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November 22, 2014

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OTHER VOICES:

How to unparalyze our government — and us

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I was struck by one particular moment during President Barack Obama’s State of the Union address. The president proposed a $1 billion investment to build a new National Network for Manufacturing Innovation to spur high-tech manufacturing in America. I’m sure that would be helpful, and I’m sure the president will have to beg to get any such funding out of Congress.

Yet sitting up there in the balcony listening to the president’s speech was the CEO of Apple, Tim Cook. Apple is currently sitting on $137 billion of cash in the bank. There are many reasons Apple has not spent its cash hoard, but I’ll bet anything that one of them is the uncertain economic and tax environment in this country. Think about how much better we’d all be if Apple, and the many other companies sitting on cash, felt confident enough in the future to spend it. These are the most dynamic companies in the world. They don’t need any government help to innovate.

Message: There is no doubt our economy is primarily being held back by the deleveraging and drop in demand that resulted from the 2008 financial crisis. But they are being reinforced today by uncertainty and worry that we do not have our political house in order and, therefore, our tax, regulatory, pension and entitlement frameworks are all in play.

So businesses, investors and consumers all hold back just enough for us not to be able to move the growth and employment meters with any robust momentum. Sure, we’ll throw money into the stock market if the only alternative is zero interest from bonds or banks, but it is not being recirculated with confidence in the long term.

It’s a tragedy. You can feel the economy wants to launch, but Washington is sitting on the national mood button. We the people still feel like children of permanently divorcing parents.

The latest Wall Street Journal/NBC News poll, conducted in mid-January, found that Americans see some signs of improvement but that “just over half of those surveyed said they were less confident about the economy as a result of the budget negotiations.”

The Journal article quoted Bill McInturff, one of the pollsters, as saying, “This is now Washington’s economy. The problem in Washington is ... contributing to a very negative sense of what’s going to happen in the economy.” Richard Curtin, who directs the Thomson Reuters/University of Michigan index of consumer sentiment, told me that his team regularly asks the consumers who are polled whether they’ve heard of any events affecting the economy — positively or negatively — without giving them any choices. Since August, the index has seen record numbers citing government paralysis as contributing negatively to the economy, including in the survey released Friday.

“People’s incomes are so stretched,” Curtin said, “that any additional uncertainty about how taxes or government spending might affect them has a big impact on their situation and how they plan for the future. ... There is real economic uncertainty out there.” In addition, he said, historically, “people have always turned to Washington in times of economic crisis, but now they’re losing confidence in the government’s ability to reshape the economy, and that affects their buying and investing habits.” People now think they have to “take more control themselves.”

What to do? To be sure, the GOP’s lurch to the far right has been more responsible for this paralysis than the Democrats, but Obama is president. He wants to succeed. The country needs him to succeed. Therefore, he owes it to himself and to the country to make one more good shot at a Grand Bargain on spending, investment and tax reform before he opts for a strategy of trying to pummel the Republican Party, hoping that he can win the House for the Democrats in 2014 and then push through his second-term agenda unencumbered.

I don’t think the latter will be so easy, and I think the former would give the country so much more of a lift and the president so much more momentum to get the best ideas in his speech — like infrastructure, early childhood education and a trade agreement with the European Union — enacted.

To have any effect, though, the president can’t just say he is ready for “tough” decisions. He has to lead with his chin and put a concrete, comprehensive package on the table, encompassing three areas. First, new investments that would combine immediate jobs in infrastructure with some long-term growth-enablers like a massive build-out in the nation’s high-speed broadband capabilities. That would have to be married with a long-term fiscal restructuring, written into law, that slows the growth of both Social Security and Medicare entitlements, along with individual and corporate tax reform. Obama has hinted at his willingness to do all of these. They should be agreed upon in 2013 and phased in gradually, starting in 2014. There are a lot of good bipartisan packages out there to choose from; we just need one that puts us on a trajectory to shrink our ratio of debt to gross domestic product over time. Otherwise, we will have little in reserve to fight the next economic crisis or 9/11 or Hurricane Sandy.

Our choice today is not “austerity” versus “no austerity.” That is a straw man argument offered by both extremes. It’s about whether we phase in — in the least painful way possible — a long-term plan that balances our need to protect the most vulnerable in this generation while funding the most opportunities for the next generation and still creating growth. We can’t protect both generations in full anymore, but we must not sacrifice one for the other — favoring nursing homes over nursery schools — and that’s what we’re on track to do.

A Grand Bargain now, rather than a meat-ax sequester, would offer stability for the long term and maybe even a boost for the short term. “It would give people some reason to redeem their hope in their own economic future,” Curtin said. “It would be such a relief for most consumers to see that the government was actively working as a cohesive unit toward the betterment of the economy.”

After the whipping the GOP took in the election, I believe there is now a group of Republican politicians and CEOs who would meet Obama in the middle if the president showed he was ready to take on some of his base as well. If the president tries, and I am wrong, well, he’ll have a few bad weeks. If I am right and enough Republicans meet Obama on a Grand Bargain, it would both split the GOP between the sane conservatives and the certifiable crazies and give the president a real foundation for a truly significant second term.

Thomas Friedman is a columnist for The New York Times.

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