citizens who are victims of financial recklessness.
President Obama can publicly invite the Federal Reserve to become a willing partner in national recovery, and he can pressure central bankers by showing how they can help underwrite the real economy without violating monetary principle. First, the Fed could provide off-budget financing for a new infrastructure bank by buying its zero-interest bonds to pay for new roads, railroads and other investments. Likewise, the Fed can participate directly in financing the write-down of housing debt by purchasing bonds issued by Fannie Mae or writing off losses on the Fed’s own portfolio.
Most of these ideas are surely too radical for this president. No doubt they would generate powerful pushback from entrenched interests. But these big strokes are bigger than Barack Obama. The challenge is to make ideas like these part of the longer struggle to rebuild the American economy. Despair is wasted energy. True political work is creating the just society.