Ever since President Roosevelt charged out of the gate with a sweeping package of legislation and executive orders to address the Great Depression in the spring of 1933, new presidents have been graded — for better or worse — on their first 100 days in office.
Today, President Barack Obama reaches that closely followed milestone in the middle of the worst economic crisis since Roosevelt’s 100-day blitz. Several Wharton and other University of Pennsylvania faculty say that — for the most part — they have been impressed by the new leader’s calm and reassuring style, his success in winning passage of a large-scale financial stimulus plan, his formation of a savvy and centrist economic team, and his adherence — so far — to a campaign promise to cut taxes for most citizens.
But they also voiced serious concerns over the President’s initial spurt of activity. Many worry about the additional debt the nation is taking on under Obama’s ambitious agenda, which is projected to lead to large deficits long after the current recession fades.
“Obama has many laudable policy objectives, including creating millions of jobs, redesigning the health care system, reforming schools and our education system and exploring new energy sources,” says Wharton management professor Heather Berry. “Many of these goals can be seen in the President’s proposed budget.” However, she adds, the deficit created by Obama’s budget will “explode” if all of his initiatives are enacted. A Congressional Budget Office (CBO) report issued in March projected $9.3 trillion in federal deficits over the next decade, which is nearly triple the cumulative deficits during the two terms of Obama’s predecessor, George W. Bush.
“That’s what is making some people nervous,” states Wharton finance professor Nicholas Souleles, adding that while the federal deficit hit a peacetime high of about 6% of gross domestic product in 1982 during the deep recession in Ronald Reagan’s first term, this year’s shortfall will be more than double that rate — and future deficits will remain higher than the Reagan-era watermark. “Instead of having a ‘V’ shape where the deficit goes back to normal levels, if all this spending goes through, the CBO estimates that even after the situation improves, we will still run deficits of 5% or 6%” of GDP.
When it comes to economic policy, no one argues that Obama’s first 100 days have been uneventful, even if his list of tangible accomplishments appears shorter than the list of Roosevelt victories in early 1933. Roosevelt, for example, won repeal of Prohibition, passed emergency banking legislation, took the nation off the gold standard and launched programs, such as the Tennessee Valley Authority, to help rural America. Obama’s most notable achievement was the passage in February — with the aid of three moderate Republican senators who broke a deadlock in Congress — of a sweeping $787 billion economic stimulus plan. In addition to increased spending on infrastructure repair and other targeted programs, the package included a tax credit that the President says should help keep his campaign promise of cutting taxes for 95% of working families.
But the bold nature of the stimulus plan and his $3.6 trillion budget plan for 2010, which includes the long-term deficit projections that alarm some economists — is balanced by what is described as a cautious and politically centrist approach in other areas. His key economic advisors — former Clinton Treasury Secretary Lawrence Summers and Treasury chief Timothy Geithner, among others — are viewed by experts as experienced moderates who have, for the most part, calmed the financial markets. Obama’s approach to the banking crisis has been to continue in the general direction established by his predecessor while seeking to redefine the bailout program to deal with ongoing frustration over frozen credit markets.
Confidence Building
But experts agree that the one area where the new President may ultimately have the most impact on America’s economic fortunes is the most intangible one, and that is whether his tone and rhetoric can inspire the kind of consumer confidence that will spur renewed economic activity — bringing the same type of optimistic reassurance that marked the initial months of the FDR and Reagan administrations. Here, even some faculty who are most critical of his long-term spending plans believe that he has done well, especially with his calm demeanor and frequent public appearances.
“He came across as a serious person taking command of the situation,” says Alvin S. Felzenberg, a visiting lecturer at Penn’s Annenberg School of Communications who worked in two Republican administrations and recently authored a book on presidential leadership titled, The Leaders We Deserved (and a Few We Didn’t). “He is exceptionally well-spoken; he looks good up there and gives the impression of somebody America would be proud to have representing us in the world.” Felzenberg calls that a “refreshing change” from the final years of the Bush administration, when the White House was under siege and the President was criticized by some for his halting verbal manner.
According to an ABC News/Washington Post poll on April 24, 69% of Americans approved of the job Obama was doing as president, up from 66% a month earlier. In March, the same polling organization found that 42% of Americans thought the nation was on the right track, a 14% increase from just three months earlier.
Penn political science professor Donald F. Kettl says he believes that one reason for Obama’s apparent early success in economic policy may be the result of focusing on the types of programs that would not draw much congressional resistance, particularly the economic stimulus plan. “In dealing with something like the banking crisis, there are a lot of things that the large executive branch centers are able to do on their own,” according to Kettl. “A second category is things that are funded by Congress, like the economic stimulus. When it comes to spending $800 billion, that is something Congress loves to do. The third category [includes initiatives] that will require joint action on legislation, such as economic and tax policy. That is where he will have the big problems, where Obama will have to balance his strategy to see how he can pull in members of Congress.”
