What President Obama Can Do to Achieve An Economic Legacy

It must seem unfair from the White House's perspective, but President Obama's attempts to take credit for the improving economy have largely foundered even while income growth and job creation finally are on sustainable upward trajectories. It's too late for this electoral cycle, but Mr. Obama's legacy on economic issues can still be shored up. What the President needs is both a continued macro upswing that further softens the sour taste from his five years of an underperforming labor market, and policy achievements in his final two years in office that improve long-term U.S. growth.

Foreign events are part of the reason why Americans are overlooking Mr. Obama's assertion that they should be proud of domestic progress: it's hard for voters to look on the bright side in the face of global threats such as terrorist aggression and viral contamination. But Americans' dubious perspective on the President's plea for acknowledgement reflects economic concerns as well. Last Friday's jobs numbers for September revealed great headline figures with lower unemployment and strong job growth, but the underlying data indicate that hours and earnings increased the most for workers with relatively high skills. It's hard to expect acclamation for a recovery in which the benefits are far from broadly shared and many families still feel left behind.

There's a certain irony in having inequality sour Americans' views of the President. Mr. Obama himself for a while pointed to the issue as the most important challenge facing the country, before he switched to focusing on the middle-class, reportedly when polling suggested that theme connected better with voters. But even this rhetorical shift was for naught.

The President further suffers because the current strength of the U.S. economy does not connect straightforwardly to his policies. While there is considerable research suggesting that the stimulus spending in the 2009 American Recovery and Reinvestment Act helped lessen the severity of the Great Recession, that was long ago, with attenuated implications for the present-especially when the intervening years were a disappointment. And credit on the stimulus is only partial since the effort could have been more effective had resources not been squandered on foolish attempts to change the structure of the U.S. economy through giveaways such as subsidies for green energy. Even former Obama advisors such as Larry Summers now acknowledge this part of the stimulus was a mistake.

The White House has avoided some problems: the end-2012 resolution of the fiscal cliff and the December 2013 Murray-Ryan budget deal both steered around the economic hiccups that would have resulted from either a snap back to all of the higher pre-2001 tax rates, or from the full impact of the sequester. These are accomplishments of a sort, but Mr. Obama has been missing-in-action on pushing for growth-enhancing tax reform or tackling the long-term challenge of the U.S. fiscal imbalance. Even while fiscal deficits have come down temporarily, the administration's unambitious budgets aim merely to stabilize debt at more than 70 percent of GDP, while sticking the next president (and future taxpayers) with the fiscal consequences. It's hard to garner praise for leaving a big mess.

Lower energy prices are helping to support the U.S. economy, and Mr. Obama gets some credit for decisions to allow natural gas exports (and it is likely that he is preparing the ground to allow oil exports). Expanded trade in energy products means higher U.S. incomes, and increased incentives to explore for, and produce, oil and gas. But Americans also recognize that the energy boom has mainly taken place despite Mr. Obama rather than because of him-with the unbuilt Keystone XL pipeline a symbol of an energy policy driven by the clamor of the President's political base rather than the needs of the economy.

The Affordable Care Act was long a political liability, but the President's supporters now point to the employment data as evidence that the law is not just an expansion of coverage, but also a job creator. There is an irony in touting Obamacare as Keynesian stimulus, since an important dimension of success for the program would be to slow cost growth and free up resources for other economic activities. Moreover, recognition for any economic growth attributable to the dollars gushing from the Obamacare spigot could be well offset in the minds of voters by the lingering uncertainty about the implications of the program for families' coverage and choice of physicians. The Act will define the Obama Presidency, but this could be a mixed bag, with the achievement of expanded health insurance coverage counterbalanced by a fiscal burden that ultimately proves unsustainable.

An irony of the depressive effect the Obama name is having in this electoral cycle is that the President's economic legacy might well be enhanced by a Republican takeover of the Senate that sets the stage for progress on policies that strengthen U.S. growth. Trade agreements with Asia and Europe, for example, would boost both the U.S. economy and those of our partners; these stand a better chance of enactment in a Republican Senate than with more populist-oriented Democratic control. Immigration reform likewise would be an economic boon. Qualms in the House of Representatives have stalled progress, but prospects for action might improve if wary House Republicans are asked to consider legislation from a Republican-led Senate. Tax reform is a further natural avenue to spur the economy, but differences between the two sides seem too wide to bridge any time soon.

Reforms to the U.S. education system are another promising avenue for bipartisan action. An embrace by Mr. Obama would go a long way to propel forward efforts such as the Vergara case in California, a case against teacher tenure, that seek to ensure that children of all social and economic backgrounds have effective teachers. Progress here would both improve long-term growth and address inequality by lifting up the skills of children who might otherwise grow up into low-wage workers. A president finally free of the two-year electoral cycle might find the political courage to act in the face of opposition from teacher unions.

Even while the Senate outcome remains up in the air, the prospect of a Republican takeover of the Senate rests more heavily on doubts about the president's leadership in the national security realm than on purely economic issues. The question confronting Mr. Obama after the election is whether to keep grinding out hour-plus speeches pushing for economic policies such as minimum wage hikes that stand little chance of enactment, or instead to look for common ground. Trade, immigration, and education reforms present opportunities for bipartisan progress-and over time, success in these efforts will make Americans look back more kindly on our 44th President than is suggested by Mr. Obama's dismal approval ratings.