The White House didn’t count on a summer swoon. Then again, it has suffered bouts of premature and unfounded economic optimism before, a malady that has led it to make a number of losing bets and faulty assumptions—which, in turn, have created an even worse environment for growth and jobs. Among them:
– High unemployment is a psychological anomaly. Republicans love to mock the now-infamous chart prepared by administration economists that showed the $862 billion stimulus would prevent unemployment from hitting even 8 percent. But the White House has continued to be overly hopeful about jobs. Here’s why.
Obama advisers noticed that the Great Recession seemed to be violating an economic rule of thumb called Okun’s Law (named after JFK adviser Arthur Okun), which describes the relationship between economic growth and unemployment. As bad as the recession was, unemployment shouldn’t have risen to 10.1 percent, according to Okun. Maybe just 9 percent or so. The administration’s explanation for the overshoot: Panicky businesses shed workers willy-nilly because they feared another Great Depression.
But now with the worst behind and the economy growing again, there should have been a “catch-up” phase during 2010 when job growth would far exceed GDP growth. (That, even though there’s no historical precedent for such an Okun mean reversion.) Yet revised GDP numbers show that the statistical fit between unemployment and growth has actually been much tighter than Team Obama first calculated. Unemployment rose so much simply because the downturn was deeper than preliminary numbers showed. Without much stronger growth, unemployment will stay high.
– America has economic immunity. The White House is no fan of the idea that the U.S. economy has entered a stagnant economic state, what Pimco bond guru Bill Gross has labeled the “New Normal.” It describes a situation where debt overhang after a financial meltdown forces consumers and businesses to retrench for years. The result is a lengthy period of slow economic growth, high unemployment, and big budget deficits.
There’s plenty of academic research to back Gross up. The economists Kenneth Rogoff of Harvard and Carmen Reinhart of the University of Maryland have found that the aftermath of bank crises in places like Scandinavia and Japan is usually marked by “deep and lasting effects on asset prices, output, and employment.” Similarly, the Cleveland Federal Reserve Bank concluded that such banking events cause “negative long-term effects on the economy, such as slow growth, high interest rates, and lower living standards.”
Sound familiar? Now even though all this seems to pretty accurately describe what America is currently going through, Team Obama has been continually dismissive of such scenarios. They argue the U.S economy is so big and unique—it possesses the world’s reserve currency, for instance—that international comparisons are misleading at best, useless at worst. As the saying goes, it can’t happen here.
– Ben Bernanke’s got our backs. During the 2000 presidential campaign, Senator John McCain joked that if former Federal Reserve chairman Alan Greenspan died, it would be wise to prop up his corpse and keep him on the job, like the title character in the movie Weekend at Bernie’s. Few observers hold Fed chairmen or the central bank in such high esteem these days. But the White House apparently does. After passing a giant stimulus in 2009, the administration pivoted to “the agenda”—health care, financial reform, cap and trade. Jobs and the economy? Certainly the combination of higher government spending and oodles of monetary stimulus from Ben Bernanke & Co. would be enough to spur a return to growth.
Yet the deluge of Fed money seems to be sitting on the sidelines. As economist David Gitlitz of High View Economics points out, interbank lending, a major funding source for consumer and business loans, has shrunk from nearly $500 billion to less than $175 billion since the fourth quarter of 2008. The Fed’s low interest rate policy is great for bank profits—institutions are able to get a decent return by borrowing cheap and plowing the money into government debt—but that has done little to boost lending to job creators or the rest of the economy.
[…]
To some degree, the tendency of the Obama White House to “slide down the slope of hope” is understandable. A New Normal scenario, for instance, looks like an economic recipe for a one-term presidency. Easier to dismiss it than seriously consider and perhaps accept it. And relying on both the Fed and its own onetime, trillion-dollar dose of fiscal steroids to restore prosperity—set it and forget it—freed the administration to spend its remaining political capital on passing its domestic policy wish list.
