If Obama is to retain his enormous public support, he has to be crystal clear how bad things are, shoot straight about his policy choices, and avoid making any overly optimistic forecasts or assessments.
In the months before he took office and the first few weeks of his presidency, he did this. As soon as he started selling his budget and banking plan, however, the caution went out the window.
First there was the forecast of 3.2% growth next year. Then an 8.1% unemployment forecast for all of 2009, a level that we already hit in February. And then in an interview with the New York Times over the weekend, a dismissal of sophisticated arguments about the banking fix that happen to have been expressed online (“blogs”) as an uninformed desire to nationalize the entire banking system.
(As Roubini, Krugman, and others have pointed out, no one is talking about “nationalizing the entire banking system” except those who want to scare people into rejecting decisive action with banks like Citigroup.)
Krugman sees the risk here as Obama not being able to get political support for a larger stimulus when he finally realises he needs it. We think the larger risk is that Obama quickly loses the support of Americans as they come to believe he is yet another leader who won’t tell it like it is.
Here’s the picture that scares me: It’s September 2009, the unemployment rate has passed 9 per cent, and despite the early round of stimulus spending it’s still headed up. Mr. Obama finally concedes that a bigger stimulus is needed.
But he can’t get his new plan through Congress because approval for his economic policies has plummeted, partly because his policies are seen to have failed, partly because job-creation policies are conflated in the public mind with deeply unpopular bank bailouts.
And with presidents who overpromise and underdeliver.
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