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Parsing Obama's Speech on the Economy

(Click here to read William Galston on Obama's speech.)

The president appeared at the Brookings Institution this morning to announce several job-creating measures as a kind of tangible follow-up to last week's summit. But between Obama's speech and a background briefing by senior administration officials beforehand, I detected four other goals on the economic front:

1.) Reclaim the stimulus as a success story. It's no secret that the administration has taken its lumps over the stimulus, even as the data suggest it's been reasonably effective. That's a problem for a White House embarking on another round of spending to spur job creation--the need for more money could be read as an admission that the first stimulus failed. To preempt that argument, the White House was determined to cast the stimulus as a success. One theme running through the speech and the briefing was that a lot of the new proposals are stimulus programs that worked beyond expectation, then hit a wall once the money was spent.

For example, Obama talked about another "boost in investment in the nation’s infrastructure beyond what was included in the Recovery Act" because "there are many more worthy projects than there were dollars to fund them."  The briefers were even more explicit, talking about a business-loan guarantee program from the stimulus that was "so successful it basically ran out of money." Later on there was talk of Recovery Act investments whose "success generated over-subscription" and a renewable energy program that was "substantially over-subscribed." 

2.) Stress that the administration doesn't go in for big, clumsy government programs. A related problem dogging the stimulus and the rest of the administration's economic interventions is the vauge perception that they summed to a wasteful jumble of spending. Today Obama took pains to show he's intervening with as light a touch as possible. Wherever feasible, Obama wants to elicit desired behavior from the private sector rather than mandate it from Washington. For example, he proposed eliminating capital gains taxes and extending write-offs to encourage small-business expansion, and creating a tax incentive to encourage hiring. He highlighted the need to "leverage private capital," a concept the briefers hit on multiple times. All of it seemed designed to paint Obama as a nudge-o-crat rather than a big-government Democrat, even as he presides over unprecedented government spending.

In a similar vein, the briefers took pains to show that the point isn't to have government create jobs so much as nudge businesses to speed up hiring they were going to do anyway. So you had repeated discussion of how to "pull forward investments in the short term" and "catalyze hiring." The challenge, said one of the officials, is to "get job growth more connected to GDP growth," not create jobs out of thin air.

3.) Remove the rusty nail that is TARP from the administration's heel. Politically, the most welcome line in Obama's speech may be his declaration that "we’re going to wind down the Troubled Asset Relief Program, or TARP--the fund created to stabilize the financial system so banks would lend again." As Obama aptly described it, "[t]here has rarely been a less loved or more necessary emergency program than TARP, which--as galling as the assistance to banks may have been--indisputably helped prevent a collapse of the entire financial system." The perception that the administration was bailing out Wall Street has, of course, been one of the most politically damaging developments of the past year, creating a general cynicism toward government intervention among voters.

Amid the recent news that TARP will cost a mere 20 percent of its original $700 billion price tag when all is said and done, and that the government may even make a profit on the bank-bailout portion, the administration is styling itself the investment-savvy steward of the people's money, versus its slightly ham-handed predecessors, who were simply shoveling money out the door without any real game plan. "Launched hastily under the last administration, the TARP program was flawed, and we have worked hard to correct those flaws and manage it properly," Obama said. Talk about lemons to lemonaide.

4.) Set the fiscal record straight. In fact, Obama didn't stop at TARP. The end of the speech was basically an indictment of GOP financial management, dating back to the Bush tax cuts and the 2004 prescription drug benefit, neither of which was paid for with offsetting spending cuts or tax increases. Obama contrasted this with his own insistence that health care reform not increase the deficit "one dime" and noted that, as a result of Bush's big-spending ways, his administration inherited a $1.3 trillion deficit. (That's not quite right--the recession also took a real toll on the federal budget--but those Bush policies do account for more than half of the projected 10-year deficit.) Then came the brush-back pitch: "[T]hese budget busting tax cuts and spending programs were approved by many of the same people who are now waxing political about fiscal responsibility while opposing our efforts to reduce deficits by getting health care costs under control," Obama said. "It's a sight to see."

Notwithstanding the president's determination to cut the deficit in half by the end of his first term, we're not going to see much deficit-reduction next year (the 2010 fiscal year actually started in October). But it does sound like the reports that fiscal responsibility will be a major rhetorical theme going forward were basically on target.