In an editorial this morning, the Wall Street Journal’s editorialists, in the midst of assessing the current economic situation, make a huge point that if you want a markets recovery from the POR Economy aka the POR Recession/”Repression” As Normal People Define It to continue, statist health care must be stopped (bolds are mine):
Poised for a Rebound
The good-bad news in second-quarter GDP.
The bad news in yesterday’s second-quarter GDP is that the recession was even deeper than previously thought. Or should we say that is the good-bad news. Because that pain is now largely past, the very steepness of the decline means that the economy is now poised for a sharper rebound, or at least it should be if the history of recessions is any guide.
The economy contracted by only 1% at an annual rate in the quarter, but the Bureau of Economic Analysis report was even more interesting for its growth revisions in previous quarters. Last year’s third quarter was revised downward by a remarkable 2.2-percentage points, to a negative 2.7% rate. This means the recession began in earnest in July and August, which follows the spike to $145-a-barrel oil and the collapse of Fannie Mae and Freddie Mac, and it accelerated in September with the fall of Lehman Brothers and its aftermath.
….. We’ll never know for sure, but it seems probable that the recession that formally began in late 2007 would have remained far less destructive had our financial plumbers done a better job of preparing the shaky financial system for the rough weather. Last year’s commodity spike—a reaction in part to reckless monetary policy—and Washington’s failure to build financial firewalls after the fall of Bear Stearns look to be major culprits in making the recession worse than it needed to be. This is where we’d most fault Ben Bernanke’s Federal Reserve and Hank Paulson’s Treasury.
The encouraging news is that the Adam Smith washout of recent months has now set the economy up for a comeback.
….. What didn’t seem to make much difference is the “stimulus.” Transfer payments did climb sharply by 7.4% in the quarter, reflecting the likes of jobless insurance. These payments offset declines in worker compensation, but they didn’t do much for consumer spending, which declined by 1.2% in the quarter. In any event, these transfer payments are temporary and thus do nothing to promote the investment and risk-taking that are the only way back to steady growth and prosperity.
….. Political uncertainty also continues to hang over risk-takers, and on that point it has been fascinating to see the latest Wall Street rally coincide with the political troubles of ObamaCare. If it collapses, we might see Dow 10,000.
Gee, I wonder who else said that “the recession began in earnest in July and August” of last year? Actually, my consistent take has been that it the recession didn’t even begin until just before then, back in mid- to late-June 2008. An economy that somehow showed positive growth in the second quarter despite the oil-price rise (revised to +1.5% from +2.8% in Uncle Sam’s comprehensive revision yesterday) went irretrievably negative when Nancy Pelosi, Barack Obama, and Harry Reid injected an ultra-heavy dose of the very “political uncertainty” the Journal refers to above as a still-present menace. Shorthand, it’s the FUD factor (Fear, Uncertainty, Doubt).
In hindsight, it’s fascinating to recall that the “uncontrolled and unexpected” Lehman bankruptcy, in effect decided upon by Tax Cheat and Proven Liar Tim Geithner, was a major FUD addition and the catalyst to the palpable sense of financial panic that ensued last fall. It still seems from here to have been artificially orchestrated, enhanced by Hank Paulson’s blackmail, and abetted by the government’s decision to hang WaMu bondholders out to dry.
The coincidence of Geithner’s nomination once Obama won, and the President’s determination to see his nomination through in spite of Geithner’s disgraceful tax problems and the very mixed reviews of his performance while at the New York Fed and during the initiation of TARP, is more than a little hard to take at face value.
And of course the Journal is right that the mislabeled “stimulus” hasn’t been relevant, despite Obama’s crowing to the contrary yesterday. The transfer payments that have dominated “stimulus” spending thus far by definition do NOT add to GDP; the spending of those transfer payments potentially can to a nominal degree. But it’s clear, as the Journal noted, that consumers are holding relatively tight to their money.
The fact remains that the POR Economy represents the first time since quarterly data has been tracked that there have been four quarters of contraction in a row. During that time, after yesterday’s comprehensive revision, the economy has shrunk by 3.9%. It would have to grow at an annualized rate of just over 4% for a full year before we are even back to where we were on July 1, 2008. Even then, getting per-capita GDP back to where it was would require another 6 months or so of similar growth. Pelosi, Obama, and Reid really have no credible right to even open their mouths about “economic progress” until that point is reached.
In terms of opportunity lost, Pelosi, Obama, and Reid’s Lost Year should really be seen as a 6% hit. If they hadn’t deliberately done what they did to tank the economy we could easily have gotten through 2008 at +2% or more.
That President Obama’s statist health care takeover efforts should fail for moral reasons should be pretty obvious. Sadly, it isn’t, which is why there will be elaborations on this aspect of things in the coming days, including editorial reinforcements.
But, as the Journal has noted, a statist health care crackup in Washington would more than likely be very helpful to the stock market and the economy as a whole.