Responding to the President’s op-ed
12 July
I would like to respond to the President’s Washington Post op-ed, “Rebuilding Something Better.” All quotes in this post are from the President.
Nearly six months ago, my administration took office amid the most severe economic downturn since the Great Depression.
The President and his team use this language to lower the bar against which they are measured. The U.S. economy was quite unhealthy on January 20th, and it still is. Still, Donald Marron shows that, while the President’s statement is almost technically true, there is a big difference between “most severe … since the Great Depression” and “comparable to the Great Depression.” Here is Donald’s graph:
You can see that the recession of the past 19 months is not comparable to the Great Depression.
Nearly six months ago, my administration took office … and many feared that our financial system was on the verge of collapse.
Incorrect. In September-December of 2008, many feared that our financial system was on the verge of collapse. Large financial institutions were failing roughly every other week. By January 20th, we were pretty much out of the woods in avoiding a financial crash. Things were still bad and needed serious long-term repair, but that’s not the same as on the verge of collapse. Had our financial system been on the verge of collapse in January, we (the Bush team) would not have waited to draw down the last $350 B of TARP funding.
The swift and aggressive action we took in those first few months has helped pull our financial system and our economy back from the brink.
The President uses the past tense: “has helped.” Which actions, exactly, have had positive effects so far?
The Administration and the Fed deserve credit for the stress tests, which have encouraged banks to raise private capital. And they have continued the Bush Administration’s efforts to prevent particular too-big-to-fail financial institutions (AIG, Citi, Fannie & Freddie) from imploding.
They successfully followed the path (which President Bush laid in late December) to allow GM and Chrysler to enter and exit bankruptcy, although they did it in a much more heavy-handed way than we had hoped. President Bush’s and President Obama’s actions allowed these firms to avoid immediate liquidation, but it is too soon to call this effort a success.
That’s pretty much it so far:
- The stimulus has not yet had any measurable macroeconomic benefit, although it will, starting a few months from now.
- The much-hyped TARP “Financial Stability” program to buy risky assets (aka “the Public-Private Investment Partnership,” or PPIP) has been dialed back to a fraction of its originally proposed extent. The specifics were announced only last week.
- As of June 17th, CBO could find no evidence that any of the $50 billion allocated for foreclosure mitigation had been spent. (See footnote (d) on page 2.)
- The President’s announced small business loan program does not yet exist.
- The President’s budget would make our fiscal position much worse than current law, necessitating both higher taxes and more debt over the next decade. And, other than the stimulus and a huge appropriations bill, none of it has yet been enacted into law.
- Creeping Congressional and Administration protectionist actions are filling the gap left by Presidential inaction on the free trade agreements with Colombia, South Korea, and Panama.
Aside from the important and apparently successful stress tests for which the Administration and the Fed rightly deserve credit, the most successful and effective actions taken by the Obama Administration in its first six months were the continuation of the TARP capital purchase program and the extension of the auto loans. Both were initiated by President Bush.
I cannot see what else counts as as “swift and aggressive action” that “we [the Obama Administration] took in those first few months” that “has helped pull our financial system and our economy back from the brink.”
The American Recovery and Reinvestment Act was not expected to restore the economy to full health on its own but to provide the boost necessary to stop the free fall. So far, it has done that.
2.6 million fewer Americans are employed now than when the President took office, and the unemployment rate is 9.5% and climbing. Job loss in June was greater than in May. The good scenario is one in which we continue to lose jobs for “only” another six months. Please prove that the stimulus is working. To use the Administration’s misleading metric, how many jobs have been “saved or created” so far?
It was, from the start, a two-year program, and it will steadily save and create jobs as it ramps up over this summer and fall.
Uh-oh. Why are the verbs now in the future tense? And what happened to the specific and oft-repeated prediction of 3.5 million jobs by the end of next year? Those are important language changes, along with the implicit admission that the stimulus has not yet “ramped up.”
This did not have to be a two-year program. Congress could have front-loaded the stimulus had they instead given the cash directly to the American people, as they did on a bipartisan basis in early 2008. We would have saved much of it, paying off our mortgages, student loans, and credit cards (which would not be a bad thing). We would have spent the rest much more quickly than the federal and state government bureaucracies now stumbling through their usual corrupt, slow and inefficient processes. Instead the President handed the money and program design over to a Congress of his own party, who saw it as a big honey pot rather than as an exercise in macroeconomic fiscal policy. The President’s primary macroeconomic policy mistake was allowing Congress to pervert a rapid Keynesian stimulus into a slow-spending interest-based binge.
