For most of 2012, it was fashionable to characterize the U.S. presidential election as one of the most defining events in recent times. Certainly, if you happened to live in Florida, Ohio, or another battleground state, you were barraged with advertisements announcing that choosing one or the other candidate would result in the end of days. Amid a hotly contested and often bitter campaign, the presidential candidates went out of their way to highlight their differences, by exaggerating not just the good that each would deliver if elected but also the bad that the other would impose.
Now it's time for a reelected President Barack Obama to govern. First, though, a hard truth: As he thinks about his new presidential term, Obama will soon realize that, even if the spirit is willing, he will be unable to meet many of his election commitments. There is no rapid way to reverse the multiyear decline of America's middle class and no immediate way to pull up the poor who have fallen through the country's stretched social safety net. This inconvenient reality needs to be internalized quickly.
The United States' economic and financial situation provides Obama a limited degree of freedom, and a less-than-accommodating global environment adds to these constraints. Combine this with the reality of a divided Congress -- where too many elected officials have made personal pledges to oppose any and all taxes, a vow inconsistent with the country's current circumstances -- and what transpires is an uncomfortably high probability of continued bickering, dithering, and gridlock.
So rather than surging ahead with promised new initiatives, the incoming Obama administration risks ending up in the same political paralysis that dominated Washington the last few years. Think a world in which the U.S. economy's expansion stays sluggish, joblessness remains high (especially among the young and the long-term unemployed), income and wealth inequality continue to worsen, and deficits and debt continue to rise. Further political polarization and fragmentation in Obama's second term would reduce the likelihood of getting any good policy out of Washington, accentuating what has become a depressingly familiar and increasingly vicious cycle.
That's the bad news. The good news is that it need not be like this. In his second first 100 days, Obama has an unprecedented opportunity to right a fragile global economy and change the way Americans -- and the world -- think about Washington.
The steps fall into two broad categories: first, to limit and, if possible, remove the headwinds undermining economic success (in other words, do no harm); and second, increase the tailwinds (do outright good).
As for the headwinds, Obama's first challenge -- on full display this week during the flurry of deal-making on Capitol Hill -- has been to remove the "fiscal cliff" threat of automatic tax increases and spending cuts. The economy cannot absorb a disorderly fiscal contraction of some 4 percent of GDP without falling into another recession. Going over the cliff would increase unemployment and erase some of the hard-earned balance sheet cleanups of recent years. By exploiting common political ground with his Republican opponents, however, the president can limit the fiscal contraction to some 1.5 percent of GDP, which could also help set up longer-term fiscal reforms.
Second, the official narrative on China needs to pivot away from election-season bashing to constructive dialogue. The basic challenge is to enable discussions that minimize the tensions inherent between an established power and a rising one -- and in a way that underpins regional stability. To this end, Obama will need to reach out to the new Chinese leadership, walking back the dialogue from a single-issue focus (the exchange rate) to broader economic governance issues.