Opinion: Obama Sees Light, Economy Delivers More Tunnel

(Aug. 20) -- "After 18 months, I have never been more confident that our nation is headed in the right direction." That was President Barack Obama at a fundraiser on Tuesday.

Two days later, a trio of economic reports came out showing that the economy is on the verge of faltering again.

On Thursday, the Department of Labor reported that initial jobless claims the week before hit half a million -- the highest since last November. The Index of Leading Economic Indicators report out the same day showed this predictor of growth has been flat for months (suggesting a sluggish economy ahead). And the Federal Reserve Bank of Philadelphia reported that more manufacturing firms in that region say their business is worsening than say things are getting better -- a finding one economist described as "a troubling development."

Then, to cap the day off, Congressional Budget Office head Douglas Elmendorf reported that "growth in the nation's output since the middle of calendar year 2009 has been anemic in comparison with that of previous recoveries following deep recessions." [Emphasis added.]

For almost 18 months, this has been the unfortunate pattern -- upbeat pronouncements by the White House followed by more economic gloom. And while Obama may be confident the country's headed in the right direction, more than six in 10 of Americans now disagree with him, according to a poll average by Real Clear Politics.

The problem is, Obama has left himself few options to turn things around, if in fact the economy isn't on the right track -- either because the main ones available to him are now politically unfeasible or because he's largely taken them off the table.

Stimulus: The president could push for a new round of stimulus spending, but the chance of anything meaningful getting through Congress is remote. First, the public already thinks the first stimulus was a failure -- just 23 percent believe it's made the economy better, according to a CBS News poll. Republicans will work to block any big new spending package. And centrist Democrats expressing increasing alarm at the size of the deficit aren't likely to go for anything substantial -- certainly not before the November elections.

Tax cuts: Republicans have been calling on Obama to keep the Bush tax cuts for upper-income families in place, arguing that letting them expire at the end of the year will only hurt the economy. A few Democratic senators have sided with the GOP on this, including Senate Budget Committee Chairman Kent Conrad, D-N.D., who said, "The general rule of thumb would be you'd not want to do tax changes, tax increases ... until the recovery is on more solid ground."

New York City's independent mayor, Michael Bloomberg, also backs extending the cuts, saying "let's go on with the tax cuts for another couple of years." And an August, an NBC News/Wall Street Journal survey found that 71 percent of Americans would find it "acceptable" to keep all the Bush tax cuts in place "for one more year until the economy recovers."

But the administration has come out foursquare against the idea. As Treasury Secretary Timothy Geithner put it, letting the tax cuts for the rich expire is "the responsible thing to do," adding that "I do not believe it will affect growth."

Deregulation: In the late 1970s, President Jimmy Carter, in an effort to get the economy off its back, embarked on an effort to deregulate several heavily regulated industries -- airlines, energy, transportation. Economists generally agree that this helped accelerate growth in the 1980s. But Obama is no fan of the idea. He was a tough critic of deregulation during his presidential campaign -- laying blame for the economy meltdown on deregulation of the financial sector -- and has expanded the regulatory state since taking office.

So that pretty much leaves the president stuck where he is -- trying to convince the public that there is light at the end of the economic tunnel while hoping that the economy stops creating more tunnel.