The President is correct that the stimulus will increase economic growth, mostly next year. That is too late, and later than it could have been had they done it right.
We must let [the stimulus] work the way it’s supposed to, with the understanding that in any recession, unemployment tends to recover more slowly than other measures of economic activity. … There are some who say we must wait to meet our greatest challenges. They favor an incremental approach or believe that doing nothing is somehow an answer.
So the President says we must wait for the stimulus to work, then attacks others who say we must wait “to meet our greatest challenges.”
Who says we must wait? Who favors an incremental approach to our greatest challenges, or believes that doing nothing is somehow an answer? These are straw men. I, for one, want to address these problems, but in a different way. In some cases the solutions being developed by Congress would do more harm than good. This does not need to be a choice between doing something and doing nothing, or between action and inaction. If the majority party would allow the minority to have votes on their policy proposals, this would instead be a debate among different models for reform.
Speaker Pelosi told the President’s team privately that we must not address Social Security reform. Our greatest immediate fiscal challenge is actually the rapid aging of the population, not health costs. This is notably absent from the President’s problem definition. We need to bend the health cost curve down and we need to address more immediate demographic pressures in Social Security, Medicare, and Medicaid. The Speaker says we must wait to address the Social Security challenge. She favors inaction.
To build that [stronger] foundation, we must lower the health-care costs that are driving us into debt, create the jobs of the future within our borders, give our workers the skills and training they need to compete for those jobs, and make the tough choices necessary to bring down our deficit in the long run.
Amen. But …
- The health reform bills being developed by a Democratic Congress would raise private and public health care costs and drive us even deeper into debt.
- Raising energy prices will hurt the economy, not help it. One could argue that the environmental benefit from reducing U.S. carbon emissions is worth it (I would not), but it is invalid to claim that higher energy prices will help our economy.
- CBO says the President’s budget would result in deficits averaging 5.2% over the next decade, and would increase debt held by the public from 52% of GDP this year to 80% by 2019. In the long run, we need to address immediate demographic pressures (which the Administration ignores) and change incentives to bend the long-term health cost curve down (which neither the President nor his Congressional allies have proposed).
- If we do not, then “make the tough choices necessary to bring down our deficit in the long run” just means “raise taxes.”
Already we’re making progress on health-care reform that controls costs while ensuring choice and quality, …
Maybe the President knows about a bill that has not yet been released. Every bill that is public so far would reduce incentives for individuals to consider the costs of the insurance they buy and the medical care they use, and would therefore increase health care costs. These bills bend the private and public sector health cost curves up, not down.
On “ensuring choice,” CBO estimates about 10 million people who under current law would be covered through an employer’s plan would under the Kennedy-Dodd bill not have access to that coverage because some employers would choose not to offer it. This breaks the President’s promise that “If you like your health plan, you will be able to keep your health care plan, period. No one will take it away, no matter what.”
Already we’re making progress on … energy legislation that will make clean energy the profitable kind of energy, leading to whole new industries and jobs that cannot be outsourced.
Yes, but at a cost to the economy as a whole. The House-passed bill would make clean energy profitable by raising the cost of carbon-based energy sources, which hurts economic growth. In addition, American manufacturers will have to pay higher energy prices that it appears their Chinese and Indian competitors will not. This hurts American firms and American workers.
I remain confused as to why the President believes he can claim that jobs in low-carbon energy technologies “cannot be outsourced.” Of course they can. The maintenance jobs cannot be outsourced, but design and manufacturing of clean energy technologies can be done anywhere in the world.
We must continue to clean up the wreckage of this recession, …
Lucky for us we have an economy that self-repairs over time. Economic growth will at some point return, with or without good policy. In the case of the financial sector, the capital purchase program and stress tests are accelerating the pace of recovery. In most all other cases, the President’s policies cannot be demonstrated to be helping. GDP continues to decline, and the anticipated good scenario is one in which job growth does not return until early next year. When you combine these uncomfortable facts with statements like “we misread the economy” and “we had incomplete information,” it is hard to see how the clean-up claim is justified.
After a rough ten days economically and politically, the President is trying to regain his footing and frame the week ahead.
