THE BLOG
02/01/2013 05:49 pm ET | Updated Apr 03, 2013

The American Economy: What Obama Needs to Tell the People

In the wake of the latest economic and job reports, the usual politics of gloom and doom has begun. Pundits are weighing in with different analyses of what is really happening, with opinions ranging from "it's complicated but it will be okay" to "the sky is falling". Of the two, the first is probably more accurate, but you would not know it from the rhetoric of our leaders.

From the Republican perspective, the economy is tanking just as they had predicted it would - not because it really is but because they need to derail President Obama's second term. The Democratic response to this is also pretty weak, since they are afraid of over-promising and under-delivering.

As a result, one crucial fact is being ignored, which is that the American economy is recovering in exactly the way that a patient who has suffered severe trauma is expected to recover, i.e. slowly, meanderingly, and a little painfully.

After the financial crisis of 2008, the United States was basically crippled, and rising back up from that position could not happen overnight, or even in a short span of a few years. When an economy suffers the type of shock ours did back then, it goes into a tailspin where different elements like unemployment, consumer spending, tax revenues, budget deficits, and inflation all interplay destructively with each other in a vicious cycle of economic ruin. That is the volatile situation that President Obama inherited and which he has fought hard to stabilize for the past four years.

Considering the daunting scale of the problem, we have done pretty well. The American economy has moved past paralyzing contractions to very modest, but real, growth, unemployment has generally gone down (even if it ticked up by one-tenth of a percent last month), more jobs were added last year than initially expected, and consumer spending is also likely to increase in the coming months, albeit slowly. These are all vital signs that determine the patient's health, and they are all moving in the right direction. Sure, there will be natural disasters, private sector mismanagement, and other unexpected events which will cause blips in these vital signs every few months, but that is hardly a reason to call for the undertaker. To put it simply, as long as the pulse is still beating, we are ahead of the game.

President Obama needs to communicate this to the American people more forcefully, not just to win political points but because it is the truth and because the biggest threats to our economy now are uncertainty and fear. The fiscal cliff debacle and the sequel that is coming up are bad enough but if our own government does not move aggressively to show the positive side of the story, then economic failure will become a self-fulfilling prophecy.

On the issue of the fiscal cliff itself, much is being made about the Social Security tax increase, the tiny increase in unemployment, and the looming spending cuts, but all these are those non-life-threatening blips that I am talking about. Why?

Let's start with the tax increase. Social Security is a program that affords millions of Americans the safety that they crave in their older years, including for many within the next few years. It is also a program that enables Americans to take risks, to start small businesses, to help our grow our economy, with the knowledge that there will be a floor beneath them even if they fail. Those taxes are not levies on the people but an insurance premium for their future; and as for the real taxes, President Obama has already secured the Bush tax cuts for the middle class for 2013.

Next is unemployment. The number of jobs in America is growing steadily (30% more jobs were added in the past three months than in the prior three months), and while the unemployment rate of 7.9% is still high, that problem will gradually resolve itself as additional hiring leads to more consumption and further expansion of businesses. The problem here is not the trend but the timing. Employment and consumer spending are simply partners in a slow dance that by its very nature cannot be speeded up any more. The dance must be allowed to unfold in its own natural rhythm, which it is currently doing. Economists expect 2013 to end with a considerably lower 7.5% unemployment rate.

Finally, the spending cuts due to hit again in less than a month through the sequester. These are of concern but not as much as they were at the end of last year, when House Republicans were still busy playing chicken with the Mack Truck of public opinion. Since that time, the GOP has come (very reluctantly) to the realization that it cannot jeopardize our economic future for the sake of politics - or at least not while everyone is watching. That is good news, for my prediction is that the Republicans will have no choice but to be less intransigent in their negotiations with the president this time around.

In fact, the deficit notwithstanding, no politician in their right mind would even consider hacking government spending too deeply in the wake of an economic report that shows a recovery still in process, and in an environment where voters want financial stability more than anything else.

Once again though, it is up to President Obama to take the lead and make the American public aware of all this. Our nation is in a hopeful but tricky place right now and which way we go will depend as much on our confidence in ourselves as in any statistics. As any smart doctor will tell you, a patient's recovery depends at least as much on their state of mind as it does on physical factors, and our state of mind needs to be unwaveringly positive for it to aid our recovery. We need to grasp that we were the victims of a horrific accident and despite that we are not only still standing but starting to walk again too. Running, however, will take some more time.

The president should tell us just that, more loudly than before and more often than before, so that the voices of gloom and doom do not prevail.

SANJAY SANGHOEE has worked at leading investment banks Lazard Freres and Dresdner Kleinwort Wasserstein as well as at a multi-billion dollar hedge fund. He has an MBA from Columbia Business School and is the author of two financial thrillers, including "Merger" which Chicago Tribune called "Timely, Gripping, and Original". Please visit his Facebook page "Candid Politics & Business Blogs" for more information.