In concrete terms, the difference between the situation that the Obama advisers predicted and the one that has come to pass is about 2.5 million jobs. It’s as if every worker in the city of Los Angeles received an unexpected layoff notice.
Home › T19 Categories › * Economics, Politics › David Leonhardt: An Economic Forecast from the Obama Administration With Hope Built In
David Leonhardt: An Economic Forecast from the Obama Administration With Hope Built In
Posted in * Economics, Politics, Economy, Federal Reserve, Housing/Real Estate Market, Labor/Labor Unions/Labor Market, Office of the President, Personal Finance, Politics in General, President Barack Obama, The Credit Freeze Crisis of Fall 2008/The Recession of 2007--, The Fiscal Stimulus Package of 2009, The U.S. Government, Treasury Secretary Timothy Geithner
22 comments on “David Leonhardt: An Economic Forecast from the Obama Administration With Hope Built In”
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The importance of this article is even greater given this morning’s poor unemployment report:
http://www.nytimes.com/2009/07/03/business/economy/03jobs.html?hp
here is the relevant section I think:
“To make the case for a big stimulus package, they released their economic forecast for the next few years. Without the stimulus, they saw the unemployment rate — then 7.2 percent — rising above 8 percent in 2009 and peaking at 9 percent next year. With the stimulus, the advisers said, unemployment would probably peak at 8 percent late this year.
We now know that this forecast was terribly optimistic. The jobless rate has already reached 9.4 percent.”
hello, Jimmy Carter! now where is our Ronald Reagan?
A difference of 2.5 million jobs when contrasting predictions with
objective reality ! Seems like another Inconvenient Truth.
In fairness, though, to the Obama administration, it did inherit an
appalling trainwreck from the Bush administration. Nevertheless, they
should vigorously toss aside their rose-tinted glasses and come
clean with the American people about what it’s going to take to get
the economic engines back on the rails again.
In fairness to both presidents, current and former, the trainwreck started when people borrowed too much money to buy things they didn’t need; particularly over-priced houses in just a few states. That lenders in the private sector were supported by their co-dependent counterparts pimps in government is really beside the point.
IMHO, the real issue is sin and personal greed. That the American people aren’t outraged over the trillions of debt that’s happening tells me more of the same; borrow money to buy crap we can’t afford. See step A.
Hey, I think that will preach…
Chris, I really don’t understand your argument. The prediction was that without the stimulus unemployment would rise to 9% in 2010. I fail to see how the fact that the prediction was “rosy” compared to the reality can be connect to the stimulus. Is your point that the stimulus stimulated unemployment? It does not compute.
Reagan cut taxes, increased spending and increased the national debt. Economists consider that to be the correct fiscal polity in a recession.
It would seem to me that the argument is that the stimulus is too slow and too little. Many economists agree. Really, very little of the stimulus money has started to flow. (Yesterday Texas Governor Rick Perry got around to applying for the education stimulus money; it will not begin reaching districts until September at the earliest.)
And had the federal government simply dumped billions of dollars into the economy in February with absolutely no controls, regulation or oversight, I can hear the “conservatives” screaming bloody murder. Even as it is, state governments are misappropriating the funds in ways that will not stimulate anything. For example, in Texas the approach to stimulus money adopted by the just adjourned Legislature and the Governor is to replace state transportation funds (which will go into the “Rainy Day Fund”) with federal transportation stimulus funds. My understanding is that Texas isn’t the only state doing this. I suspect this will also happen with the education funds at the district level; most districts are having to tap their reserves to meet current expenses in the face of falling tax revenues.
Brian, in all fairness, the federal government was heavily borrowing during the Bush years, turning budget the surpluses of the Clinton administration into deficits that doubled the national debt in 8 years. That didn’t happen in a vacumn. It wasn’t just “people” doing stuff on credit.
And it is also the case that government regulators were prevented from regulating the sorts of transactions and instruments which were instrumental in the collapse of the credit markets. (Yes, it would have made it harder for “people” to borrow excessively.) It is also the case that the government regulators were negligent in fulfulling their regularity responsibilities — witness, for example, the case of Madoff. But there are other examples of this as well.
Ken, they predicted, with the stimulus, a peak this year of 8% and we’re already at 9.4% and going higher. They failed. And worse, the deficits are going to ramp up in way that they never did under Bush: http://pajamasmedia.com/instapundit/80559/
Perhaps you were one of these people who believed in the poppycock of The One. Sorry to burst your bubble, but this is a lot of Jimmy Carter redux – if interest rates shoot up, well, I don’t want to even contemplate that….
