Republicans are winning the war of political rhetoric. Here's how the president needs to fight back.

The sense of hope that swept in with President Obama has been supplanted by existential doubt: Can the nation ever address its critical structural crises in health care, financial services, energy, and education?

Governmental gridlock has frozen us while many of our competitors—most notably the BRIC nations—eat our lunch. The notion is gaining traction that our system of government cannot confront tough issues and that other, more autocratic nations will be better-suited to the nimble shifts in policy that are needed to maintain a competitive position in the world. As Tom Friedman has said, "We need to be China for a day." Who's to blame for this mess? One theory that has some merit and current appeal is that legislatures—which by their very nature and structure are designed to protect the status quo—are responsible. Legislators get re-elected in their gerrymandered districts by appealing to the current establishment. Transformative policies do not have a broad enough base of appeal to sweep away local ossifying forces.

While it is true that legislatures generally are quicksand to transformative ideas, it is now also the case that within the Congress, the Republican Party has become the party of nihilistic opposition to any proposal for reform. The GOP does this partly by smartly exploiting the rules of the Senate but mostly by being much better at telling stories, narratives that through their simplicity appeal to the public.

Their principle narrative—the small-business owner creating jobs, government as interfering, destructive force—has dominated the past 30 years. After the economic cataclysm of the last two years, you might think that selling this narrative would have gotten tougher. But somehow the Republicans are still the masters at telling a story that grips the public psyche.

Exhibit one is health care reform, which fell prey to stories of "death panels" and demands by Medicare recipients to "get government out of my health care." The Republicans successfully exploited the public's disdain for government—even though it is government itself that is providing the Medicare they so prize.

Nobody is better at the use and mastery of this language than Frank Luntz, who helped script the demise of health care and has now told Republicans how to end financial services reform. Luntz has a new memo—"The Language of Financial Reform" (scroll down to see a PDF of the full memo text)—to manage the death-paneling of financial reform. In the memo, Luntz is effectively advising them how to use language of change and reform while stymieing every meaningful structural shift.

The clear political imperative of the memo is simultaneously to appear to be empathetic to the victims of the economic crisis and pro-reform while fundamentally opposing any change that might harm major financial institutions seeking Republican support. The political strategy is to turn government bureaucrats and low-income borrowers into the blameworthy parties.

Luntz's advice and language are simple: focus on what he calls "words that work." "Bad decisions and harmful policies by Washington bureaucrats" created the crisis; "Taxpayer bailouts reward bad behavior." "We don't need another federal government agency." "The architects of failure are now designing the rescue." "[T]he Financial Reform Bill and the creation of the CFPA makes it harder to be a small-business owner …"

In the face of this language, Democratic support for the critical elements of reform—implementation of the Volcker Rule, creation of a specific consumer protection agency, overhaul of the market for derivatives, and establishment of appropriate capital and leverage ratios—is crumbling.

There is a strong temptation for Democrats to sulk about the distortions of the other side and crawl off in self-pity at the public's failure to grasp the critical arguments we are making. That would be useless, but all too typical.