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Mixed Signals

With the State of the Union getting drafted and re-drafted, debates are raging inside the White House: Should Obama be more conciliatory, or more feisty; more progressive or more centrist?
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What a week!

As so many of us writing for Huffington Post have been arguing for the past year, if President Obama did not cease behaving as the ally of Wall Street, the right wing would emerge as populist champion of the forgotten American. The election results in Massachusetts have now provided the exclamation point.

The loss of Ted Kennedy's former senate seat seems to have gotten the president's attention. Obama is belatedly getting in touch with his anger, as it were. He has turned up the rhetorical heat against the banks. But will he walk the talk?

Are we seeing a true shift in the Obama presidency where he revises his theory of change and discovers that political progress sometimes requires confrontation before you reach consensus? Or are these simply gestures of expediency and desperation?

So far, the signals are mixed. With the State of the Union Address getting drafted and re-drafted, debates are still raging inside the White House: Should Obama, after the Massachusetts wake-up call, be more conciliatory, or more feisty; more progressive or more centrist?

On the banking front, Obama has begun signaling a welcome populism. First, even before the Massachusetts vote, he called for a surtax on bank profits -- a relatively small and symbolic gesture than neither brings in a lot of money nor alters the banks' toxic business models, but a start.

Next, he intervened with Senate Banking Committee Chairman Chris Dodd to prevent Sen. Dodd from compromising away the House-passed consumer financial protection agency, one of the few provisions of the House version of financial reform that has some teeth. Literally the day before the president acted, Dodd had put out the word that he would have to throw the proposed agency under the bus in order to get Republican support for other provisions.

The agency has been a favorite of Obama's since last June, when it became part of the administration's June 17th White Paper on financial reform, despite skepticism from Geithner and Summers, only because Obama personally insisted on it. What's interesting about Obama's move last week is not just that he is supporting tough reform legislation, but that he got involved personally, calling Dodd to the White House and extracting his support. Until now, Obama has been mostly hands-off when it comes to financial reform, leaving the details to Tim Geithner and Larry Summers.

Even more significantly, Obama resurrected Paul Volcker as a senior adviser and embraced a Volcker proposal to revive the Glass-Steagall Act, an idea that Summers and Geithner have been resisting all year.

The 82-year old Volcker turns out to be one of the best organizers in Washington. In addition to forcefully speaking out about the need for a new Glass-Steagall, to keep commercial banks out of the business of speculating in securities, Volcker enlisted several other financial Brahmins to add their voices of support, including the Republican former chair of the SEC, Bill Donaldson, and the former CEO of Citigroup, John Reed.

Though Obama's public embrace of Volcker and Glass-Steagall was unveiled as part of the post-Massachusetts damage control, it has been in the works since before Christmas.

Geithner, who is again in political trouble because of investigations about his role in insisting that the government's bailout of AIG flow through to Goldman Sachs and other banks at 100 cents on the dollar, had his office quickly put out the word that Geithner had really been in support of Volcker's plan all along. But that's total malarkey.

The support for Volcker came mainly from Vice President Biden and from chief political adviser David Axelrod. In the White House debates, it was often Obama against most of his economic team, which has done its best all year to keep Volcker far away from Obama. Some dissenters on the economic team, such as Austan Goolsbee, sided with Volcker.

So Obama seems to get that he needs to be more populist both in tone and substance when it comes to the banks, though it remains to be seen how hard he'll fight. But banking reform is only one piece of the battle. Obama went the other way when it came to trying to salvage the re-nomination of Ben Bernanke to chair the Fed for a second term.

By the middle of last week, it looked as if the same popular revolt that gave Republicans Ted Kennedy's senate seat could take down Bernanke, who has emerged as a lightening rod for populist anger. Rejecting Bernanke's confirmation is an easy vote for senators who want to whack Wall Street, and there were murmurings of mass defections in the Senate Democratic caucus.

But with Bernanke's support crumbling, the White House pulled out all the stops. By Saturday, both Harry Reid and Dick Durban, the top two Democrat leaders in the senate, who have been wavering, pledged to vote aye. It now looks like Bernanke will survive, with more Republicans voting no than Democrats, and Democrats again looking like the party of high finance. The White House concluded that another political defeat for the president would be worse than the association with the unpopular Bernanke, who epitomizes the Obama alliance with Wall Street.