Chris, they predicted without the stimulus unemployment would rise “above 8%” in 2009 (correct, although too low). In other words, their projections without the stimulus were too low; it shouldn’t be too terribly surprising if predictions of the effects of the stimulus would also be too low. I really don’t know of anyone who really expected to see positive effects from the stimulus until later this year at the earliest. Most of the stimulus money hasn’t entered the economy.
The comparatively small amounts of the stimulus which have already been effected — the $250 payment to Social Security receipients and reductions in taxes — do not appear to have resulted in increases in consumer spending. Instead they seem to be resulting in reduction in consumer debt and increases in personal savings. The same thing happened to the 2008 stimulus money.
The major parts of this year’s stimulus plan hasn’t been distributed yet. It will be months before you see that impact, if any. Many economists have said all along it was insufficient. And its impact may be further watered down — by Calfornia using it to deal with its deficits, Texas using it to sweeting indirectly their “rainy day funds” and the like.
Actually, I’d love to see interest rates go up. The dividends on my bond funds, money market and savings have fallen drastically. The Fed is going to keep them near 0% as long as the recession lasts. About the only interest rates that are going up are credit card rates — which have in many cases as much as tripled. Another reason consumers aren’t spending.
Yes, interest will eventually go up, as will inflation. That prospect was set when the national debt was doubled in 2001-8.
Ken, your partisanship has blinded you. Here is the quote:
“With the stimulus [which we had], the advisers said, unemployment would probably peak at 8 percent late this year.”
We have already passed 8%, we’re at 9.4%. So our peak is higher than they predicted, they were wrong, wrong, wrong. And no amount of dissembling from you or other Obama apologists is going to change that….
Chris, your partisanship has blinded you. Here is the quote from your own post (emphasis added):
Obviously the baseline (without the stimulus) was low. Operating from a low baseline, it isn’t at all an indicator that the stimulus “failed,” as you claim. What it does indicate is that economic mess that the present administration inherited from the previous administration was worse than they thought earlier in the year.
No one that I know of thought that we would see any kind of economic turnaround by mid 2009. That you are so ready to decide the stimulus “failed” supposes some sort of irrational need for instant gratification. I’m sorry, but the world’s largest economy doesn’t work that way.
As a matter of reality, most of the stimulus money has not been spent and will not be spent for months. Not even for the “shovel ready” projects envisioned. Monies to go to the states are being applied for at this time. It will be some time after that that grants are made by the states and contracts signed.
If the stimulus is to be faulted, it is for being far too late. It should have been passed a year ago, when Bush, Cheney, Paulson, Bernanke and Cox were assuring everone that all was well with the economy. Obviously, their rosy scenario was at least as mistaken as the Obama administration’s less optimistic one. And had Bush, Cheney, Paulson, Bernanke and Cox acted a year ago and promoted a major stimulus bill, the money would be flowing now with postive effects on the economy.
Besides being too late, the other criticism of the 2009 stimulus levied by many economists was that it is too little — and that another major stimulus bill will be needed pretty soon — one which will not affect the economy until later next year.
Behold, the non-falsifiable assertion!
Here’s a bit of [url=http://michaelscomments.wordpress.com/2009/07/02/oh-frabjous-day-unemployment-rate-increases-by-only-0-1/]reality,[/url] Ken.
16% unemployment isn’t very hopeful. The 9% quoted isn’t truthful.
The Democrats pushed through the stimulus plan under the politics of fear. Obama told us with out the stimulus unemployment may reach 8% so we have to pass the stimulus bill reguardless of how much it costs or furthers the national debt. No debate no discussion on what was really needed. We were told there were shovel ready jobs, Catarpillar would not have to lay off workers..This was sold to the American people with out much debate..Will it hasn’t done what it was supposed to do, there is massive frauds and waste, and more pork than a sausage factory can handle, 9 billion dollars for a high speed rail line from LA to Los Vegas , money for ACORN….50 billion worth of fraud and waste per Wall Street Journal Market Watch. Having sold this on fear and the notion that unemployment would not reach 8% the Democrats have some splaining to do (as Rickey would say)…To try to pass a massive energy tax on top of unemployment reaching near record levels is creating a catastrophy, adding billions or may be trillions of dollars worth of national debt with health care refrom is insanity…
No, Dave B – it’s a power grab from people who have very little experience in managing anything,/i>, much less private sector enterprise.
