Barack Obama's second term

Now, hug a Republican

A budget deal makes sense for the re-elected president, his opponents, his country and the world

Nov 10th 2012

The Economist

http://www.economist.com/news/leaders/21565955-budget-deal-makes-sense-re-elected-president-his-opponents-his-country-and?fsrc=scn/tw/te/hugarepublican

LET him savour, for a day or two, a victory that many had said could not happen. No president since FDR had been re-elected with unemployment so high. The country seemed pessimistic and bitterly divided, on racial grounds even more than on economic ones. His best-known achievement, health-care reform, had turned out to be deeply unpopular. The Republicans spent $800m trying to remove him. Yet on November 6th Barack Obama carried all the states he won four years ago, bar only Indiana and North Carolina, for a solid victory over Mitt Romney of 332 electoral-college votes to 206; the Democrats tightened their grip on a Senate they had once been expected to lose; and the president gave his best speech for several years.

In fact, Mr Obama’s victory is both smaller and potentially bigger than that. Smaller because it was a less impressive feat than it immediately feels (see article), and a lot of hard work lies ahead of him. Bigger because if this president, who has so often failed to find achievements to match his lofty words, can reach out to the Republicans, together they have a rare opportunity: to cement a much more substantial legacy for Mr Obama, to make the American right electable again, and to do their country’s finances and politics a power of good.

Oh, lucky man

In the short term, it will be the smallness that stands out. This newspaper endorsed Mr Obama and is glad he won, but he was lucky: lucky for the second time to have faced a less fluent opponent weighed down by his party’s trunkful of baggage; lucky that the American economy perked up, a little, just when he needed it to; maybe lucky even that Hurricane Sandy appeared when it did. Mr Obama fought an appallingly negative campaign and scraped a victory in both the swing states and the popular vote (which he won by only 2.4%, the lowest ever for a successfully re-elected president). The Democrats’ gains in the Senate stemmed largely from the Republicans choosing candidates of such tragicomic extremism that they might have been characters from a Tom Wolfe novel. And, above all, in the House the Republicans preserved their majority, feel vindicated and are spoiling for a fight.

Indeed, it will be in his negotiations with Congress that the smallness will really strike home. For all the speeches, Mr Obama has merely renewed the status quo in Washington—one he has proved so unable to alter for the past two years. His main domestic achievements, including health reform, were shuttled through Congress when his party controlled both chambers. He has no Clintonian record of reaching across the aisle. And the central issue that divides the parties—how to solve the American government’s rotten finances—was the weak spot both of Mr Obama’s first term (he ignored the recommendations of his own Bowles-Simpson deficit commission) and of his campaign (he simply concentrated on hammering away at Mr Romney’s admittedly barmy numbers).

So why might Mr Obama’s victory turn into something big? Because if he wants his second term to be more than a disappointing addendum to a divisive first one, he must work with his opponents; because the Republicans, if they are sensible, need to understand that their road to electoral rehabilitation lies in dealing with a president who cannot run again for office; because the basic framework of a deal is appreciated by both sides; and because there is an urgent prompt.

In less than two months’ time, unless a deal is struck, America will fall off a “fiscal cliff” that will, through a combination of automatic tax rises and spending cuts, subtract as much as 5% from GDP in a year. That would be a disaster for an economy growing at an annual rate of barely 2%. But behind this immediate crisis is the deeper one: America taxes itself like a small-state economy, and spends like a big-state one. Add in an ageing population, and it is going broke. Mr Obama will be pilloried by history if he does nothing to fix that, though the bond markets would probably punish him well before he left office.

Mr Obama ought to tackle the two problems at once, so that the deal to stop the economy going off the cliff is tied into longer-term reform. He will not be able to hammer out all the details of those reforms, but he can force agreement on the main parts, based on Bowles-Simpson, which he should endorse rapidly. That means being very clear about how much deficit-reduction will come from tax rises (which Republicans hate) and how much from spending cuts (which Democrats loathe); about which tax-exemptions must go or be curtailed; just how far entitlements like Medicare and Social Security will have to be scaled back by the use of means-testing, delayed retirement and less generous indexation; and much else in the same vein.

Mr Obama came close to getting a deal along these lines with the current Republican speaker, John Boehner, in July 2011, but his failure to work successfully with Republicans has been woeful. He must now do everything he can to hug them close. This time that means offering them proof that he really intends to be more bipartisan. A pro-business treasury secretary would be a start: the names of Larry Fink or Mark Warner come to mind. Swift approval for the Keystone XL pipeline connecting Canada with the Gulf of Mexico would also help. In his first term, Mr Obama broadly got the economics right, but his White House waged a destructive war of words against business. If he wants to help America’s poor (see article), he would do better to embrace a truly progressive agenda, based on competition, reforming government so that it targets spending on the most needy, and reforming taxes.

Not that old chestnut again

All this is plainly in Mr Obama’s interest—and that of his country, too. But what about the Republicans? Their script is depressingly easy to write. The party’s leaders will once again conclude that they lost because their candidate was not a genuine conservative, and vow to find the real thing next time. Possible future leaders like Paul Ryan, this year’s vice-presidential candidate, will head to the right in preparation for the 2016 primaries. Compromise with Mr Obama will be treason.

If the Republicans do that they will be abandoning all electoral sense. They managed to lose an election again in a country where conservatives still handily outnumber liberals by lumbering Mr Romney with extremist positions, such as rejecting any budget deal involving tax rises even if spending cuts were ten times greater. Their obsession with abortion and gay marriage seems ever more out of touch with women and young people. And their harshness towards illegal immigrants cost them the growing Latino vote, 71% of which went to Mr Obama. Plenty of independent voters, and this newspaper, yearn for a more pragmatic Republican Party. Doing a deal on the deficit with Mr Obama would signal its rebirth.

Above all, though, a bipartisan deal over the budget would be good for America—and the world. It would encourage business to invest, thus strengthening America’s economy and raising the country’s standing, and indeed the standing of market capitalism. Enemies like Iran and North Korea would once again respect and fear American power. A budget deal would act as a reminder that democracy works, especially at a time when China is changing its leadership in a more dictatorial way. The alternative, of four more years of angry stasis, would do America, and the world, huge damage.