The new jobs data has caused him to back off his specific commitment — there is no longer any mention of 3.5 million jobs by the end of next year. But the primary point of this op-ed is to signal a new message, captured most succinctly here:
[The stimulus] was expected to provide the boost necessary to stop the free fall. So far, it has done that. It was, from the start, a two-year program, and it will steadily save and create jobs as it ramps up over the summer and fall. We must let it work the way it’s supposed to, with the understanding that in any recession, unemployment tends to recover more slowly than other measures of economic activity.
The President’s new message is: No second stimulus. This one will work. Ride it out and be patient.
He’s right that it will help, eventually. If the July employment report due on August 7th returns us to the prior slow but steady recovery path, the President might only have to worry about 6-9 months of economic and political pain. But if the July report shows that the June report is a new downward trend, then policymakers will have a more serious problem to address.
The President’s op-ed is titled “Rebuilding Something Better.” Unfortunately I think there is a roadside construction sign reading “Expect lengthy delays.” Let us hope it doesn’t take too long for the rebuilding to work.
(photo credit: Sewer Construction at Commercial and Broadway I by roland)
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The most potent economic stimulus will come when King Obama is voted out of office. The market will soar and not look back.
Great post, minor quibble:
I remain confused as to why the President believes he can claim that jobs in low-carbon energy technologies “cannot be outsourced.” Of course they can. The maintenance jobs cannot be outsourced, but design and manufacturing of clean energy technologies can be done anywhere in the world.
I’m sure even the maintenance can be outsourced with contract workers.
mark l.:
That’s because most Washington Democrats are DINO’s. See Evan Bayh, Ben Nelson &Blanche Lincoln. Why they are Democrats, I don’t know.
Instead the President handed the money and program design over to a Congress of his own party, who saw it as a big honey pot rather than as an exercise in macroeconomic fiscal policy. The President’s primary macroeconomic policy mistake was allowing Congress to pervert a rapid Keynesian stimulus into a slow-spending interest-based binge.
No, he didn’t. He handed it off to Congress as a whole. If Democrats outside of the Beltway had their way, things would have been done differently. Do you not remember the stimulus being watered down, all just to get three Republicans votes(plus one DINO)?
If we do not, then “make the tough choices necessary to bring down our deficit in the long run” just means “raise taxes.”
We are going to have to raise taxes at some point. Thanks largely to Bush’s out of control spending. And as far as another point you made(or was it a commenter?) about crowding out private spending. There is none right now. Also, wars crowd out private spending that could be used for more productive things but i don’t hear anyone talk about that. Yet, we’ve pee’d away a trillion dollars or more on Iraq.
The President’s Op-ed was clearly political rhetoric, not meant to be substantive. So, why so much attention to detail that isn’t there? The fact is, America is in a debt deflation and current policy approaches are inadequate to fix the problem. See: http://www.debtdeflation.com/blogs/
“. Do you not remember the stimulus being watered down, all just to get three Republicans votes(plus one DINO)”
787 BILLION dollars is “watered down”? Good grief, man, do you have any sense of irony?
“This did not have to be a two-year program.”
There’s a reason why the distribution of funds wasn’t “front-loaded” to truly kick start the economy. What better way to “grease the skids” for Democrats in the 2010 elections than to wait a bit before they start shoveling out any dough?
I hate to rehash, but David said:
>>Reading all of these one-sided comments (ok, I only read the first 10, after which I became bored) makes me wonder: does this blog simply preach to the choir? And if so, what’s the point?
I would reply: I guess he never reads Huffington or Koz. If so, it kinda makes the question look silly.
>>Some of your analysis was well thought out, but much of it is nitpicking. Tell me one thing – does Obama ever say anything that you agree with? Such knee-jerk animosity to every… little… thing the president says hurts your credibility as an analyst.
I would reply: Where were you in the prior 8 years? All I ever read is substantive arguments against POLICY and all I hear is the above silly refrain. Would you like that with a dose of venom and hate? That was the prior 8 years. Now there are arguments about policy and NOT hate, yet people have to put up with THAT as a “thought process.” (Puke.)
>>So what do we, the public, actually gain from reading such one-sided (dare I say mob-like) commentary? Nothing. Seems to me that this blog is just a venue for narcissistic chatter that leads us nowhere constructive.
I would reply: THANK YOU!!! I have not yet heard a better argument against the mainstream press. Brilliant, even if you thought you meant something else!
