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Sunday, June 7, 2009

The Political Minefields of the Economic Recovery

Jobs numbers came in much better than expected on Friday. The economy lost only 345,000 jobs while the consensus estimate was 520,000. Furthermore, this was the fourth straight month in which the economy lost fewer jobs. With other economic indicators also pointing better one could make the argument that the economic recovery is near if not already here. So, why are Republicans criticizing the stimulus?

Republicans launched a political offensive against President Barack Obama's handling of the economy after weeks of reticence, emboldened by Friday's report of a surging unemployment rate.

Political strategists have been pushing GOP lawmakers to attack Mr. Obama's $787 billion stimulus plan and to challenge how the Democratic Congress has handled everything from taxes to unions to energy policy. At the same time, Republicans have worried such attacks would backfire in the event of a recovery.

With Friday's report that the unemployment rate had jumped to 9.4%, the highest monthly reading since September 1983, Republicans put aside those qualms.

Rep. Dave Camp (R., Mich.), the senior Republican on the House Ways and Means Committee, declared the stimulus plan a failure. House Minority Leader John Boehner (R., Ohio) proclaimed, "Washington is hanging middle-class Americans out to dry."

It seems awfully early for opponents to declare the stimulus a failure. Given that the economic numbers were positive, it seems an awfully peculiar time to do it. Imagine the economy stops losing jobs by this time next year and is gaining jobs by election time. How will early criticism look in such a scenario?

Of course, the Republicans aren't the only ones facing potential pitfalls for their early predictions on the economy. So far, about $55 billion of the $787 billion has actually been spent. That hasn't stopped the White House from taking credit for the recovery.

President Barack Obama on Wednesday hailed solar energy as a cost saver for a major Air Force base, one stop on a Western trip devoted to raising political money and promoting his economic policies.

Mr. Obama's aides had mocked reporters for making a fuss over his first 100 days in office, but the president was eager to assess the first 100 days of his $787 billion economic-stimulus package.

It has "saved or created nearly 150,000 jobs," he said, including "jobs building solar panels and wind turbines; making homes and buildings more energy-efficient."

Economists and political pundits have both questioned the President's assertion that he has created or saved any jobs. That's because there's absolutely no way to measure this number. It hasn't, however, stopped the president from taking credit for this creation.

There are other pitfalls for the president. In trying to sell the stimulus, the president proclaimed the economy would top 9% unemployment without it. Now, unemployment is at 9.4% and rising even with the stimulus. So far the economy has lost over 6 million jobs since December of 2007 and well over a million jobs since the stimulus passed. So, that 150,000 figure will fly in the face of the massive job losses that we've had and will still soon have.

The reality is that no one knows where the economy will go from here. Furthermore, no one can know for sure what will help or hurt the economy going forward for sure either. At the same time the president has been trying to stimulate the economy with his spending package, the Fed has been stimulating the economy with quantitative easing. Furthermore, economies go through natural cycles and so there will at some point be a recovery naturally.

So, we have a very complicated situation. There are pitfalls for both sides. For Republicans, they risk criticizing the stimulus too early and then having the economy turn around. For the president, he risks looking like a Pollyanna, someone that is unreasonably or illogically optimistic about the economy. Just imagine if we are still mired in the economic recession this time next year and we are still losing jobs by the election of November 2010. How will the president's early positive prnouncements look then?

The problem is that we dealing with a purely economic problem, and yet, we have politicians trying to use it to their advantage. We can tell what has happened to an economy but we can rarely pin point exactly what. It's even more difficult to pin point who or what is responsible. Yet, politicians have elections, some every two years. They don't have time figure out why something happened. They only have time to take credit for postive economic news and blame their opponents for the negative. Such politics in the face of uncertainty is always filled with political minefields.


Anonymous said...

I think we can safely call it a failure. No one, including stimulus "czar" Joe Biden, can tell anyone how much money has been spent this far, but most economists and pundits agree that less than 10% of the approximately $800B has been spent.

So here's the connundrum. If the economy is beginning to recover with so small a percentage of the stimulus being actually spent, one can only say that the package was excessive and much of it should be cancelled immediately.

On the other hand, if the economy is still tanking, the stimulus has been poorly designed to provide an immediate thrust to the economy.

How will the Obama spin this?

Anonymous said...

A loss of 345,000 jobs is considered a success by today's Obama lackies. In the recession of 2001-02 and 1990-91 NOT A SINGLE MONTH RECORDED AS BAD A JOB LOSS AS 345,000. Read that again!!!! May was worse than any month in the past two recessions and we have lackies proclaiming an end to the recession.

mike volpe said...

I think both commentors forget that Obama walked into a massive loss of jobs. The American people aren't blaming Obama yet, and they are right. There's no way that anyone can reasonably say that job losses are Obama's fault yet. At least not with a straight face.

Like I said, this is all very complicated and you all are simplifying it well beyond what it is worth.

Anonymous said...

"saved or created nearly 150,000 jobs,

Please VERIFY this! I call B.S.. What jobs were saved?

How was the economy before the 2006 elections?

Don Meaker said...

The Obama model is FDR, who kept the unemployment rate high until 1939, but always blamed it on Hoover. Of course his National Recovery Administration (NRA)policies of pouring milk down drains, paying farmers not to grow crops didn't have anything to do with the unemployment. Black sharecroppers had to move to northern cities or watch their children starve. The rest of the world recovered, but not the US.

Anonymous said...

It is infuriating and irresponsible that pols and press alike treat the economy as if it responds equally well to two different theories of what to do.
We do not live in a theoretical bubble. We have a lot of data now on what works and what does not. The media should put an end to this charade and demand policies based on experience.
The idea that we should withhold judgment is an insulr to us all. How long am I espected to wait, if I find a robber in my home?