But the results of that policy positivism have been gloomy and seem unlikely to brighten. A recent analysis by the San Francisco Fed of forward-looking economic indicators finds that “the macroeconomic outlook is likely to deteriorate progressively starting sometime next summer, even if the data suggest that a renewed recession is unlikely over the next several months.” The job market is also full of worrisome signs. The extended period of high unemployment may be turning from cyclical to structural, where there are not enough qualified and employable applicants for new job openings. If that happens, even higher economic growth may do little to lower unemployment.
Of course, the administration could dramatically change course and join with a more Republican Congress next year to both lower the long-term debt outlook and boost the economy by slashing taxes on capital and corporations (which mostly passes through to workers). But don’t bet on it.
Oh, I won’t. This Administration is long on hope and short on change.
Yes you did!
Obama is to economics as fish are to bicycles.
Obama’s a little too busy trying to convince Muslims that New York is the new Constantinople. Please give him a break.
this is nothing if not a clue about the scope Meghan’s deeply useless daddy’s ambitions
the scope *of* I mean
When will the MFM start addressing “Recovery Summer” ?
The MFM MIGHT start addressing “Recovery Summer” once the big media companies start another round of lareg-scale layoffs.
Nothing focuses the mind like a serious threat to one’s own livelyhood.
Then again, since most of the media is so deeply engaged in fellating their Boy-King on a daily basis, it might take them a while to realize that they have been canned.
Istanbul was Constantinople?
And that has to do with the topic in what way, exactly?
It never occurs to the elites that a rational person observes the government’s willingness and ability to ex post facto modify contractual obligations of favored parties, issue edicts shutting down entire economic sectors; generate multi-thousand-page laws that no one, including the people who wrote them, understands; knowing that the “Bush tax cuts” will expire at the end of this calendar year and Congress has shown no indication that it will extend them for more than perhaps a year…
With all of that going on, there is just too much downside risk that the government will tax or regulate away the profitability of contemplated investment. And the more the government does to try to “stimulate” things, the more businessmen are convinced that it isn’t worth the risk to build that new factory, buy that new equipment, hire those new workers.
The only thing that a goverment can do to “help” the economy is to provide a stable set of rules under which businessmen can make long-range plans. The big knock on US corporations has always been the focus on the current quarter’s profits, and no long-term plans like those inscrutable Chinese do so well. But how can anyone make a plan past next payday when you might suddenly find yourself summoned to a Congressional subcommittee to plead for mercy against the Inquisitors?
QE II. Coming soon to a depression near you.
Obama wants to be like the common people.
JD, see comment #2.
I’m no student of economics by any means, but isn’t the economic theory proggs believe in basically the same as perpetual motion?
businesses were rehiring at an increasing pace thru much of 2009 then the Health Care bill was debated and passed … bang … hiring immediately slowed and the downward trend of job losses stopped and may very well be turing back up …
this 2010 slowdown had nothing to do with “the depth of the recession” since we were already out of those depths …
I am not sure they are doing this intentionally, I suspect the Administration is just really perplexed why the economy is not turning around and if they just spend a few more bucks and give it a little more time things will improve.
But it could be they are doing this intentionally too. I would not put that past them.
This would be the “good and hard” part, folks…
Stimului Spending and Brother In Laws.
Just a coincidence. Move along. Nothing to see.
It never occurs to the elites…
Boy, couldn’t that phrase launch a thousand paragraphs.
Mr. Monster that was very well said
Seconded, ‘feets.
Funny how Al Gore and the greeners are such fans of stable weather and climate models that allow ecosystems to flurish and how any disruption is always man made and always negative.
Okay.
Yet when it comes to a stable predictable business climate and ecosystems (because yes, a business ecosytem is complex nonlinear system similar to a natural one), then these same individuals immediately turn into the Once-ler in the Lorax, and completely miss the irony of what they are doing to
the Truffula treesbusiness and the economy.I do not expect change because that would mean that the administration would have to abandon its worldview. And that means they would have to say they were wrong. And for the best and the brightest to admit that, and therefore admit the conservative hickabilly morons were right would damn near kill them.
Joe, I’ve noticed that same irony myself. I call these people “Social Creationists”, because of their belief that social order must be created by an omnipotent power, and can’t arise spontaneously out of chaos by natural selection (and because they call us “Social Darwinists”.)
