So why should we listen to what macroeconomists say? Some economists think that often we shouldn't. Russell Roberts, a scholar at George Mason University and the Hoover Institution, told me, "I think some of macro is useful -- what causes inflation, for example. I just don't believe we're very good at testing theories at the macro level in a convincing way." Many times, he says, all macroeconomists can do is concoct stories that explain events after the fact.
Macroeconomics is great for academia, but in politics, it can be twisted for just about any purpose. As such, unless unemployment is either 15% or 4%, it's likely both sides will compete to claim that the current state of the economy proves that they were right. In other words, the winner in November 2010 will be the one that is able to frame the current economic picture to their side.
In this case, the Republicans have a story to tell and they must start telling it now. The story starts in mid February when the stimulus passed. The stimulus passed despite only being revealed on Thursday evening and voted on the next day at noon. We were told that time was of the essence and we couldn't wait to have the politicians read the bill. As such, this behemoth, more than one thousand pages, was passed with no one actually reading what was in the bill.
Now, we are four months removed from passage of the bill. We were promised that unemployment would get to 9% with the stimulus and it's 9.4% and climbing. We were promised that the bill needed to pass right away because the money needed to be filtered into the economy right away. Yet, so far, the stimulus has only spent $55 billion of the $787 billion.
At the same time, our deficit will balloon from about $500 billion when Obama took over to nearly $2 trillion at the end of his first year in office. Meanwhile, our government now has significant stakes in GM, Chrysler, GMAC, Bank of America, Citigroup, AIG, and now it wants to take over health care.
For all of this, all the president can show is that his policies have "saved or created" 150,000 jobs so far, with supposedly another 600,000 on the way through the end of the summer. During this same period, we have already lost 1.6 million jobs, and we'll likely lose near another million by the end of the summer.
Our massive new deficit burden is not without consequences. This money doesn't just magically appear. It is borrowed, and this has consequences. We see this with the ten year U.S. Treasury bond now increasing by nearly 100% in its rate. At the same time, the Federal Reserve has been furiously buying up treasury bonds in an attempt to artificially keep rates low and increase the money supply through a process known as quantitative easing. In other words, one part of the government is engaged in massive amounts of borrowing from another part of the government.
So, what we have is a dangerous combination. We have a government totally out of control and totally ineffectual. That is the story the Republicans need to tell, and they must put the fear of god into the citizens.
There is already indications that all of these things are of great concerns to voters. Rasmussen finds that strong majorities are concerned about the level of government spending. It even finds a plurality that wants the stimulus repealed. Obama continues to be personally popular but his economic policies are eroding quickly.
The story here is rather simple. The president imposed a massive new government spending bill on the people. He and his allies stopped all debate, forced it down everyone's throat, and they did this under the guise that it must be done quickly. Yet, we find out that it has not only been largely unsuccessful but largely unspent. Yet, all of this has ballooned our deficit to unsustainable levels, and this has put pressure on interest rates, inflation, and weakening the dollar. In conclusion, our economy simply can't survive another two years of these policies. That's the story that needs to be told in the next election.