Obama's Next Problem: Economic Woes

VIDEO: WSJs Simon Constable breaks down the new employment data.

Okay, he's dead. What now? With Osama bin Laden gone, a phalanx of other foes confront the president, and many of the mightiest are economic: Gas is $4 a gallon and rising; the price of groceries is going up; wages remain stagnant; the deficit continues to balloon; and trading in derivatives—to the tune of $4 trillion a day—remains unregulated. The Federal Reserve, meanwhile, continues to paper the hillsides with $100 bills, reducing the value of the dollar.

What ought the president to tackle first, and how should he go about it? We asked economists and other experts.

Jobs, Jobs, Jobs.

The Labor Department reported Friday that non-farm employers added 244,000 jobs in April, the third straight month of strong gains. But the unemployment rate rose to 9 perent as more people entered the workforce. The bottom line is that the economy still isn't creating enough jobs, a major challenge -- and task No. 1 for the administration.

"I think first, it's jobs," says David I. Levine, chairman of the Economic Analysis and Policy Group at U.C. Berkeley's Haas School of Business. "More than a tenth of our potential work force remains unemployed. There's been a spike in oil, it's true; but we don't have signs of serious inflation." What should Obama do? "The textbooks all say expand monetary policy—and that's what he should do. What you don't want to do is cut spending or raise taxes or both. That will only make the recession worse."

Referring to tight-fisted, budget-cutting governors such as Chris Christy in New Jersey and Scott Walker in Wisconsin, Levine says: "Right now, you've got 50 little Herbert Hoovers. For Obama to make himself the 51st Hoover would be really a mistake. You'd turn what's already the worst postwar recession into something worse than it has to be. The president ought to be helping states minimize teacher layoffs and not raise taxes, at least for this year."

Long-Term Deficit Reduction.

"This is the really huge one," says Diane Lim Rogers, chief economist for The Concord Coalition, a deficit watchdog group. "It's all-encompassing. The president needs to deal with it, and if he can take leadership the rest will fall into place: It would strengthen the dollar, keep interest rates low. It would send a signal to the people who buy our treasuries that we're serious about getting our financial house in order."

How we chose to get there, she says, matters profoundly. "We can do it in a smart or stupid way." While deficit reduction should be the nation's long-term goal, it's ill-advised for the short-term. The economy, she contends, is still too fragile to permit big spending cuts or big tax increases. "It's not strong enough, and we're not close enough to full employment, to think about balancing the budget and running a zero deficit."

The president, she adds, should focus his efforts on promoting any program that increases the demand for goods and services. That's the only form of stimulus she endorses. Further extension of the Bush tax cuts, for example, would be a mistake: "When you give cuts to the rich, most of the money winds up being saved rather than spent. That's not consistent with efforts to stimulate demand. Frankly, even the middle-class tax cuts aren't the most productive way. Let them expire and don't renew them."

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