December 27, 2008

Obama’s Race Against the Economy

Note: This column was posted here at Pajamas Media on Thursday. Also: Other somewhat related thoughts are at this BizzyBlog post yesterday.
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If the economy begins visibly recovering, a massive “stimulus” package might not be needed. Democrats consider that a bad thing.

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In early December 2000, in the midst of the post-presidential election Florida controversy, Vice President-to-be Dick Cheney told “Meet the Press” that “we may well be on the front edge of a recession here.”

In March 2001, President Bush said that “You know better than me that our economy is slowing down.”

In hindsight, Cheney was understating the situation, and Bush was correct. Third quarter 2000 growth, originally pegged at 2.7% just before the election came in after all subsequent revisions, at -0.5% — i.e., it wasn’t growth at all. (Homework for historians: How did that happen?) In fact, independent monthly gross domestic product (GDP) estimates by Macroeconomic Advisers show that the economy contracted in both November and December of that year (scroll down to near the bottom at the link), and that it hit additional troughs in March and September of 2001.

But at the time, Democrats and the media (but I repeat myself) ripped into Cheney’s and Bush’s respective “may be” and “slowing down” remarks, claiming that they were “talking down the economy.”

If so, then what are we to make of the much more downbeat yet more certain remarks by Barack Obama and Joe Biden on December 19?

At a news conference, the president-elect, who told an Oregon audience in May that “I’ve been in 57 states, (with) I think one left to go,” contended that an economic recovery “will take longer than any of us would like — years, not months. It will get worse before it gets better.” Biden, on the verge of becoming the first vice president in US history who can’t count to four, said that “The economy is in much worse shape than we thought it was in,” and expressed fears that it is close to “absolutely tanking.”

These mostly unqualified assertions made by the math-challenged incoming pair were far stronger than those made by Bush and Cheney eight years ago. Yet we can “count” on two things: Old Media won’t accuse them of negatively influencing the economy, and cowed Republicans will barely object. Of course, new administrations tend to lower expectations a bit in advance of taking power, but Obama’s and Biden’s statements were unusually sweeping.

There’s a reason for that. The economy just might be recovering. That would be really, really bad news for their ambitions.

Let me be clear: Fourth quarter GDP growth will be negative, perhaps deeply so. What Nancy Pelosi, Obama, and Harry Reid — the architects of what I have been calling the POR (Pelosi-Obama-Reid) Economy — did during the final five months of the presidential campaign to convince businesses, entrepreneurs, and investors that they were intent on starving them of the energy resources needed for growth and radically increasing their taxes, combined with their party’s decades-in-the-making housing and mortgage industry debacles coming to a head, virtually guarantee that.

But there are early, tentative signs that the economy is getting up off the mat. I detailed some of them on December 18. James Pethokoukis of US News chimed in four days later.

The hopeful signs are these:

  • As of December 19, oil is down over 70% from its summer peak. Many drivers are spending over $150 per month less on gas than they were just five months ago.
  • The Fed has taken interest rate reduction as far as it can go, which has taken mortgage rates to historic lows. Refinancing activity has picked up, disproving the notions that credit isn’t available to worthy borrowers and that most of us are a bad hair day away from homelessness. This is an ideal opportunity for those who have good credit but poorly-structured adjustable-rate or interest-only mortgages to get out of them, and for those carrying 6% or higher fixed-rate mortgages to lower their monthly payments or draw out equity (yes Virginia, people in most states still have plenty of home equity).
  • A falling Consumer Price Index of -1.7% led to real earnings growth of 2.3% in November. A repeat performance but with smaller numbers looks likely in December.
  • Christmas shopping season retail sales, while still far less than impressive, might not be as bad as originally predicted.

Pethokoukis pegs the annual impact of the first two items just noted at over $500 billion.

Good news “too soon” would be bad news for the massive $850 billion stimulus package Obama and the Democratic Congress wish to pass. If a recovery has visibly commenced, who, besides their pork-addicted constituencies and the endless line of bailout beggars who should know better, will need stimulation?

Obama, Biden, and the Democratic Party are engaging in their sharply negative jawboning on the economy for the same reason a mob hitman sends a person he knows to attend his target’s funeral: He wants to make sure he’s dead. Obama et al want to make sure the economy seems dead, and that consumers don’t do something unhelpful like start spending again, until shortly after their party’s precious stimulus package becomes law — after which they, with the help of their lapdogs in Old Media, will joyously announce a resurrection.

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