In the Nation's Interest

The State of the Union

Joseph Kennedy
President of Kennedy Research, LLC

The last few weeks have witnessed a growing confidence that the U.S. economy is back on track, if not poised for a period of strong growth that would boost median wages. Although this story somewhat diminishes his previous emphasis on economic inequality and secular stagnation, the President made the most of it in his annual State of the Union speech earlier this week. So it is worth reflecting on what the next two years are likely to bring.

The most likely scenario is a continued series of political and economic challenges that stretch the Administration’s resources and call into question its competence. Yet the President’s message to Congress and the country was striking in its confidence despite the political realities facing him.

Having dominated the last election, Republicans have every reason to be confident. First, they not only added to their majority in the House, they gained nine seats in the Senate, giving them the ability to put forward legislation that pressures Democratic moderates. Second, their victory extended to the state level. Republicans now hold 32 of the 50 governorships (including Bill Walker in Alaska) and control 69 of the 99 legislative bodies. Third, Republicans attribute much of their victory directly to public dissatisfaction with the President. Wherever possible, Republicans candidates made the President’s record and competence an election issue. They do not feel any pressure to change their positions.

When faced with a similar defeat, President Clinton rapidly moved to the center. He abandoned many policies that, whatever their merit, were impossible to enact. And he adopted new priorities, including welfare reform, which gained new support. The following years were politically and economically productive. President Obama has adopted the opposite strategy – doubling down on the recent economic boost to advocate political policies that he knows will not be enacted by this Congress, and pushing through a series of executive actions that have lukewarm public support. Because the future is likely to present the Administration with a series of challenges, the result may be a collapse in public confidence in the Administration.

First, the Administration seems unlikely to agree to any major legislation that could pass Congress. Obama’s executive action on immigration has reduced the pressure on both sides of the aisle for broad reform. And early indications are that corporate tax reform is also dead. Tax reform cannot happen unless it is one of the President’s top two or three priorities. Only the President possesses the political power to create a public expectation of reform, cajole reluctant members of Congress, hold interest groups in check, and put together the political coalition needed to pass such complex and contentious legislation. There is little sign that the Administration is willing to invest the political capital needed to get this done.

Conversely, the President’s past proposals and his recent statements take a position that Republicans cannot support. The vast majority of Republican members have taken a pledge not to raise taxes. That means that any tax bill has to cut taxes at least as much as it increases other taxes. If a significant number of Republicans ever do vote to increase taxes, that bill would also have to include meaningful reductions in entitlement spending. Democrats have shown little interest in supporting such spending cuts, and the President has shown no inclination to push them. And the President has clearly staked out his insistence that tax reform must raise revenues. That more or less ends the discussion.

Second, the President is likely to confront continued headwinds domestically and abroad. Administrations seldom do well when policy is closely run from the White House. The federal bureaucracy is a huge machine charged with carrying out a vast array of responsibilities with relatively few resources. To manage it, administrations need to appoint good administrators and give them the flexibility to make decisions. White House officials seldom have either the knowledge or the incentives to do the job well. Yet this administration has been the most closed and tightly run in history. The result is likely to be a continued series of stories that uncover latent problems. One or two of these will rise to the severity of the botched implementation of Obamacare or the long waiting times at Veterans Affairs hospitals. And while the Administration is likely to win important court victories on health care and immigration, administrative actions in labor law, financial reform, and the environment are likely to be reversed.

Internationally, the Administration’s declared policies are almost certain to fail in creating a world that Americans regard as safer. Obama is unwilling to invest the military resources needed to roll back the Islamic State or check the Taliban once U.S. forces leave Afghanistan. Economic crises in Europe and Japan may come to ahead. It is unclear whether the Administration can deliver supportable agreements on Iranian nuclear weapons or trade deals with the European Union or Asia. Finally, China or Russia could raise international provocations either to take advantage of perceived U.S. weakness or to divert their citizens’ attention from growing economic difficulties.

Finally, there is no assurance that strong economic growth will continue. Economic conditions in both the United States in 2006 and the European Union in 2008 looked good. In each case, subsequent events exposed serious structural weaknesses. Similar weaknesses could well exist in today’s economy. While current strengths may outweigh these weaknesses, a number of external events could weaken public confidence.

Strong forces work toward a growing U.S. economy. These include reliable institutions, extensive infrastructure, a motivated workforce, and a permanent desire for better living standards. But these can be temporarily overcome by events. Politics influences many of those events. Some are controllable, while others are not. The country works best when both parties become invested in a political decision. This did not happen with Obamacare, financial reform, or the Waxman-Markey bill to address climate change. The last died of its own weight, and five years later the Administration is still struggling to implement the first two.

For the President to establish a political base from which he can pressure Republicans, Americans must be confident in his vision and abilities. But that is a long bet given the challenges likely to face him. The Administration is much more likely to face a series of difficult challenges that will require political support from both parties to weather. By trying to go it alone, the Administration risks a collapse of confidence in its ability to govern. That would have lasting repercussions no matter who wins the 2016 elections.

Joseph Kennedy is President of Kennedy Research, LLC, which consults on a wide variety of policy issues. He is also a Senior Fellow at the Information Technology and Innovation Foundation.

Guest blogs are the views of the individual and not the official policy of CED.

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