Facing a minority in the House and a razor-thin majority in the Senate (pending tonight's results, etc, etc), the White House will have a small menu of options to get the economy rolling.
1. Fight for Spending. The president can take the fight to the fresh GOP House majority and wage a war for more spending on projects like an infrastructure bank or more state bailout. In a struggling economy, the sight of a president railing against Republicans who refuse to act could win support for the White House. But it would be for a losing cause. If Democrats couldn't pass spending bills with big majorities in both houses, it's inconceivable that the White House will win those wars with fresh Tea Party blood coursing through Congress.
2. Compromise on Tax Cuts. The president can rededicate himself to bipartisanship, and offer to work with Republicans on tax cuts. Options here include short-term small-ball bills like business credits, short-term stimulus like payroll tax relief, and long-term reform through the corporate tax code.
But the relationship between the White House and House Republicans will be colored by the two months after the midterm election -- the so-called "lame duck" session -- where Congress will have to take up a smorgasbord of tax issues, from the Bush tax cuts, to the estate tax, to the Alternative Minimum Tax, to key tax incentives like the solar tax credit. It's inconceivable that Congress could fail to act, thereby hitting Americans with a big and lasting tax hike starting in January, but it's hard to say what kind of tax law we'll have in 2011.
3. Get Creative. As Noam Scheiber points out, the president has some options that don't involve fighting, spending, compromising, or taxing. He can launch a "massive, unilateral homeowner bailout" by writing down mortgages held by Fannie Mae and Freddie Mac (which are backed by the federal government). This isn't technically spending or tax cuts (as such, it sidesteps congressional approval) but it performs the same role. The Treasury loses money, say $1 trillion, on eaten mortgages, which reduces homeowners' debt burden and frees up money to spend on goods. Here's the problem: A $1 trillion one-time homeowner bailout is a remarkable giveaway to the affected homeowners, but it doesn't do much of anything for the millions of Americans who are struggling and don't own a home. Since the "best" stimulus is cash sent to the cash-needy, many of whom aren't homeowners, this probably wouldn't be the best use of $1 trillion, even if it is unilateral.