To that end, Kettl and other experts wonder whether 100 days is really such a critical milestone for gauging Obama’s presidency, because the bigger challenges will come down the road. That is when he will likely determine a timeline for shifting away from throwing massive amounts of federal dollars at the recession and toward tougher decisions on tackling future deficits, especially with large shortfalls in Social Security and Medicare on the horizon. Kettl even suggests that Obama’s economic policy is similar to the aftermath of the 2003 invasion of Iraq in that there’s a need for “an exit strategy” that will break the dependence on solving every problem simply through more spending.
“I’m hopeful that he’ll make the tough calls, but we haven’t seen that yet,” says Kent Smetters, professor of insurance and risk management at Wharton. Obama’s failure to move on a campaign promise to create a commission to study long-term reforms in Social Security and Medicare is a big disappointment for Smetters.
Having expressed concern about some of Obama’s spending priorities before the President was inaugurated in January, Smetters now says he’s been impressed with the President’s key appointments, such as Summers and Geithner, but that he had also hoped for more creative thinking on stimulating the economy. “I don’t mind government action, but they should have been smarter about it, instead of just picking the winners” by deciding who will receive large federal stimulus grants. Smetters suggests instead changing the tax structure on depreciation in order to increase rewards for private firms willing to make large current investments.
Smetters also believes bankruptcy would still be a better option for troubled large banks and financial institutions than the current program of propping them up with large influxes of government cash. “Ironically, I agree with [Princeton economist and writer Paul] Krugman that what you need is a good train wreck” to more quickly deal with the troubled assets now dragging down several large banks.
“A total reversal of what was started under TARP [the Troubled Asset Relief Plan]” — the $700 billion bank bailout program initiated by the Bush administration and enacted by Congress last fall — “would be very problematic,” says Eric W. Orts, Wharton professor of legal studies and business ethics. “You have to be very careful about the signals that you send, although I do think that putting greater restrictions on the funds is being discussed.” Orts suggests that more aggressive work is needed to ensure that the bailout results in increased bank lending to consumers and businesses, because the data so far indicate that progress in that area has been minimal.
Taking on Too Much?
Wharton finance professor Jeremy J. Siegel is also “pretty favorable overall to [Obama’s] policies.” But like many of his colleagues, he wonders if the new President is trying to take on too much, given the economic climate. “The only criticism I have is that there’s no way he can really address the broader issues, such as health care and the environment and others, right now,” Siegel says. His advice: Focus intensively on escaping the recession right now, and if those policies show signs of bearing fruit some 12 to 18 months down the road, the President will have sufficient political capital to tackle other long-range problems. “I just don’t think this is the time to undergo a massive policy initiative — even though that might be called for.”
Some moderate Democrats in Congress and even some members of the Obama administration may agree with some of Siegel’s analysis. In recent days, the White House has appeared to pull back from pushing a so-called cap-and-trade system, backed by Obama in his 2008 campaign, that would seek to limit overall greenhouse-gas emissions by U.S. industry. Critics say the plan would slow any recovery.
“My sense is that you basically have a moderate administration and that they’re being really pragmatic in how they go ahead,” says Orts, who provided advice to the Obama campaign on energy and other issues but has had no contact with the administration since then. While Obama’s initiatives on alternative energy have not been as ambitious as some environmental advocates had hoped, Orts notes that the $787 billion stimulus plan does include considerable money for high-speed rail, weatherizing homes and buildings, and other eco-friendly projects.
In addition, says Orts, Obama may make more headway targeting greenhouse gas pollution through regulations than through spending. Orts was surprised that the Democratic White House has not been more aggressive with financial industry regulations as well. So far, it has been largely European members of the G-20 group of industrialized nations that have pushed hardest for tough new rules, while Obama’s approach has focused more on a spending-based stimulus. “It would be nice to be playing more of a leadership role there, rather than responding to the Europeans — a little more proactive than reactive.” For example, Orts notes, he expected to have in place by now a blue-ribbon commission and other moves aimed at a regulatory overhaul of Wall Street.
Souleles’ assessment of the first 100 days is that Obama will need to move ahead and assess whether the strategy of tax cuts for the working class is compatible with a long-term agenda of bringing deficits back under control — as well as tackling those broader issues like health care. “Cutting taxes can be stimulative in the short term and even in the medium run, but you have to start thinking about how you will have a sustainable budget. You can’t be increasing spending in a number of different areas and also cutting revenues.” The Obama administration has said it plans to finance some of its middle-class tax cuts by allowing lower tax rates for higher earners — those making more than $250,000 a year — to expire in 2011 rather than be continued.
Felzenberg says that despite the high rating that he gives Obama for his style, he is deeply concerned over what he sees as a lack of focus comparable to the early days of the Jimmy Carter administration. “I’m trying to get a sense of established priorities. [So far,] he hasn’t [offered] that. I don’t know what his priorities are. I don’t know what he wants first. Congress is going to tell him that [he] won’t get energy and health care and economic recovery at the same time. That’s what they told Jimmy Carter, and he got nothing of what he wanted.”
