Monday, March 9, 2009

The Cliff Is In Sight

This is a chart, produced early February, of job losses in the current recession and in previous ones. (Click to enlarge) Image credit: Speaker of the House

Two different financial experts, with different backgrounds and experience, smacked the Obama Administration around today regarding their handling of the economy. The first was Warren Buffett, who was interviewed on CNBC today:

The economy, ever since we talked in September, we talked about it being an economic Pearl Harbor and how--what was happening in the financial world would move over to the real world very quickly. It's fallen off a cliff, and not only has the economy slowed down a lot, people have really changed their behavior like nothing I've ever seen. Luxury goods and that sort of thing have just sort of stopped, and that's why Walmart is doing well and you know, and I won't name the ones that are doing poorly. But there's been a reset in people's minds, and we see that in something like Geico where year after year after year we say you can save some money insuring with Geico, and year after year there's been a certain number of people who have said, `You know, I've got this pal, Rotary Joe, and I've been insuring with him and for 100 bucks, why should I shift?' Every week we're just seeing it build and build. More and more people are calling. Our price differentials haven't widened, our advertising isn't that much different, but the American public really has changed their buying habits. On the reverse side, our jewelry stores just get killed in a period like this. And high end gets hurt the most, next down gets hurt the second most, and the lowest people get hurt the least.

Buffett Breakfast on CNBC (Transcript for March 9, 2009)

This is one small part of the conversation, of course, but it's an important one. The sense of urgency, and some of the reasons for it, are what are interesting in this context.

The other financial expert, who gave an even more ominous warning, is Paul Krugman writing today in the New York Times:

President Obama’s plan to stimulate the economy was “massive,” “giant,” “enormous.” So the American people were told, especially by TV news, during the run-up to the stimulus vote. Watching the news, you might have thought that the only question was whether the plan was too big, too ambitious.

Yet many economists, myself included, actually argued that the plan was too small and too cautious. The latest data confirm those worries — and suggest that the Obama administration’s economic policies are already falling behind the curve.

To see how bad the numbers are, consider this: The administration’s budget proposals, released less than two weeks ago, assumed an average unemployment rate of 8.1 percent for the whole of this year. In reality, unemployment hit that level in February — and it’s rising fast.

Behind the Curve

[emphasis mine]

Even two weeks out from the signing of the stimulus bill, it's already looking pitifully inadequate. Let me just return to something I wrote about Saturday:

The best news I can tease out of this data is that at least the rate of job loss is no longer accelerating. It's been about 600k for each of the last three months. That's not very good news when we're shedding more than half a million jobs at a time. Of course, as I've pointed out before, we also need to add more than 100k jobs per month just to keep up with population growth. If this rate of job loss continues, we will have fallen almost an additional ten million jobs behind by the end of this year. [W]e were already in rather bad shape.

Two Giants In Trouble

Trying to project out unemployment as I did is obviously specious. A national economy seldom stays linear or predictable for long. The reason I did it, though, was to give some sense of the kind of trouble we're in for if things continue as they are, which is to say, largely uncorrected. The chart that begins this article, which was produced by Nancy Pelosi's office, should make that danger abundantly clear, particularly since you can now continue that green line further downward. So, keep that ten million jobs deficit in mind as you read on.

Krugman continues:

Employment has already fallen more in this recession than in the 1981-82 slump, considered the worst since the Great Depression. As a result, Mr. Obama’s promise that his plan will create or save 3.5 million jobs by the end of 2010 looks underwhelming, to say the least. It’s a credible promise — his economists used solidly mainstream estimates of the impacts of tax and spending policies. But 3.5 million jobs almost two years from now isn’t enough in the face of an economy that has already lost 4.4 million jobs, and is losing 600,000 more each month.

Behind the Curve

We're way behind already. The best thing the stimulus bill could have done was continue state and local programs that were being cut back or stopped because the states and municipalities are running out of money. That money would have gone immediately to programs already in place, and thus would have had immediate effect. This is the sort of thing you'd expect an emergency stimulus bill to do. Yet that was part of the stimulus package that was "compromised". The collective idiocy of this Congress is nothing short of mind boggling.

Still, they don't look so bad compared to what the Obama White House has been trying to do to deal with the banking crisis. Even though many economists have recommended that the failed banks be nationalized, the President continues to pooh-pooh the idea as the notion of a few random fruitcakes:

“Part of the reason we don’t spend a lot of time looking at blogs,” he said, “is because if you haven’t looked at it very carefully, then you may be under the impression that somehow there’s a clean answer one way or another — well, you just nationalize all the banks, or you just leave them alone and they’ll be fine.”

Obama Ponders Outreach to Elements of Taliban

A strawman false dichotomy. As a fan of rhetorical fallacy, I have to love the efficiency of that statement.

Here's Krugman's conclusion:

The broader public, by contrast, favors strong action. According to a recent Newsweek poll, a majority of voters supports the stimulus, and, more surprisingly, a plurality believes that additional spending will be necessary. But will that support still be there, say, six months from now?

Also, an overwhelming majority believes that the government is spending too much to help large financial institutions. This suggests that the administration’s money-for-nothing financial policy will eventually deplete its political capital.

So here’s the picture that scares me: It’s September 2009, the unemployment rate has passed 9 percent, and despite the early round of stimulus spending it’s still headed up. Mr. Obama finally concedes that a bigger stimulus is needed.

But he can’t get his new plan through Congress because approval for his economic policies has plummeted, partly because his policies are seen to have failed, partly because job-creation policies are conflated in the public mind with deeply unpopular bank bailouts. And as a result, the recession rages on, unchecked.

O.K., that’s a warning, not a prediction. But economic policy is falling behind the curve, and there’s a real, growing danger that it will never catch up.

Behind the Curve

This is the danger. The work to prevent this needs to start now. Anyone who thinks that Obama's ratings will remain high despite his not having accomplished things that will help average folks out, and help retain their jobs, is an idiot. I'll grant you there are quite a few of those wandering the halls of Congress, but they, and any like-minded idiots in the White House, had better start getting with the program.

UPDATE: Over at FireDogLake, commenter selise pointed out this article:

The struggling companies whose freewheeling business practices have contributed to the country's economic woes are getting a lucrative return on at least one of their investments. Beneficiaries of the $700 billion bailout package in the finance and automotive industries have spent a total of $114.2 million on lobbying in the past year and contributions toward the 2008 election, the nonpartisan Center for Responsive Politics has found. The companies' political activities have, in part, yielded them $295.2 billion from the federal government's Troubled Asset Relief Program (TARP), an extraordinary return of 258,449 percent.
President Obama collected at least $4.3 million from employees at these companies for his presidential campaign.

TARP Recipients Paid Out $114 Million for Politicking Last Year

While there may be other motivations, this money alone is a good explanation for why none of the folks who actually could do it seem interested in nationalizing failed banks.

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