So the new conventional wisdom seems to be that Obama's presidency is on the road to, not disaster, but failure. He has failed to persuade the country of the merits of his health care reform, and a decline in the polls and a series of setbacks at the ballot box now make it seem likelier than not that the reform will not pass, despite the huge preponderance the Democrats have enjoyed since 2008. He and the Democratic Congress passed a bill usually mis-described as a "stimulus" bill, basically a big-government boondoggle that attempted to micromanage the economy back to health. A year later we're still in the worst recession since World War II, and the public seems to be drawing the reasonable conclusion that the stimulus was a failure. Of course, you can always claim, as Obama apologists must, that we would have been even worse off without the "stimulus," but an argument that depends on a counter-factual claim that something that hasn't happened in decades (an even worse recession) would have happened, is a weak argument. Sometimes an appeal is made to historical analogy with the Great Depression, but the interpretation of the Great Depression which this historical analogy relies on-- the free-market economy spontaneously wrecked itself; Hoover the small-government free-marketeer let it plunge into depression; FDR the interventionist got us out of depression-- is a fantasy. In the real world, the main damage in the 1930s was done by contractionary monetary policy; FDR helped put a floor under the fall with better bank regulation; but the interventionism of both Hoover and Roosevelt consistently made matters worse; and FDR didn't get us out of the depression, though there was a partial recovery from 1933-37 which was erased by a new crash in 1937-38; in fact, employment and GDP remained depressed until WWII. Since fiscal stimulus didn't prevent, or get us out of, depression in the 1930s, the analogy provides no basis for the claim that the absence of fiscal stimulus would have led to depression today. If policy has played a role in the limited recovery or at least stabilization which has occurred at all-- and it is tenable that the economy would have stabilized or even rebounded if politicians had done nothing-- the policies that have helped are (a) the TARP, the initiative by Bush, and Paulsen, that might have saved the banks, and (b) the Fed's expansion of the money supply. (If Scott Sumner is correct that Fed policy has really been contractionary-- I'm inclined to think he is-- then with a better Fed we might have largely avoided this recession altogether; but that has little to do with Obama.)
Voters seem to have concluded that Obama's big-government push is hurting the economy, and they are probably right. A vague agenda of "hope" and "change" may be smart politics (at a time when disillusionment with the Bush legacy was widespread, but the grounds for alienation are various and incompatible, so that only a "blank screen" for people to project their contradictory hopes onto is the only way that the alienated majority could be made into a transient electoral bloc) but it is bad macroeconomic management, because it creates gratuitous uncertainty. It made sense for business to put off investment until they knew whether health care reform would raise the costs of employing people, or whether cap-and-trade would raise the costs of manufacturing stuff. And it would be nice to get some idea how the US plans to close its gaping fiscal deficit, because if it's going to do so by confiscatory taxes on the rich, it doesn't make any sense for the people who are in a position to get the economy moving to work hard and take risks to be, sometime in the future, the rich who pay the confiscatory taxes. Keynesianism has an inherent populist appeal: people need jobs, so the government should go out and make them. It's Bastiat's broken-window fallacy writ large. Some ordinary people, and lots of journalists, have fallen for the "stimulus" fallacy; under the label "jobs bill" a new round of stimulus may get more public support. But it now looks as if the American people have seen through Obama's misguided economic policies and will sharply curtail or overthrow the Democratic majorities in Congress, thus killing most of Obama's agenda politically. Clinton encountered a similar setback and responded by becoming a born-again Eisenhower Republican. But this was easier for Clinton because he had really been a centrist all along. Obama seems to be a genuine man of the left, even perhaps rather far left. He is not a fanatic or a dogmatist-- he is too much of a lightweight for that-- but idealism is part of his character and part of his motive for holding public office. He seems to regard the mere hurly-burly of politics with distaste, even if he engages in it.
So here's my suggestion for how Obama can save his presidency. Forget health care: dropping that would be a good way to signal to the American people that he's listening to them. Forget stimulus: anything he does in the direction of more government spending will just confirm the growing negative image of him. He needs to start with something new. Something that is consistent with liberal right-mindedness, yet which is not a big-government boondoggle. Something that will enable him to make an asset again of his appealing life story, and to translate his personal appeal into a political agenda. Something that has a bipartisan appeal, which he can call on leading Republicans to support, and have a right to expect their cooperation. Something that clearly expands freedom rather than narrows it. Something that can revive the economy. Something that can shore up our long-term fiscal position. Something that is patriotic and in tune with America's deepest traditions. Something that is important enough to shape America for decades, and to justify all the enthusiasm of Obama's supporters in 2008. Something that can expand the base of the Democratic party. Something that can repair America's tarnished image in the world.
That something is immigration reform. It has the merit of being a complete change of subject, of leaving behind the ruins of Obama's first year in office and starting fresh. Obama could hardly be accused of left-wing extremism, for he would be doing something Bush tried to do. Moreover, he could probably count on the support of his old rival, John McCain. If successful, an immigration reform enacted by Obama would probably win the loyalty of many Hispanics to the Democratic Party for years to come. It would revive the economy by buoying housing prices with new demand. It would also fuel investment, as immigrants are disproportionately entrepreneurial. It would be very popular abroad, since its most immediate beneficiaries are foreigners. Its egalitarianism would please liberals, its expansion of freedom would appeal to libertarians and conservatives of conscience. It would be highly fitting for Obama, the first black president, the son of an immigrant himself, to enact it, and it would give him a way to make a virtue out of his habit of talking about himself all the time. To nasty suggestions that immigration will lead to more crime or will somehow debase the culture, he could respond in a personal way by saying that he understood that some people felt threatened by people like himself who looked different and had roots in faraway places, but that he had learned from his own experience how people of all races and all faiths could participate in the American dream. It would be not only relevant but humble, as he could put himslf on a level with the despised "illegal immigrant" of nativist legend, shifty-eyed and criminal and hostile to American culture, and be the incarnate refutation of it. (The appeal would not be very compelling as a logical matter but I think it would work, and anyway he could back it up with plenty of hard facts as needed, as facts are always against the nativists in these disputes.)
I think it would work, even politically. He'd renew vague idealists' support for him. He'd alienate some constituencies, e.g., the unions, but engaging in fights with some parts of his coalition would make him look brave and principled and serious. He'd give his fans abroad a reason to put his halo back on him. He'd give Democrats a reason to hope for their future. The Democrats might still lose in 2010, but after successful cooperation with, or an overreach by, a Republican Congress, voters might look favorably on Obama in 2012. Even if he failed-- in passing immigration reform, or in getting re-elected-- he'd at least seem, in retrospect, a noble figure, rather than an inscrutable fad.