Obama's Speed and Balancing Act

Barack Obama was back in the Capitol on Tuesday, not yet president but seeming to manage three governments at a time while taking questions from old Senate colleagues.

First is Obama’s own administration, still being assembled and facing a few rough patches a week before his Inauguration. Next is his ambitious economic recovery bill, approaching $850 billion and fast becoming a second government in its own right. Third is the leftover business of the outgoing Bush White House: what to do with the last $350 billion in a financial markets rescue fund approved a month before Obama’s election.

Moving fast has always been an Obama trademark. The man scarcely stayed in the Senate two years before running for president. And his appearance at the Democratic luncheon followed the same format: a brief summary of the business at hand followed by opening up the floor to questions.

“He makes his points,” Sen. Jim Webb (D-Va.) said, grinning slightly. “He allows everyone to ask questions, and that’s a sign of leadership.”

Lawrence Summers, the former Harvard president and Clinton Treasury secretary, was on hand — but also largely unneeded by Obama.

“Let’s put it this way,” said Sen. Jack Reed (D-R.I.). “We didn’t ask any questions that stumped him.”

But for all the famous Obama cool, it’s an immense balancing act at almost every level.

His immediate challenge is to win a Senate vote this week on the release of the last $350 billion in the financial markets rescue fund — a fight that puts him in the odd position of threatening to use his veto power to uphold a request that formally came from outgoing President George W. Bush.

“He made very clear he would veto any resolution of disapproval,” Sen. Tom Harkin (D-Iowa) said after the party lunch.

But to truly succeed, Obama knows he must also overcome a legacy of distrust left by the way the same Bush administration handled the first half of the $700 billion rescue fund.

Toward this end, he has promised that more of the funds will go to help homeowners faced with foreclosures — not just banks. But this is a path that also must be balanced for fear of driving off conservatives who paid a price in November for supporting the initial bailout.

Thirty-four Republicans supported that measure in October, but eight of them have since left the Senate, and Minority Leader Mitch McConnell (R-Ky.) has scarcely forgiven Democrats for ads run against his members, accusing them of taking Wall Street money and then voting for the rescue fund at the expense of taxpayers.

The Obama camp has been reaching out to Senate Republicans, offering a possible meeting this week between Summers and the party. But Democrats will have to carry most of the burden themselves, and Senate Banking Committee Chairman Chris Dodd (D-Conn.) made a passionate speech at the party luncheon, calling on his colleagues to stand with their new president.

“This is not a popular vote,” Dodd said later. “This is a tough issue.”

Balance will also be key if Obama is to succeed with his economic recovery bill, now taking shape in House and Senate committees. The price tag appears to be rising, closer to $850 billion now than the $775 billion target set by Obama’s camp just weeks ago. The three basic components are expected to be in the range of about $350 billion in direct appropriations, $300 billion in tax cuts and about $180 billion in various mandatory benefit programs, such as payments for Medicaid, food stamps and unemployment insurance.

When drafting first began, much of the focus was on infrastructure, such as roads, bridges, water and sewer projects, and investments in energy and improvements to the national grid, for example. All of these remain an important part of the mix, but the more dominant pieces now are tax cuts and assistance to states, faced with huge deficits of their own.

Part of this is political: Republicans like tax cuts, and Obama’s camp manipulated the debate by leaking details of the tax cuts to their advantage. But the fact is that coming up with effective federal spending programs to create jobs proved more difficult than some Democrats suspected. And to get money out the door faster and meet their overall “macro” spending target, state aid and tax cuts proved to be quick solutions.

These choices reflect the continued tensions between the macroeconomic goal of increasing demand and the political question of whether the money can be used effectively. As the economy has faltered, economists have urged an ever-larger government intervention of $1 trillion or more. But critics argue that if the money is not used effectively, confidence in the whole enterprise — and the economy — risks being undermined.

“There is a tension between that macroeconomic gap, the $1 trillion GDP gap, and a set of policies that you can come up with … that spend out three to six months and add aggregate demand,” said Obama’s budget director Peter Orszag, appearing at his confirmation hearing in the Senate on Tuesday.

“If you put all those together, you wind up with a package that’s much smaller than the GDP gap that we face, and then we face this choice: Do you accept a high level of macroeconomic risk in not expanding the package, or do you expand the package into other areas that might have somewhat smaller bang for the buck but help you to address more of the macroeconomic problem?”

Speaking in London on Tuesday, Federal Reserve Chairman Ben Bernanke said the proposed recovery bill “could provide a significant boost to economic activity.”

But he cautioned that “fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilize and strengthen the financial system. History demonstrates conclusively that a modern economy cannot grow if its financial system is not operating effectively.”

And that’s where Obama comes back to having to ask for the $350 billion in the Treasury fund.

Just takes some more balancing.

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