August 28, 2010

WSJ Grills Geithner and Obamanomics (Update: Govt. Share of GDP has Grown; Private Sector Shrinks)

Filed under: Economy,Taxes & Government — Tom @ 11:18 am

RecoveryComparison1980sVs2009to2010In an editorial today (“The 1.6% Recovery”):

… As recently as August 3, Treasury Secretary Timothy Geithner took to our competitor’s pages to declare that this couldn’t happen. “Welcome to the Recovery,” he wrote, describing how the $862 billion government stimulus was still rolling out, business investment was booming, and the economy was poised for sustainable growth.

We all make mistakes, but the problem for the American people is that Mr. Geithner’s blunder is conceptual. He and President Obama and their economic coterie really believe that government spending can stimulate growth by triggering private “demand,” that tax rates are irrelevant to investment decisions, that waves of new regulation can be absorbed by business with little impact on costs or hiring, and that politicians can assail capitalists without having any effect on the movement of capital.

This has been the great Washington policy experiment of the last three years, and it isn’t turning out too well. If prosperity were a function of government stimulus, our economy should be booming. The Fed has kept interest rates at near-zero for nearly two years, while Congress has flooded the economy with trillions of dollars in spending, loan guarantees, $8,000 tax credits for housing, “cash for clunkers,” and so much more. Never before has government tried to do so much and achieved so little.

Now that the failure is becoming obvious, the liberal explanation is that things would have been worse without all of this government care and feeding. The same economists who recommended the stimulus are now producing studies, based on their Keynesian demand models, claiming that it “saved or created” millions of jobs, even as the overall economy has lost millions of jobs. The counterfactual is impossible to disprove, but the American people can see the reality with their own eyes.

The nearby table compares growth in the current recovery with the recovery following the recession of 1981-82, the last time the jobless rate exceeded 10%. The contrast is stark.

Then after three quarters the recovery was in high gear. Now it is decelerating. Then tax rates were falling, interest rates were coming down and the regulatory state was in retreat. Now taxes are poised to rise sharply, interest rates can’t get any lower, and federal agencies are hassling business at every turn. Then business investment was exploding. Now companies are sitting on something like $2 trillion, reluctant to take risks when they don’t know what new costs government might next impose on them.

“Three years.” (Almost) exactly.

It has actually been 35 months since September 30, 2007, the last day of the final budget passed by the Republican-controlled Congress in 2006. Since then, it’s been on Nancy Pelosi and Harry Reid, with disastrous results. When Barack Obama became the presidential nominee, we entered the POR (Pelosi-Obama-Reid) Economy, which gave us the POR Recession as normal people define it, followed by what has clearly been a “Rebound? What Rebound?” alleged “recovery.”

Ronald Reagan faced arguably far more challenging circumstances: 13% inflation, 20%-plus interest rates, and double-digit unemployment. When he finally got 83% of the tax cuts he wanted (he was going for 10-10-10, he got 5-10-10), the economy boomed, as the WSJ’s table at the top right clearly demonstrates.

What this bunch is doing isn’t working. We’re nearing a bust — and from here, when you look at their substance instead of their statements, it seems that they really don’t care. If they did, they would start practicing Reaganomics, and abandon Obamanomics.

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UPDATE: The graphic below follows up on the issue raised by the first commenter —

GovtVsPrivateGDP2Q08to2Q10

Purchases of goods and services by the private sector have declined by over 2.2% since the beginning of the recession as normal people define it, as have purchases of goods and services by all entities (including state and local governments) except the federal government.

AP’s Econ Coverage Continues Singular Focus on Bernanke, Non-Naming of Others in Govt.

APonBernankeInCharge082710Fed Chairman Ben Bernanke’s first full day as the only person in the whole wide world with any kind of influence over what happens in the economy didn’t go too badly.

That’s the impression one might get from consuming two Friday Associated Press dispatches and a related AP Video.

Bernanke apparently took full charge of anything and everything having to do with the economy on Thursday evening. As noted early Friday morning (at NewsBusters; at BizzyBlog), two Thursday afternoon dispatches from the wire service in advance of the government’s Friday morning GDP report widely predicted to contain news of a significant downward revision to second-quarter economic growth placed surreal importance on the content of a speech he was to give Friday morning shortly after that report’s release. The names of President Barack Obama, Harry Reid, Nancy Pelosi, Tim Geithner, and Larry Summers were totally absent from both reports.

