There's all the usual post-election palaver that happens after a Democratic loss: Republican and right-wing triumphalism, the pro-corporate wing of the Democratic party and conventional wisdom pundits arguing that Democrats should "turn to the center" (by which they mean the Washington center -- cutting Social Security, doing more trade deals, not antagonizing Wall Street -- as opposed to what the center is for voters), and progressives arguing that Obama should stand strong on Democratic values and not cave to the Republican agenda. There's also a classic dynamic where some Democrats are urgently calling on people not to attack each other or the president, to try to keep the party from looking like it is in disarray, and others wanting to really engage in that old centrist versus left debate and critique.
I have been thinking hard about all this in part because it's the obvious thing everyone is thinking and talking about and in part because I am doing a lot of panels and media interviews right now -- the latest one yesterday at Harvard where I did left-right panel with Bill Kristol on analyzing the elections. Interestingly, while Kristol and I naturally disagreed on the substance and political dynamics on many key issues -- Afghanistan, tax cuts for the rich, health care among the big ones that came up -- we agreed on the essential point that Obama can only survive by reconnecting with both the Democratic base and working class swing voters by being more populist on jobs, banking issues, and Social Security/Medicare (Republicans get honest while speaking academically in the weeks immediately after the elections -- like Lee Atwater, also speaking at Harvard after the 1988 election, Kristol agreed that the swing vote in national elections is a working class populist vote).
At the end of the day, though, I keep coming back to one thing. Political positioning is significant, and I continue to believe populist rhetoric and substance on issues helps. Energizing the base and doing more to turn out Democratic base voters in 2012 will be important. But ultimately there will be only one way for Obama and the Democrats to come back in 2012, and that is for the economy to be substantially better. The thing Washington insiders always seem to glide over is the level of economic pain that is out there. The real unemployment rate is far higher than the official numbers because they don't include part-time and temporary workers still looking for full time jobs as well as those who are too discouraged to look for work. Incomes have been flat while a lot of everyday costs for things like groceries, gas and utilities, health care, and college tuition are a lot higher than they were a few years ago. Pensions and savings wiped out by the stock market collapse still haven't recovered for most people. And the housing crisis -- 25 percent or more of homeowners are in real trouble, and housing prices are staying down -- looms like a massive New York skyscraper towering over everything else.
Traditional Democratic ideas around Keynesian solutions for jumpstarting the economy, which we tried some of but not nearly enough, are politically dead with the incoming Congress. That means there is only one thing that will help revive this economy right now and give working-class homeowners some tangible benefits: getting these underwater mortgages written down so that people can stay in their homes. It is the only thing that will stabilize the housing market, and the only major lift to the economic well being of middle class voters. It will mean the big banks taking a big hit financially, but not many folks will shed a lot of tears about that. And here's the deal: Treasury, Federal Housing Administration, other regulators, and the Justice Department can make this happen without Congress doing a thing (which they won't). It would mean a big shift in administration policy, but I have come to believe it is the one thing that they can clearly do to give a major boost to the economic fortunes of the stressed out middle class. And if they do it, I hope they do it full-out, not by muddling through.
The political urgency of this is shown by the two most important statistics that explain the fate of Democrats on Tuesday are these:
-In 2008, Obama won the votes of people who said their personal economic situation had gotten worse by a 43 percent margin. In 2010, Democrats lost those voters by 29 percent. By the way, the number who said things were worse for them? 40 percent. That is an incredibly big swing in such a massive slice of the electorate, one on a scale that I don't remember in 25 years of looking at exit polls.
-People were asked by exit pollsters who they most blamed for the bad economy. Obama was only third on that list with 24%, while Bush was actually higher with 29%. Pretty much everyone who said Obama voted Republican, and everyone who said Bush voted Democratic. But the number one culprit on the list, the one that working class swing votes landed on, was Wall Street, at 35 percent. Guess who that swing group blaming Wall Street? Yup, the Republicans won 56 percent of their votes. Pretty ironic: These voters get right who was most to blame for our economic problems, but they don't feel like Obama has done enough about setting things right.
Better positioning, turning out base voters, having a unified party effort: it's all great. But Barack Obama will not win in 2012 unless he brings back the voters who turned against him in the two statistics above (which obviously were mainly overlapping voters). He won't win without reviving the economy at least to some extent, and that won't happen with another stimulus: It will have to happen by going to the heart of the problem, which is the housing market. This debate we are about to have on the foreclosure issue because of the problems the big banks created is actually an opportunity for Democrats to seize the initiative. They can take dramatic and effective action without having to do anything with the new Congress. It is the best thing they can do for themselves politically and economically. Let's hope they are bold and aggressive in fighting for the middle class on this issue.