News Analysis President Obama’s sweeping victory on health care reform shows that it is possible to pass transformational policies in Washington. But the real test for his second year in office will be his efforts to restart the economy.
Although a recovery is underway, it’s fragile and still prone to a double dip recession. As the stimulus funds work their way through the economy, the private sector must kick into gear by hiring and spending on new plant and equipment. So far, that’s not happening on a level that will sustain the turnaround.
What’s needed are consumers who feel secure enough in their jobs and futures to start spending, which, in turn, will increase sales at small businesses. One third (34 percent) of small business owners said poor sales is their biggest problem, according to the latest National Federation of Independent Business (NFIB) survey. It was the highest response to that category in the survey’s 24-year history.
Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, best summed up the problem when he said in a speech, “the recovery under way seems at this juncture to be tentative and fragile.” He added that a “weak banking sector” is what led to muted consumer spending, while “extremely cautious business investment” held the economy back.
The good news is job losses have slowed to an average of 27,000 per month between November 2009 and February 2010, compared with an average of 252,000 between July 2009 and October 2009. And President Obama is also taking steps to generate jobs. Last week he signed into law a bill that includes a $13 billion payroll tax cut for businesses that hire unemployed workers and $19.5 billion for highway-repair programs. Other measures pending in Congress (measures Obama should be pushing) would expand subsidies for state and local construction bonds, extend jobless benefits through the end of the year, and help states pay the salaries of teachers and other public employees.
But these measures are caught in the same logjam that plagued health care reform. Republicans are attempting to block much of the legislation, or modify it substantially.
The president demonstrated during the health care debate that his powers of persuasion as chief executive can be critical to rallying Congress and public opinion. He needs to provide the same level of leadership on jobs legislation pending in Congress.
But even that is not enough. The administration needs to press forward aggressively with financial reform to restore trust in the financial system. Consumers saw their retirement savings vaporized by Wall Street greed. Once bitten, they are now twice shy and need to be assured that their savings will be protected from future implosions. This will be difficult to do without substantive financial reform. President Obama should use his bully pulpit to do just this.
Legislation drafted by Senator Christopher Dodd and the Senate Banking Committee is facing a full Senate vote after passing the committee 13-10, without any Republican support. The bill includes a slew of Wall Street reforms, creates a potentially powerful consumer financial protection agency, and curbs excessive executive bonuses and risky investments. Obama needs to take the lead to make sure these reforms reach his desk to be signed into law.
He also must do more to convince the public that the worst of the financial crisis is behind us and to break the recessionary fears gripping the country.
Once the president has bolstered consumers, his attention should turn to making sure small businesses have access to capital to expand their operations. Until now, many small businesses have been simply trying to survive, not grow. But over the coming quarters, as the economy recovers, small business loan demand is expected to explode, according to Cambridge Winter Center, a nonpartisan think tank dedicated to researching U.S. financial policies. The problem will shift from a “deficit of demand, to a deficit of supply.”
During his campaign the president vowed to make small businesses the cornerstone of his recovery plans. The nation won’t recover until the economy starts generating jobs again, and small businesses are best positioned to make that happen. But given the nature of our current downturn, the administration needs to realize that its work has just begun.