By Edward Luce in Washington
Published: August 30 2010
On Tuesday night Barack Obama will give a rare prime-time address from the Oval Office on the end of the US combat mission in Iraq. But if polls are to be believed – and all of them have been saying the same thing for months – the president would get as much attention if he delivered a lecture on the merits of stamp-collecting.
With just nine weeks to go before the US midterm elections, the economy is monopolising the minds of voters. Were they to be held today, disaffection over the economy would hand Republicans control of the House of Representatives and come close to giving them control of the Senate.
According to Gallup earlier this month, only 4 per cent of voters rate “wars in general”, which include Iraq, Afghanistan and terrorism, as their most important concern. The economy, jobs and the deficit were cited by almost two-thirds of those polled. Mr Obama’s problem is that there appears to be almost nothing he can say or do between now and November 2 that would convince Americans a better economic future is around the corner.
“In 1982 Ronald Reagan convinced Americans to ‘stay the course’ even though unemployment was significantly higher than it is today,” says Bill Schneider, a senior fellow at Third Way, a centrist think-tank. “But if Obama said ‘stay the course’, I would have a hard time working out what that ‘course’ is. So would most voters. There is no sense things are going to get better.”
The paralysis in Washington was brought into sharp relief at the weekend in Jackson Hole, Wyoming, where US central bankers and their counterparts debated what other tools might be available to stave off either a double-dip recession, or a bloodless Japan-style recovery in the US. The key premise was that in the absence of further fiscal action from Washington, the only tools available would be monetary.
Such is the level of gridlock in Washington, with Republicans opposing any further stimulus and Democrats afraid to offer anything other than marginal initiatives, that the debate has moved on to what kind of fiscal boost would be appropriate after the November election. Republicans want to extend the Bush-era tax cuts for the wealthiest and – other than rescinding those cuts, which would not be stimulative – Democrats appear to have no grand plan.
“We are going to have to wait until mid-2011 at best before we can expect a good faith economic debate between the parties and probably much longer,” says Bill Galston, a former Clinton administration official.
“The cost to America of continued inaction will be at least two more years of sub-par growth at a time when the major Asian economies are growing strongly. The price of gridlock is the continued relative decline of America.”
Some supporters of the administration take comfort from the fact that about a quarter of last year’s $862bn fiscal stimulus has yet to feed its way through to the economy. The remaining stimulus could create up to 500,000 jobs in the next six months, according to economists. But, those waning gains are likely to be more than cancelled out by the spending cuts state governments are obliged to carry out to balance their budgets.
There is still scope for some action before America’s 111th Congress ends. Last month Congress passed a $26bn emergency spending bill to prevent teachers and police from being laid off. In the next few weeks, Capitol Hill could also pass a $35bn bill to ease the flow of credit to small businesses. And there is talk of a renewal of the $8,000 tax credit for first-time homebuyers, which would help prevent a further decline in the housing market.
Finally, Mr Obama could break out of his rhetorical straitjacket and convince Americans that boom times are over the horizon. But few believe that will happen. “President Obama can keep telling people he’s optimistic but I think we’re past the stage where anybody is listening,” says David Gergen, a former adviser to four presidents.