Counsel for President Obama’s Second Term

The economy has recovered substantially from the situation the president faced at his first inaugural. But challenges remain. The recovery from the Great Recession that began in 2008 has been slower than the recovery from the other recessions over the past three decades, largely because the source of this recession, a major financial upheaval, differs from the sources of recessions of the past.

The first and primary economic goal is to keep the recovery on track. This is important so unemployment will continue to decline. It will also bring down the government budget deficit by raising tax revenues and decreasing social safety net expenditures. The president is typically blamed (or credited) too much for the macroeconomic performance of the country, however. Many important factors are outside the president’s control. For instance, one of the biggest threats to the U.S. recovery now is events in the Euro-area, something over which the president has very limited influence. The recovery could be derailed by ongoing uncertainty due to political fights over tax-and-spending policy. Congress needs to work with the president on this, putting the needs of the nation ahead of narrow partisan goals.

The political fights about the fiscal cliff have raised the issue of tax and entitlement reform. These are difficult political issues. Everyone is for reforming the tax system and reforming entitlements, except for those parts that are essential to the American way of life—that is, those features that they benefit from, such as mortgage interest deductions, farm subsidies, low rates for carried interest, etc. A major reformation of taxes and entitlements would be difficult to obtain; then again, health-care reform eluded past presidents as well.