Even more ominously, Obama thus far is on the wrong side of the deficit-versus-jobs debate. Budget Director Peter Orszag and other deficit hawks in the administration have long been urging Obama to support a proposed fast-track commission that would bypass usual legislative procedures and compel an up-or-down vote on a compulsory deficit-reduction package designed to slash Social Security and Medicare spending.

This is, of course, appalling politics. It signals: we had to spend a ton of taxpayer money to rescue the banks and prop up the ruined economy. Now, gentle citizen, though you have paid once through the reduced value of your retirement plan and your house, you will pay again through cuts in Medicare and Social Security.

Since Christmas, Obama has been negotiating with the two key sponsors of the commission, Senators Judd Gregg (R-NH) and Kent Conrad (D-ND). Last week, it looked as if they were close to a deal to have the White House appoint a more moderate version of such a commission, but after signaling support for the deal Gregg went out of his way to disparage that idea. Mercifully, it now appears that the deficit hawks in the Senate don't have the votes, since it would require some tax hikes as well as spending cuts, and most Senate Republicans won't touch anything that raises taxes. But on Friday, Obama himself said that he'd support a legislated commission, reversing his earlier position. The only hopeful sign is that he doesn't seem prepared to spend much political capital on it.

The politics of the deficit commission are all tangled up with the politics of how much to spend on a new jobs bill. In December, the House, with no assistance from Obama, narrowly passed a $154 billion jobs will, which also provides fiscal relief to the states and extends unemployment and health benefits for jobless workers. But the word from the White House is that Obama will not support that high a number, and will give more prominence to deficit reduction. So despite the rhetoric about Obama getting past the health-bill morass and emphasizing jobs, jobs, jobs, he hasn't yet put his money (ours, actually) where his mouth is.

Then there is the matter of the carcass of health reform, and the related question of whether Obama is willing to get tough with Republicans as well as bankers. The early signs are not encouraging. In a Wednesday interview with ABC's George Stephanopoulos, Obama said that he'd look for areas of common ground, and by week's end, it appeared that the White House would be trying to get some kind of face saver that stopped far short of even the weak Senate bill.

With 59 votes in the Senate, the Democrats have more senators than the Republicans have had at any time since the 1920s. If Obama has discovered the virtues of leadership and occasional anger, he should be pummeling the Republicans for their sheer obstructionism, and asking the Senate leadership to enact key legislation with a simple majority of 51 votes through the budget reconciliation process. But on this front, Obama's conciliatory side still seems to be winning.

A little populism here and a little conciliation there is no game-changer. The worst strategy of all would be for Obama to be a populist on Mondays and Wednesdays, and a conciliator on Tuesdays and Thursdays. That would signal pure mush.

Democrats, unfortunately, default to this habit, because of an excessive reliance on a shallow reading of polls. You could see this tacking back and forth in the losing Gore campaign of 2000 and Kerry's failed run in 2004, where the candidate and his handlers oscillated between a progressive stance and a New Democrat one.

If Lincoln had based his decisions on polls, we'd still have slavery. Polls show that Americans resent corporate excesses, but value corporations as sources of jobs; that they are worried about the deficit but also frightened about unemployment; and that they are fearful of losing their health coverage but also anxious about the Obama version of health reform.

These, of course, are somewhat contradictory positions. It's normal for citizens to hold views that are not totally consistent. The job of a president is to fashion a coherent narrative and strategy of reform, even if some of it is momentarily unpopular, and to persuade the people to embrace it. A president who bases his posture mainly on a tactical reading of the polls is the opposite of a leader, and will be rejected for his weakness -- even if every one of his positions tracks majority support in the polls.

The administration's response to the twin loss of the 60th senate seat and a justifiably unpopular health bill could be a turning point in the redemption of Obama's presidency. So far, we've only seen a bare beginning.

Robert Kuttner is co-editor of The American Prospect, a senior fellow at Demos, and author of Obama's Challenge.

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