4 Money Problems Obama Can't Fix

For all the talk, he would have limited ability to help ailing consumers.

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The talk sounds reassuring, even if we know these are vapid campaign promises. As fixing the economy surges to the top of the candidates' to-do lists, Barack Obama and John McCain are starting to promise free money as if it were just sitting there in Washington, undiscovered. OK, what the heck? We'll take some!

Obama has been sticking his neck out by promising to strengthen the middle class and help struggling families, and now it's time to explain exactly how he would do that. Part of his plan would be a second round of stimulus checks to taxpayers, totaling perhaps $115 billion, according to the Wall Street Journal. Obama also envisions a huge new government health insurance umbrella for those who can't get coverage elsewhere. He plans to create thousands of jobs by funding new roads and other infrastructure projects. Perhaps most irresistible: a big package of middle-class tax cuts, to be paid for through tax increases on the wealthy.

Well, OK...but haven't we heard this before? Oh, yeah—it comes up in just about every election. And what usually happens? The economy runs its own course, more or less indifferent to the machinations of politicians.

If elected, Obama could certainly tweak the tax code, as other presidents have done, especially with the expected Democratic Congress. He could send out more rebate checks, take his shot at healthcare reform, and maybe even build the Obama National Freeway. But smart consumers shouldn't expect much, because it's remarkably difficult for politicians in Washington to do much about the economic factors that affect Americans most. Such as:

Empty wallets. The government can stuff a few extra bucks in your pocket every now and then, the way Grandpa used to slip you a five to buy some candy. But the true measure of prosperity is whether real incomes, after inflation, are going up or down. And the trends aren't encouraging. The Census Bureau recently reported that real incomes inched up in 2007. But that was mostly before the current downturn knocked the wind out of workers. And since 2000, incomes have barely risen at all, despite strong economic growth. Many workers are falling behind.

If Obama wants to fix that, he'll have to harness globalization so it benefits America, which means bringing millions of the highest-paying jobs to the United States and making sure they stay here. No big deal—all he has to do is persuade organized labor, overhaul immigration laws, rework our regulatory regime, and outcompete 50 other nations that are rapidly gaining on us. Should take a decade, max. As long as Congress and all those beltway interest groups go along.

As for those rebate checks—don't spend them yet. Even if President Obama were able to rush a new stimulus plan through Congress in his first month, the timing could be terrible. Government stimulus can work if it comes early in a downturn, giving people extra money to spend when the economy is at its weakest. But if it comes too late it can backfire, triggering inflation just as the economy is picking up steam on its own. At the earliest, Obama might be able to mail out stimulus checks by early next summer. By then, the economy will probably be through the worst and on its way to recovery. It might sound good now, but will Obama really want to risk an ugly bout of inflation that could undermine his entire first term?

Falling home values. The biggest single problem in the economy is the collapsing housing market. And there's not much Washington can do but try to contain the damage and wait for the correction to run its course. By most measures, home prices have fallen 15 to 20 percent from their peak—and may still need to fall another 10 percent or so before buyers start to re-emerge in force. That's the only thing that will restore a supply-and-demand equilibrium and get housing back on its feet.

The government does have one big job here: Keeping Fannie Mae and Freddie Mac, the mortgage-finance giants that are integral to the housing market, from collapsing. Treasury Secretary Henry Paulson has set the stage for a bailout, if necessary, and Obama has said he'd follow that general course. Any president would. Letting Fannie and Freddie fail would cause a housing implosion that would take years to recover from.

But keeping Fannie and Freddie afloat isn't going to restore lost home equity anytime soon. It will take several years of normal market activity to do that. Millions of American homeowners, meanwhile, have less household wealth than they used to, a nationwide bum-out that's one reason consumer confidence is so dismal. Obama can offer cheerful talk. But that's about it.

High gas prices. Notice how politicians this summer had all kinds of idea for rolling back gas prices, but none of them actually happened? That's because gas and oil prices are another factor determined largely by global demand, not by political intervention. Obama's idea of tapping the Strategic Petroleum Reserve might reduce prices by a few cents, for a few weeks. That get you excited? Offshore drilling, which he would now consider, might lower prices by a tad—in a decade, when we're all supposed to be driving cars that run on switchgrass or hydrogen anyway. Even if the next president repealed the entire federal gas tax, that would lower pump prices by only about 18 cents per gallon and leave a massive funding hole for highways and other projects.

Since peaking at a national average of $4.11 on July 17, gas prices have drifted back to about $3.70. They could fall farther by November. The candidates might even take credit for that. Or better yet, stop offering silly solutions.

Exorbitant healthcare. Yep, there's growing agreement among consumers and corporate America both that soaring healthcare costs are an inexcusable problem. But the agreement ends when it comes to finding a solution. Sooner or later, healthcare costs will probably get so high that politicians will need to find a fix in order to keep their jobs. But until then, any kind of serious reform would ignite one of the most furious lobbying battles Washington has ever seen.

That means any changes in an Obama first term are almost sure to be marginal. Someday, maybe, we'll have a better system. But it might be one of Obama's daughters who finally pulls it off. Now that would really signal change.