The budget chronicles: Saving the economy (and Obama’s presidency)

Here’s a proposal for renewal that can focus the president’s campaign and spark the electorate.

The economy is slightly above stall speed. Unemployment is stuck around 9% and is set to fall slowly at best. The arguments for a lost economic decade look more and more plausible. The stock market is down 20% over the past two months. U.S. debt has just been downgraded. We have recently endured a disastrously inconclusive debt default fight. The U.S. Congress is at its lowest approval level in history at 18%, and the President towers above Congress at 39%.

President Obama had better be spending his time at Martha’s Vineyard thinking through a fundamental reset of his administration’s direction. There are two important reasons: the U.S. Economy is headed toward that lost decade unless we change course and, absent a change, this is beginning to feel like a one-term presidency. The President must explain to the American people where we are and offer a picture of economic renewal he is willing to fight for. There is no — I repeat: no — finesse move out of the corner into which the President is now boxed.

I do not have any idea what the President or his senior staff believe about where they stand. But White Houses, and particularly presidents, are normally impervious to outside information and reflexively opposed to bad news and fundamental resets. Changing is always seen as more risky than not changing. (That’s called omission bias.) And they will be enormously tempted to underestimate the opposition because part of the Republican core has been, in fact, stark raving crazy. That would be a big mistake. The Republican ticket looks as though it will be some combination of Romney, Perry, or Bachmann — and it will be formidable. And as the President looks more and more vulnerable, the pressure on someone like Governor Christie of New Jersey to join the race will get greater and greater. President Obama might get lucky, but that’s not a plan.

So what direction might a reset take?

First, the reset has to be real. From the rumors I hear, right now the White House is — completely predictably — debating two of the three choices Presidents face when they are caught in positions like this.

• Choice 1: Do nothing. This is normally camouflaged as improved communications and a tougher focus on the opponent. Both fine things, but the White House has to be capable of massive self-deception to see this as a sufficient strategy right now.

• Choice 2: Make small changes and talk about them as big deals. This is always the choice of the White House pragmatists. This was Dick Morris’ strategy for Bill Clinton. But it works better with a 5% unemployment rate than a 9% one. And does anyone in the known universe think the Republican House will give this President anything? In any case, given where we are, small, low-risk proposals will disappear without a trace.

• Choice 3: Go long. Fight the next 18 months on big, meaningful ideas: directions involving real risks, but, more importantly, real returns for the nation. This is, of course, not being debated. No one inside the White House can ever propose this kind of direction — that person would be eaten alive in meetings.

But to accomplish a real reset, President Obama is going to have to go long and do something big.

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Second, the reset, the big ideas, have to be about the right thing: American economic renewal. What do we have to do to continue the recovery, to lower unemployment, to move away from a lost decade, to maintain our position in the new world economy? The President’s mantra has to be economic growth. The President’s obligation, but also his political necessity, is to give the nation a sense of direction.

Finally, the reset has to take on the right specific tasks. I see the following five essential tasks for the President:

• Provide the economic story: Why was this recession different? Why does a lost decade threaten? What must we do now? Talk directly and honestly to the American people. I cannot understand why one of the best communicators in presidential history has not yet communicated with Americans on this central topic.

• Reduce the chances of a double dip recession. Simply allowing another slowdown — doing nothing to lower unemployment — is a financial, economic, social, and moral disgrace. Right now we should keep payroll taxes at zero, extend this to the payroll taxes employers pay, and put in place a jobs tax credit.

• End the debt standoff. Waiting around passively for a Congressional Super Committee to tell President Obama what to do is a bad idea. He should reverse one of his major mistakes, call in Alan Simpson, Erskine Bowles, Alice Rivlin, and Pete Dominici, ask them to spend a couple of weeks harmonizing their two overall proposals, and then adopt the result.

• Stimulate growth, encourage savings and capital investment, and raise revenues through a truly fundamental tax reform.

• Revolutionize public investment and provide the foundation for a decade of infrastructure investment.

I should be very clear about this proposed agenda: Not a single piece of it is risk free. Each part will explicitly draw from positions of both the right and the left. Clear compromises are figured in and will be required. This would be an agenda the radical center could embrace.

This would also not be an agenda that had any chance of being enacted between now and the 2012 elections. But nothing that actually matters will be enacted between now and then. And this direction — let’s call it “The Project for American Renewal” — could provide direction for a campaign. And it could galvanize an electorate.

But most importantly, the nation needs an agenda for renewal that the vast center of America could come together around. The nation cannot waste much more time on an utterly sterile debt debate that, to date, is neither solving the debt problems nor addressing America’s much deeper problems of growth. The country can’t afford to be a captive of the ideologies of the dinosaur progressives or the nihilist conservatives much longer.

If you are a progressive and you care about the issues of unemployment, poverty, inequality, and environment and climate, all of those issues will be worse after a lost economic decade. If you are a fiscal conservative and you care about the deficit and the debt, business performance, productivity, infrastructure, public sector competence, and environment and climat, all of these issues will be worse after a lost decade.

And if you are President Obama, how do you want to spend the next 18 months? Skirmishing about the debt, the deficit, further downgrades, and government shutdowns while you try to convince the nation that a couple more modest proposals are actually game changers? Or do you want to go to war over the future of America? Right now, I put reelection at only very marginally more than a 50-50 proposition. If you find yourself flying home on January 20, 2013, don’t you want to leave knowing you fought the real fight, that it meant something, that you left a marker behind? And if you find yourself giving that speech on January 20, 2012, don’t you want your inaugural to launch the Project for America’s Renewal, knowing that you put down its foundation in your campaign?

Roosevelt Institute Senior Fellow Bo Cutter is formerly a managing partner of Warburg Pincus, a major global private equity firm. Recently, he served as the leader of President Obama’s Office of Management and Budget (OMB) transition team. He has also served in senior roles in the White Houses of two Democratic Presidents. This post originally appeared at New Deal 2.0.