Friday, in the wake of the downward revision of second-quarter GDP from an annualized 2.4% to 1.6%, AP’s primary economic report about Bernanke’s apparent first day as Emperor-in-Chief again failed to name the five folks just mentioned, as did a one-minute video from Mark Hamrick found here (after a 30-second commercial).

Here is some of what Christopher Rugaber, with assists from Jeannine Aversa and Alan Zibel, wrote about Ben’s big day:

Economy edges closer to stalling, government says

Shortly after the government’s revision, Federal Reserve chief Ben Bernanke said the Fed was ready to take additional steps to prevent a second recession, if the economy deteriorates further. But he stopped short of promising any action.

The Fed “will do all that it can to ensure continuation of the economic recovery,” he said.

… Bernanke, speaking to a Fed conference in Jackson Hole, Wyo., acknowledged the economy has slowed more than policymakers had anticipated and said it is “vulnerable to unexpected developments.”

He did say he expects growth will pick up next year. The central bank chairman also sought to reassure the financial markets that he has the tools needed to bolster the economy and will use them if business activity slows further.

Bernanke outlined several options, including having the Fed buy more securities, most likely government debt or mortgage investments, as a way to drive down interest rates on all sorts of debt and spur more spending that might get the economy going.

Bernanke made clear “he is willing to act to ensure that the recovery remains on the right path,” said Zach Pandl, an economist at Nomura Securities.

That reassured the financial markets, which rose sharply after the Fed chairman’s speech.

… How much the government could help at this point is an open question. The Fed has already lowered its key short-term interest rate to nearly zero, but that has yet to rejuvenate the economy. The benefits of federal stimulus programs are fading, and Congress has declined to pass any major new aid.

… The Fed chief said the foundation is being laid for stronger growth in 2011: Households are saving more and healthier banks are more willing to lend. That should boost consumer spending, which makes up 70 percent of U.S. economic activity.

Once again, it’s as if Ben Bernanke is the only guy with any kind of influence on the course of the economy. Obama, Geithner, Summers, anyone else in the White House, Pelosi, Reid, or anyone else in Congress’s Democratic majority? Even though they are collectively responsible for fiscal policy, taxes, spending, regulation and oversight, we’re apparently supposed to believe that they’re all just spectators now, and that they’re as powerless as you or I to influence growth or employment. These people couldn’t possibly have anything to do with why we are where we are, or with why the economic outlook is so grim, could they? Zheesh.

As to President Obama, the AP’s Mark S. Smith took a transparently sympathetic tone in a separate Friday evening missive:

Vacationing Obama can’t escape economy

President Barack Obama biked and golfed under a brilliant New England sun Friday, yet he couldn’t escape the cascade of dour news on the economy as his vacation neared its end.

The Commerce Department reported the economy grew at a much slower pace this spring than previously estimated, a mere 1.6 percent. That followed reports earlier in the week on badly slumping home sales and tapering business spending on manufactured items.

Obama has conferred with his economic team on the phone while vacationing. And before his latest round of Martha’s Vineyard golf Friday, he met for about 15 minutes in the clubhouse with New York Mayor Michael Bloomberg to discuss the economy.

… The economic news brought renewed criticism for the administration.

… But with cloudless skies over Martha’s Vineyard after rain earlier in the week, the president did what he could to seize some downtime.

“The White House” did comment on Friday’s GDP news, but the AP didn’t mention it, at least based on searches at its main site on “White House GDP,” “White House growth,” and “White House grew” (each entered without quotes), all of which returned nothing relevant. An AP search on “Obama grew” (without quotes) returned only the Smith report just cited.

AFP did cover the administration’s reaction, such as it was:

The White House said Friday the latest US economic growth data represented “positive news” but that the lowered estimates mean more work is needed to keep the recovery on track.

“Four consecutive quarters of economic growth is positive news, but the revised numbers mean there is still much more we need to do to continue on the path to recovery and that remains the focus of the president and the economic team every single day,” said a senior administration official with the vacationing President Barack Obama.

… “President Obama is focused on taking the next steps to keep the economy growing including assistance to small businesses, export promotion, the extension of tax cuts to the middle class, and investments in areas of our economy where the potential for job growth is greatest, like clean energy,” the administration official said.

The “senior administration official” tasked with announcing this blather seems to have requested anonymity. If so, I can’t say I blame him or her. When no one else is getting named, why would anyone volunteer to be the only person in the Washington establishment besides Big Ben associated with the economy?

Cross-posted at NewsBusters.org.