Obama’s Trilemma

He either fears his fate too much,
 Or his deserts are small,
That dares not put it to the touch
  To gain or lose it all.

James Graham, Marquess of Montrose

At least to my ear President-Elect Barack Obama’s action plan for the economy expands in scope nearly every day:

WASHINGTON — President-elect Barack Obama on Thursday urged Congress to act quickly to pass sweeping economic stimulus measures, including a tax cut and an infusion of as much as $800 billion, or face the likelihood that “this recession could linger for years.”

[…]

Mr. Obama’s speech came a day after the Congressional Budget Office released a stunning estimate that the federal budget deficit will reach $1.2 trillion this year, even before accounting for spending and tax cuts in the planned stimulus package expected to approach $800 billion over two years.

Obama is faced with an unenviable dilemma. Actually, there are more options than just two. Trilemma, maybe?

If he does little, takes a passive approach to the economy, and it improves, he’s a genius and his re-election in 2012 is assured. If he emulates George H. W. Bush, does little (or appears to do little) and the economy declines (or it can be spun as having declined), he’ll suffer the same fate as George H. W. Bush and be a one term president.

If he engineers his way through the financial crisis, tries one thing then another, until the economy improves, again, he’s a genius whether what he did actually caused the improvement or not. That’s basically what Franklin Delano Roosevelt did. The economy had been declining sharply for nearly three years when Roosevelt took office. The unemployment rate peaked at nearly 25% in 1933 and declined thereafter.

Roosevelt tried one thing after another in rapid succession, things finally improved a bit, and he was able to take the credit. For all I know it may have been deserved. If things had not improved he always had the option of blaming things on his predecessor. Hoover has been demonized since the 1930’s.

James Pethokoukis wondered how effective that would be for the Obama Administration:

…can a repetitive “Blame Bush” mantra allow Democrats to hold their huge Congressional majorities in 2010 and get Obama reelected in 2012 if they economy is as bad they think it will be? The latest iteration of Obama’s stimulus — I mean “economic recovery” — package indicates that Team Obama has its doubts about voter patience and the economy. The larger-than-expected tax cuts, even if they are really just disguised government spending, are an effort to rejigger the plan to provide more economic oomph this year. Indeed, as the CBO said when Obama adviser Peter Orszag ran the joint, using infrastructure spending to juice the economy is “totally impractical.” There just aren’t enough “shovel-ready projects” to make effective use of the hundreds of billions Obama wants to throw at the recession.

I need to correct Mr. Pethokoukis’s numbers. Democrats hold comfortable but not huge majorities in both houses of Congress. The Senate currently has 58 (or 59) Democrats. That’s the same number as FDR had at the beginning of his first term. The House has 256 Democrats, 178 Republicans. In the 73rd Congress (FDR’s first term), Democrats outnumbered Republicans nearly three to one (311:117).

However, that’s not the only way in which Obama’s situation differs from FDR’s. Nobody knows when the economy will bottom out but I don’t know that I’ve seen anybody who’s saying it will be much before the end of 2009 and it may well be significantly longer. I’ve seen estimates of well into 2010. That means that, assuming President Obama takes the “engineering approach” suggested above that he will have tweaked and adjusted AKA floundered and flailed while the economy continued to decline.

Obama doesn’t have a particularly friendly Supreme Court, either, and there’s little likelihood that he can amend it to favor him more. The best he’s likely to be able to do with the Court is to maintain the status quo.

The professional media don’t have as much of a strangehold on opinion-making as they did in Roosevelt’s time. Journalists were able to conceal Roosevelt’s health problems for years by gentleman’s agreement. Such a thing would be impossible now.

Barack Obama doesn’t strike me as a gambler but rather more of a planner, a calculator, and although the careful management model probably appeals to him I doubt that taking that sort of a risk does.

A third alternative he might take would be a sort of “Powell Doctrine” of overwhelming force applied to economic policy. Rather than a carefully engineered, try one thing then another approach, overreach, ask for more than Congress will conceivably give him, an enormous stimulus plan, new regulatory power, and so on. This would have several advantages.

He can’t possibly be faulted for not having done enough. If Congress doesn’t give him absolutely everything he asks for, he can always blame Congress’s timidity. He can accomplish parts of his non-economic agenda that would be long-shots in the absence of a panicky country.

And it might work. Or look like it worked. If it does, he’ll be a genius, etc. If it doesn’t, he’ll have added a big chunk to the national debt but he won’t be much more of a goat than if he carefully crafted a minimalized plan that didn’t work, either.

There is one new downside risk to to this approach. If he takes every possible step and it fails to pump up the economy, the Republicans can reasonably point out that a) success just wasn’t to be had so you can’t blame us; and b) look at how much he’s increased the national debt! Reduced future growth! Etc.

You can’t have a successful presidency without taking any risks. I strongly suspect that we’ll see President Obama moving quickly towards something along the lines I’ve suggested.