The Political Situation Today

Mitt Romney

Our Democratic standard bearer, the admittedly lib­er­al President Barack Obama, is in the fight of his life against Mitt Romney, the ex-Massachusetts governor and GOP nominee-presumptive for president.

Obama has had a checkered presidency, from many liberals' standpoint. Yes, he has gotten a health insurance reform through Congress that conservatives still lambaste as "Obamacare." Yes, he has done many other things we liberals applaud, such as:

• Standing up for women's rights to cost-free contraception and legal abortions
• Putting in place higher auto fuel-efficiency standards
• Temporarily blocking the Keystone tar-sands oil pipeline
• Pitting the weight of the federal government against states such as Alabama and Arizona, where recent laws potentially harass citizens and legal immigrants over their immigration status
• Ending the gay-unfriendly "don't ask, don't tell" policy in the military
• Coming out in favor of same-sex couples' right to wed

President Obama

Yet he has also failed to do a lot of things liberals assumed would be part of the "change we can believe in" touted in Obama's 2008 campaign. His health reform did not include any "public option," much less a government-run "single payer" system that many believe is the only way to sufficiently rein in the country's spiraling health costs.

He has not advanced a convincing long-range energy policy for the country that would show the way for reducing our "carbon footprint": our nation's hefty contribution to global climate change. Yes, Obama has called for an "all of the above" approach that would continue America's use of polluting coal- and petroleum-generated energy as it also embraces natural gas and nuclear energy, en route to full reliance on true renewables such as wind and solar power. But where, specifically, is the road map for his "all of the above" energy change?

Abroad, we're still at war in Afghanistan. Oddly, this doesn't seem to be a major point of contention at home, politically. Most Americans seem pretty numb to the continuing toll on our fighting personnel and on our military in general.

The President has, as promised, wrapped up the unpopular war in Iraq. He, at long distance, tracked down and killed the despised Osama bin Laden. His policy of limited but ultimately deadly intervention in Libya, undertaken in concert with our European allies, paid off in the elimination of dictator Muammar Gaddafi.

Chen Guangcheng

On the other hand, he and the international community seem helpless to help rid Syria of its despised strongman, Bashar al-Assad. We seem to be no nearer to peace in Israel than we were in 2008. Countries like Iran and North Korea continue to threaten to go nuclear. Our relations with China, the world's second superpower nowadays, were supposedly going to be solidified by the recent visit of Secretary of State Clinton and Treasury Secretary Geithner, only to be preempted in the eyes of the world by the ongoing saga of an escaped dissident, the blind, self-taught lawyer Chen Guangcheng.

"It's the Economy, Stupid!"

But the 800-lb. gorilla in the room is — as always, these days — the economy. Unemployment is still way too high.

We've had some good news from recent monthly jobs reports. In January, unemployment decreased to 8.3 percent, as America added 243,000 jobs. In February, 227,000 more jobs were added ... but unemployment remained stuck at 8.3 percent. Many commentators, however, were (albeit hesitantly) suggesting the worst of the slump might be behind us.

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By the time the March report came out, showing 120,000 more jobs had been added and unem­ploy­ment had ticked down to 8.2 percent, there was less giddiness (if that's the right word) on offer.

Then, after the April report — 115,000 jobs added, the unemployment rate lit­tle changed at 8.1 percent — the recovery was being called "soft." The drop in the official unemployment figure was due, it was sadly confessed, mostly to unsuccessful job hunters dropping out of the workforce.

True, we've been adding jobs right along for more that a year (see chart at above right). And unemployment has edged downward. But the number of Americans out of work for over a year has remained problematically large. And the number of recent college grads that can find no jobs — or can get only jobs that they're over-educated for — is huge.

Lessons of the Past

If past election seasons are any guide ...

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... President Obama will have an uphill battle against Romney unless unemployment drops greatly between now and November. Since the end of World War II there have been ten presidents who've run for reelection (not counting Obama this year). The New York Times says (as reflected in the chart above) that no incumbent president since FDR has won reelection with unemployment over 7.2%. George H.W. Bush in 1992, Jimmy Carter in 1980, and Gerald Ford in 1976 — all three tried, and all three failed.