We were never out of the depths of the recession unless you believe that these worked:
1. Auto bailouts
2. Cash for clunkers
3. Housing bailouts
4. Delaying foreclosures
5. TARP
None of those things *can* work. They just cause skew. Also, the second wave of ARM resets (only barely behind the resets in May 2008 that sparked the Bear-Stearns and Lehman Crises) was in May/June of 2010. Personal debt is insanely high, business development has been unsustainable (tracking housing development and projected consumer spending, not actual demand), and GDP has grown through a combination of government spending, inflation, and cratering import demand.
So, no, we weren’t in recovery in summer 2009 before health care. We were simply awaiting the next wave of catastrophe.
Not that health care or any of this meddling has helped. It has and will make it worse. But it’s not like Obama *created* the problem. The problem was still big and looming.
Don’t forget Social Justice™, gents.
Surely the tribe that demands the wholly scientific exposition of The Grand Unifying Theory of Darwinian Secular Humanism as the semi-official religion of State can’t be bothered to observe that their unending machinations in social leveling are kinda dicking up the human food chain beyond all recognition.
Because out out the savanna, the circle of life revolves around protecting the weakest.
Imagine yourself a savvy investor in the fall of 2007. The only real open questions for next year’s election is whether it’ll be Barack or Hillary, and if the Dems will get to 60 in the Senate. It is very clear 2008 will be a Dem sweep, and so you ask yourself – What will happen when the left wing of the Democratic Party controls everything – and even as you are phrasing the question you stop lending money and re-evaluate your American exposure. Because the answer is exactly what the Dems have done – spend, borrow, tax, champion unions, demonize business, and spread massive amounts of fear, uncertainty, and doubt into the market.
Barack Obama did not inherit a bad economy – the economy saw him coming and yakked.
yaks are good for their carry-ing ability
yakety yak/ and don’t talk back
#13 – It’s worse than that. As we showed on a previous thread, the Lefturds believe in “cold fusion”.
– They imagine that the system can produce more than it takes in, with no discernible source of wealth, since they’ve systematically killed the only thing that does, free enterprise and the private sector.
– The Financial group is not going to lift a finger until the cockroach left is out of power and they see some concrete signs of a return to fiscal sanity, period.
– The gov is just wasting tax-payers money on all these “studies”. Things are not going to change until those conditions are met.
“Never let a good crises go to waste.” goes both ways. Lets make sure this economic crises disposes the despot.
I’d be sitting back and cheering the ongoing debacle, waiting for the outcome with enthusiasm, were it not for the innocents being ruined by this admin.
Fracking pity there’s no way to protect them.
– Yes its a shame irongrampa, and no, unfortunately we can’t.
– This is the worst part of the Socialist free lunch Utopian dream, and why it should be eradicated at the slightest sign of it rearing its ugly murderous head.
– Again, unfortunately, the Marxist bastards know well that every new generation of young angry turks is ripe for the picking, just dying to find a free ticket and play the “pleasure Island” game.
– And they fall for it every damn time.
– “!00 million dead, and 100+ years of failure proves nothing!…Rejoice in the new order Komrads…Utopia is just around the next revolutionary bend!”
(thie message is brought to you by Laika, the space dog, beaming trVth to the masses since 1957)
Pass the bong and Hakuna Matata! Of course if your economy consists of nothing more than rooting up grubs and earthworms, that might be true.
I’ll be at the lake.
Charles Darwin’s ghost is here and it wants to kick your ass. I told it you were being sarcastic but…
Snapping turtles ….
“Let’s reach for hope.”
“His vacation awaits”? That can be said every week, even when he is on vacation another awaits, quivering in anticipation.
I don’t like the idea of quivering in anticipation.
I liked the image.
The bottom line is Obama is driving us to depression and even with the printing presses running wild we have close to zero interest rates. Devaluation is almost assured. On the other hand there have been massive investments of raw materials and gold buying, but this only underlines the rush to exit paper money. I pity the young and stupid who voted for Presidente Zero.