“has helped” is not past tense. It’s Present Perfect. It does indicate completion though.
This is a hell of a parsing starting with the opening para where he berates the president for something he never said ie. Comparable with the great depression. He correctly said and everyone agrees it’s he worst since. And the financial system wasn’t still on life support in January?, indeed it’s still isn’t on life support to some degree. I’m not detracting from the achievements of Paulson and Bernanke who did great work but to say the crisis was over in January is absurd. At the moment the admn and fed are engaged in cleaning up a hell of a mess that was bequeathed them by the previous admin of which Mr Hennessy was a prominent member and for which he therefore shares some of the responsibility. I’m not an economist although I have an MBA and quite a lot of business experience. I’m not sure if it’s all going to work, there is after all an element of experimentation in all this, but the mix seemed about right to me. Some quick cash to bolster aggregate demand, support for state budgets to reduce layoffs and an infrastructure program gradually unfolding over this year and next. I have to say it’s the sort of nitpicking and frivolous arguments that Mr Hennessy advances that are souring people like myself on the GOP. This is a good faith effort, it makes broad sense although one could no doubt criticise details, and it appears to be working. The last thing we should be doing is changing direction. We have a plan, lets stick to it and if necessary adjust course in the summer of next year. Personally I have absolutely no doubt the economy is going to look a lot better then than it did in January of this year. Not good news for Mr Hennessy perhaps but very likely surely.
John from Greenwich shows that even if the economy isn’t performing as expected, the sound bites have had their desired effect. Forget the graph, Carter handed Reagan inflation, unemployment and interest rates that were much worse than what we have now (well, so far, anyway). I was alive then, and I DO NOT remember people pushing off blame with “we inherited a hell of a mess.” A certain someone just got to work and made things better. The fact that he did it THE OPPOSITE WAY of this bunch has been lost on those who can’t process (and repeat) more than a ten second soundbite.
Soured on the GOP? That just means that the media has been more effective than Pelosi and Reid.
Of course such types have “absolutely no doubt the economy is going to look a lot better then than it did in January of this year” if that is what they are told to think. They even think it is very likely surely!
John from Greenwich, how can you say that the recovery plan is working?
The author is not suggesting that Obama said “comparable to the Great Depression”, however, it is obvious (to me anyway) that making the comparison is meant to imply similarity — otherwise he would have said the more accurate statement “This is the worst economy since the 1957-58 recession”. And given the state of the economy when Obama started this mantra, it would have been accurate to point back to the 1982-83 recession. So, of course Obama means to imply similarity to the Great Depression. Clinton also used this trick in 1992, despite the fact that the 1991 recession was short and mild. Scoring political points often involves deception.
Obama may genuinely not understand the disparity of degree between the two economic downturns. He claims not to notice the difference in degree between his deficits and those of his predecessor — despite the fact that the Obama deficits (so far) are 4 times greater than Bush’s largest. Obama may be incapable of understanding this, since it involves arithmetic and not rhetoric.
I love the way the author calls out Obama on his “straw man” arguments. It is essential for people to point out that Obama can never be trusted to accurately characterize opposing viewpoints — yet this is his favorite trick.
Dear Leader
says
Drink the Kool Aid
It’s just a hoax to turn the USA into a
socialist state
“drink the kool aid “
I don’t understand how “The 13th Apostle” can complain about “Bush’s out of control spending”. The deficits from Bush’s second term would fit comfortably in the hole Obama is digging this year alone. How hard is that to see?
Great Article! Excellent analysis!
You’d think, after six months of Straw Men arguments, and everyone knowing the tired Political Science of the Straw Men argument, Obama would get the message that we are all bored to death of Political Science 101.
One also has to wonder “why” Obama wrote the Op-ed? Opinion Polls falling and damage control? Left the country for a week and his cronies broke ranks? Narcissism? All the above?
Barack Millhouse O’Carternomics/Thug-o-nomics is such an easy target. Milton Friedman would have a field day.
Obama is not an American. That makes him an illegal alien. He should be arrested and sent back to his country of origin.
Is it irony to point out that the Obama Administration has adopted the same spending habits of the “sub primes” who bought things with money they did not have based on speculated, projected future value of the things they bought with the money they didn’t have? I guess that makes China “Fannie Mae/Freddie Mac”…or maybe it makes the Chinese TARP? hmm… No matter how you slice it, this country is in big trouble. The worst is not over.