10/19/2012 04:44 pm ET Updated Dec 19, 2012

Strange Times

I'm going to take a break from the election to talk about what happens in the months and years afterwards. Whoever gets elected has some pretty serious stuff (as Joe Biden would put it) to deal with. If my nightmare comes true and it ends up being Mitt Romney, we know the choices he will make, and they will be awful for everyone except for super-wealthy one-percenters like him: voucher-ize, privatize, and slash Medicare; block grant and slash Medicaid; decimate spending on pretty much every program that helps middle- and low-income folks; give the big banks absolute freedom to go and do exactly what crashed the economy in the first place; and give more huge tax cuts to the wealthiest among us. It's not a pretty picture, and will weaken an already struggling economy to a point where it will likely come crashing down again.

Fortunately, according to Nate Silver and a variety of other very smart forecasters, the odds are that the Romney nightmare will not happen, and Obama will get a second term. I'm going to assume for the sake of this blog post (and my own sanity) that this will be the case. In an Obama second term, he will have some serious unfinished business when it comes to the economy. Whether you give him credit for staving off another great depression and giving us job growth for 31 consecutive months, or blame for -- as Bill Clinton put it at the Democratic convention -- not fixing the mess the Republicans made fast enough, there is no doubt that this economy is still in rough shape and that there are huge challenges ahead. The best case scenario is that Europe does not implode, that China's economy doesn't slow down too much and that our recovery continues to gain steam but, even in that scenario, it will be a long time yet before we get to full employment and solve big problems like underwater mortgages, our massive trade deficit and our crumbling infrastructure. The economy is still moving slow, and there are big dangers on the horizon.

The question is what you do about all that. There is a policy component to that set of choices and a political one. There are two options Obama might decide to emphasize in a second term. These two are not automatically mutually exclusive, but the odds are high that only one will truly be chosen and prioritized, whatever the public posture, because the policy mindset that would emphasize one is unlikely to simultaneously emphasize the other. The first is austerity economics and the second is an economics that emphasizes solving our problems by going to the source and confronting the power of wealthy special interests that are dragging down the rest of the economy.

Austerity economics, using the ideas of people like Erskine Bowles and Kent Conrad, means prioritizing deficit cutting first and foremost. It means pursuing the so-called "grand bargain" which would likely involve cutting Social Security, Medicare, Medicaid and numerous other domestic programs in exchange for the Republicans being willing to accept some tax increases on the wealthy. It would mean trying primarily to cut our way out of our deficit hole rather than solving our economic problems by working to create full employment ( the latter strategy, not the former, was the main way Bill Clinton turned deficits into surpluses). Austerity economics has proven to be a massive failure in Europe, as countries like Greece and Spain that have tried it have slowed their economy down so badly they are deeper in a hole than they were before. Austerity economics would bury the middle class and slow down whatever economic recovery might be happening next year.

The other path is to actually take on the wealthy and powerful special interests, especially on Wall Street, that are squeezing the middle class and keeping our economy from growing. It would mean finally forcing the biggest banks to write down underwater mortgages. It would mean forcing those Too Big To Fail banks to open up lines of credit to small business, and keeping them from cheating consumers. And it means finally putting serious legal pressure on those banks so that their executives would stop acting like they could break any law they wanted with impunity.

It would also mean challenging the powers that be in other ways. For example, banks could be given some competition by setting up a public-private infrastructure bank to leverage major amounts of new money for infrastructure projects. The tax code could be changed so that the big traders on Wall Street were taxed on every transaction they did, and so that capital gains, carried interest and dividends (the main loopholes for the wealthy, all of which Romney does not want to tax) were taxed at higher rates. The antitrust division at the Department of Justice could start enforcing the law against the TBTF banks.

Along with taking on Wall Street, a shared prosperity agenda such as the one written by Jacob Hacker and Nate Loewentheil, rather than the job-sucking austerity agenda pursued by people like Bowles and Kent Conrad, could be the centerpiece of an Obama second term. The contrast could not be more stark between these ideas: shared prosperity and taking on Wall Street would get us out of our economic doldrums and revive America's middle class, whereas the Bowles-Conrad agenda would destroy jobs and cut much needed benefits for the elderly, students and the poor.

Washington is rumbling with rumors of frightening grand bargains and austerity economics and, even while trying to fight off the Romney nightmare victory, progressives are mobilizing to stop austerity economics. But there is also some good news: there finally seems to be some momentum building around taking on the banks. Three lawsuits have been filed by government officials in recent weeks against the biggest banks, two against JPMorgan Chase and one against Wells Fargo, and Eric Schneiderman (who filed the first case against Morgan Chase) says there are more cases in the pipeline. If momentum starts to build, through these cases and other initiatives, around an agenda to get tough on Wall Street, the ripple effects in a variety of different areas of public policy could be significant.

These are the two directions a second Obama term could go. Conventional wisdom and D.C. elite opinion say Obama will turn around immediately after an election where Obama was carried to victory by his base giving their all to help him win, and screw his base to the wall by endorsing austerity economics and a grand bargain that looks a lot more like a grand swindle to the middle class. That kind of betrayal right after we helped Obama win would be bitter, and I hope Obama will see the foolishness of creating such a massive civil war within his party right after the election. But progressives need to be ready to fight that kind of scenario with everything in their power, and work for the alternative idea -- a set of economic policies that takes on the powers that be on Wall Street so that the middle class can flourish again.

I am deeply aware of the irony of talking about taking Obama on in a big fight right after an election battle where I am so strongly supporting his reelection. Welcome to politics in 2012. But I have no doubt about the wisdom of either battle. I am firmly convinced that Romney-Ryan's economic policies would be a complete disaster, far worse than even the grand bargain spelled out in Bowles-Simpson, which at least taxes the wealthy and mostly keeps Medicare and Medicaid structurally intact. More importantly, I think progressives in a second Obama term at least have a decent chance at blowing up a grand bargain, whereas our chances of stopping the horror show that is the Romney-Ryan budget in a Republican congress are slim to none. Progressives have to simultaneously fight for Obama to win reelection, and be prepared to do everything in our power to stop him if turns his back on us afterwards. We live in strange times.