In 1984 the incumbent Ronald Reagan faced fairly high unemployment — 7.2 percent — but won reelection anyhow, by a landslide. Why? Probably in large part because the state of the economy was trending convincingly upward. It had in recent memory been much worse. So if Obama can convince voters that the economy's trend is decidedly on the upswing in November, he'll be in much better shape to beat Romney.

Paul Krugman's Rx

Paul Krugman

That seems dubious, though. To get unemployment down to the point where it's not too much over 7.2 percent and heading convincingly downward will demand, if 2008 Nobel Laureate Paul Krugman's new book End This Depression Now! is correct, that demand for economic goods and services ramp up strongly.

To an economist, "demand" is how much money we're spending on stuff, all told. "We," in the economist's eye, includes ordinary consumers, but it also includes businesses that buy from other businesses ... and it includes federal, state, and local governments.

Consumers and businesses large and small, including big corporations, haven't been spending enough money during the slump (which Krugman calls a "depression"). Smaller economic players have been saddled with debts that they are still struggling to pay off, including "underwater" home mortgages and unwieldy credit card balances. So they have cut back on current outlays.

Big corporations, meanwhile, have been "de-leveraging." They've decided they borrowed too much in the recent past, so they've been using their current revenues to pay off outstanding debt. Once that has been accomplished, they've been hoarding cash rather than investing it in new productive capacity. One result is that they've been laying off workers.

Banks and other financial enterprises over-lent in the run-up to the credit meltdown in 2008. There's not as much lending going on now, and a lot of the money that is being lent is being used by loan recipients to retire earlier debt and build up cash balances. It's not being spent on making, or buying, a lot of extra stuff.

So aggregate demand is way too low in our economy today. And it's only vigorous demand for new stuff that can spur economic growth and put people back to work, Krugman says.

To Krugman, who writes a regular op-ed column for the New York Times, the only source for this urgently needed extra demand has to be government spending — not austerity, a word bandied about more and more today.

John Maynard Keynes

Krugman is an an unabashed Keynesian, a disciple of the economist John Maynard Keynes who wrote, during the Great Depression, “The boom, not the slump, is the time for austerity.”

Keynes believed that the solution to the Great Depression would come only when total monetary outlays — aggregate demand — increased. And that's exactly what got us off the dime, in the end. In the run-up to the U.S. involvement in World War II, writes Krugman:

Long before Pearl Harbor, military spending soared as America rushed to replace the ships and other armaments sent to Britain as part of the lend-lease program, and as army camps were quickly built to house the millions of new recruits brought in by the draft. As military spending created jobs and family incomes rose, consumer spending also picked up (it would eventually be restrained by rationing, but that came later). As businesses saw their sales growing, they also responded by ramping up spending. 

And just like that, the Depression was over, and all those “unadaptable and untrained” workers were back on the job.

We today are not going to end our current "depression" by preparing for war, clearly. But we do need, Krugman says, to see government spending soar.

More "Stimulus"?

Yes, that means more "stimulus."

Fiscal "stimulus" is the current word for what in the Keynesian past was called "priming the pump." Krugman defines it as "temporary increases in government spending and/or tax cuts, designed to support overall spending and create jobs."

We did that in 2009, early in Obama's presidency: the American Recovery and Reinvestment Act. Says Krugman:

Unfortunately, the bill, clocking in at $787 billion, was far too small for the job. It surely mitigated the recession, but it fell far short of what would have been needed to restore full employment, or even to create a sense of progress.

But here's the thing: "Stimulus" has become just as much of a dirty word among conservatives today as "Keynesian."

If it's to be accomplished by temporary increases in government spending, conservatives dig in their heels against it. If it's to be accomplished by cutting taxes, especially on higher incomes, liberals blanch. And all efforts to put together balanced packages of the two — whether they increase government deficits in the short term or not — have failed ignominiously.

What's a sitting president to do?

If he doesn't do something, and soon, I have a great deal of doubt Obama can be re-elected ...