Where did it all go wrong for Obama?

At the end of his first hundred days in office Obama was riding high. Not only had he seemed to sidestep many of the banana skins that plagued the early days of Bill Clinton, but he had done so while maintaining an approval rating that was lower only than that of Ronald Reagan. Obama had also chalked up an important symbolic victory, by getting a massive stimulus package passed. With the surprising while the surprising defection of Arlen Specter, one the last remaining moderate Republicans, into the Democratic camp Obama’s ability to pass radical reforms, without any concessions, seemed assured.

However, just over eighteen months later the situation seems to have radically changed. Headlines asking whether the Republican party has a future have been replaced by a consensus that the GOP is likely to make large gains in the upcoming mid-term elections. Indeed, gamblers on the betting website Intrade.com believe that the chance of the House of Representatives changing hands is over 75%, while most pollsters agree that Obama’s net approval ratings are in negative territory. His healthcare reforms remain unpopular and were at least partly responsible for the Republican Scott Brown winning Ted Kennedy’s former seat in the Senate last December. There are even rumours that Obama might have to replace Joe Biden with Hillary Clinton as his running mate in 2012 if he is to have any hope of re-election.

Has it all gone wrong for Obama? Some of his supporters point out that Reagan was similarly written off before the economy recovered in time for his landslide re-election in 1984. Others concede that Obama faces a tough fight in 2012, but claim that financial sector reform and creation of near-universal healthcare are substantial legacies. Although partly correct, both arguments overlook the rapidity of his fall in popularity and the limitations of his legislative achievements. Obama’s extension of healthcare is structured in a way that makes it particularly vulnerable to Republican attempts at repeal. Similarly, his reforms have done little to attack the moral hazard implicit in the “too big too fail” problem in American finance and have expanded some Wall Street entitlements.

The main problem was that Obama failed to effectively use the political capital from his election victory. The most obvious example of this was the stimulus package that was passed shortly after he came to office. Although his chief of staff may have talked about “not letting a crisis going to waste”, most of the money ended up being squandered on ad-hoc “pork barrel” projects, which only had a short-term impact. Had Obama instead used part of the package to expand Medicare coverage to over-50s, he could have approached health care reform with a “public option” (the part of his package that he was eventually forced to drop) already enshrined in law.

Another one of Obama’s mistakes was to not only continue Bush’s bailouts of the financial sector, but to expand them to include the nationalisation of General Motors. While his actions may have won plaudits from sections of the financial press, they saddled taxpayers with substantial fiscal liabilities and have allowed the Republicans to paint him as a closet “socialist”. Of course, Obama’s behind-the-scenes role in setting up TARP, as revealed in the memoirs of the former Treasury Secretary Henry Paulson, meant that he was unlikely to change course once in office. However he has refused to even symbolically distance himself from the actions of his predecessor, selecting Timothy Geithner as Paulson’s replacement and retaining Bernanke as Chair of the Federal Reserve.

Of course, the Republicans have their own problems. Rand Paul, Sharon Angle and (if his lead over Murkowski holds up after absentee ballots are counted) Joe Miller are incredibly weak candidates who could transform three straightforward contests into difficult challenges. Indeed, a defeat for the trio might be the least bad solution for the GOP. The planned flotation of General Motors will hopefully enable the US government to recoup most of the costs of the bailout. However, if he wants to protect his domestic legacy, Obama will need to learn the lesson that perpetual bailouts for the few jeopardise good quality public services for the many.