Just "one and done" for Barack Obama's presidency? Recall an ominous passage in his otherwise joyous election-night speech: "The road ahead will be long. Our climb will be steep. We may not get there in one year or even in one term." Maybe the tone was suggested by one of Obama's economic advisers like Jason Furman or Austan Goolsbee. It's the battered economy, after all, that will be President Obama's greatest domestic policy challenge. As such, it will also be his greatest political challenge, too -- but one where failure may already be baked into the cake.
That's right, the "O" in "Obama" may stand for "One Term." For starters, there's a strong chance that when voters head to the polls on Nov. 2, 2010, they likely will still think the economy is awful. Not much debate about that. (Good chance the Democrats' two-election winning streak comes to an end.) And while voters may be somewhat patient for two years, patient for four years? Really unlikely. If history is any guide at all, voters may still be terribly cranky about the economy when they cast their ballots on Nov. 6, 2012 and thus likely choose the 45th president of the United States -- be it Mitt Romney, Sarah Palin, Bobby Jindal or some other Republican without "Bush" for a last name. Once again a "change" election for an impatient America. The same bad economy that doomed John McCain in 2008 will have sunk Obama, as well.
Here's the political and economic math: Let's assume the current downturn turns out to be as painful as the 1990-91 recession. It's an apt comparison. As Minneapolis Federal Reserve President Gary Stern said earlier this year," The situation we confront today is reminiscent, in several salient ways, of the headwinds environment that prevailed in the aftermath of the 1990-91 recession."
Among those "headwinds" Stern referred to: an imploding real estate bubble, a construction bust, a banking crisis, and a credit crunch. Sound familiar? The nation's gross domestic product fell 3.0 percent in the fourth quarter of 1990 and 2.0 percent in the first quarter of 1991. But even after the economy started expanding again, the unemployment rate kept rising until it hit 7.8 percent in June of 1992 vs. a low of 5.2 percent in June 1990. Recall that in January of 1992, President Bush, running for reelection, told New Hampshire voters that the economy was in "free fall" even though the economy was later shown to have grown at a robust 4.2 percent during the first quarter of that year.
See, it takes a while for people to really perceive that an economy has turned around, especially if unemployment is high. Bill Clinton won the 1992 election on the economy ("it's the economy, stupid") even though GDP had been growing for six full quarters. According to Gallup, 88 percent of Americans thought the economy was "fair" or "poor" in October 1992 with some 60 percent saying the economy was "getting worse." Two years later, it was the Democrats turn to feel the brunt of widespread economic anxiety as the Republicans captured both the House and the Senate. Even though the economy had then been growing for 14 straight quarters and the unemployment rate was down to 5.8 percent, 72 percent of Americans still thought the economy was "fair" or "poor" and 66 percent though the nation was headed in the wrong direction.
That's right 3 1/2 years after the 1990-91 recession ended, the economy was still weighing negatively on voters and hurting the incumbent political party. Is it so hard to imagine, then, that three or four years from now voters will also be unhappy about the state of the economy and blame the party in power, the Obamacrats? And then there's this: The 2008-09 recession may actually be far nastier than its 1990-91 twin. Every day, Wall Street forecasts worsen. Jan Hatzius, chief U.S. economist at Goldman Sachs, expects a jobless rate of 8 1/2 percent by the end of 2009 and drifting a bit higher in 2010 for the biggest cumulative rise in unemployment since the Great Depression. And over at JP Morgan Chase, economists are predicting the economy will shrink 4.0 percent this quarter and 2.0 percent during the first three months of 2009. And on top of all that, you have the $7 trillion of lost national net worth. (Think higher investment and business taxes will help?)
No wonder Obama's political advisers just told the New York Times that they're already fretting about the 2010 midterms. They may also want to worry about 2012. Team Obama shouldn't expect this election euphoria to last four years if the economy struggles and struggles. (Wait until oil prices and interest rates start rising again.) Obama's election is often compared to that of Ronald Reagan's in 1980. Both gentlemen were voted in to fix an ailing economy. But the 1982 recession took a huge chunk out of the Gipper's popularity. He had just a 35 percent job approval rating at the start of 1983, just two months after Republicans lost 27 seats in the House in the midterm elections. But Reagan's presidency was saved by an amazing economic rebound. The economy surged at a 4.5 percent pace in 1983 and at a mind-blowing 7.2 percent clip in 1984 as unemployment dropped from a high of 10.8 percent in December 1982 to 7.2 percent in November 1984. The Long Boom was underway.
Reagan worked his magic with tax cuts. Obama is trying to do the same with government spending. But stimulus packages are only supposed to keep the recession from getting worse or morphing into a mini-depression. I don't think anyone expects that $500 billion in hot money to return America to prosperity. Only time (and the private sector) can do that, especially with a downturn caused by a credit crisisa and deflating asset bubble. And four years may not be enough time for the Obama presidency to traverse that long road or complete that steep climb.