I suppose that I should get used to the fact that this blog is a hangout for right wing Republicans.
First, I would point out to Branford, that it was a group of people who claimed to have had managing, including private sector enterprise, who got the economy into the major mess they left it in. They used the “politics of fear” to sell the American people on an ill conceived, ill executed war in Iraq that cost us over 4,000 American dead, tens of thousands of American wounded and added a trillion dollars (at a minimum) to the national debt. They also deregulated and ignored the warning flags of an impending financial disaster — and when it hit resorted to the “politics of fear” to sell the country on a bailout for “private sector enterprise” that cost nearly another trillion dollars and was largely money thrown at major financial private enterprise institutions with no strings attached, no regulation and no oversight. And, the last I heard the leaders of that “politics of fear” were all Republicans appointed by George Bush: Treasury Secretary Henry Paulson (who had held management positions at Goldman Sachs), Federal Reserve Chairman Ben Bernanke (business administration professor with no experience managing anything, much less private sector enterprise) and SEC Chairman Christopher Cox (lawyer, political appointee and Congressman with no experience managing anything, much less private sector enterprise).
These guys, using the “politics of fear” pushed the Housing and Economic Recovery Act of 2008 (which didn’t work) and the Emergency Economic Stabilization Act of 2008 (which didn’t work and was a near trillion dollar bonanza for Wall Street financial firms and executives) through Congress.
It was pretty obvious to everyone in the world that the economy was in a mess when Barak Obama became President. Markets, consumers and industry were already in a panic. The American Recovery and Reinvestment Act of 2009 was passed and signed into law on February 17th — less than five months ago. As a matter of fact, very little of the stimulus money has been spent. States are just now applying for the money. We still have to wait for the states to take applications and issue grants before any of that money starts to flow to the contractors who will employ workers. (Although it is the case that in some states, the way they are approaching the programs the money will never flow to workers — witness the Republican plan in Texas to divert state funds into their “rainy day fund” and replace it with federal stimulus money, so that it will not increase employment.)
The Republican Party has not offered any alternative to the stimulus plan. The Republican “strategy” in the Congress has been simply to say “No” to everything — apparently in hopes that the economy will spin even more out of control and they can again use the “politics of fear” in 2010 to elect more members to Congress.
No one expected the stimulus bill of 2009 to turn the economy around by mid year. To say at this point that it has failed is a partisan political red herring. That unemployment is increasing more and faster than anticipated is not at this time an indication that the stimulus bill of 2009 has failed, but rather an indication that the economic mess left by the Republican administration is considerably worse than anyone realized in January-February 2009.
Wow, Ken Peck, so you know all about me, huh? Actually, I voted for Clinton, and for Ralph Nader, so please don’t generalize. What I see happening is legislation rammed through WITHOUT BEING READ, with ramifications unseen and ill-advised. I see a Congress intent on spending as much money as they can print to create more public employees (who will continue to vote for bigger government since that directly affects them) and a citizen class dependent on the government for too much and expecting the world from their elected officials. And I see it in both parties. Yes, Pres. Obama inherited a bad economy but his policies, in my opinion, are making it worse. And Congress has its own agenda of government-reliance. Let’s not be too partisan here – right now, we are thinking of retiring since working harder to make more that will be heavily taxed for some reason doesn’t seem too appealing. But, hey, according to you, I’m a right-wing Republican which makes my opinion a non-starter.
They also deregulated and ignored the warning flags of an impending financial disaster—and when it hit resorted to the “politics of fear†to sell the country on a bailout for “private sector enterprise†that cost nearly another trillion dollars and was largely money thrown at major financial private enterprise institutions with no strings attached, no regulation and no oversight. And, the last I heard the leaders of that “politics of fearâ€
Not so quick with the lets blame Bush and the Republicans. John McCain and George Bush both tried to slow down Fannie Mae and Freddie Mac and Barney Frank refused…Here is a link to a You Tube vidio of talking about TARP, it is quite intersesting, not at all what I thought about TARP:www.youtube.com/watch?v=-xKPcyvlfnc: Kanjorsky is a Democrat! There is enough blame to go around and it goes back to the community reinvestment act, Democratic and Republican miss management etc. Selling our children’s and grand children’s future and tying up our freedom in innumerable regulations are not going to solve our problems.. Obama trying to barrow our way out of debt is so bad even the Chinese laugh at us to our face..This is simply unsustainable.. Obama is supposed to know what is going on… If George Bush is excoriated for being mislead about WMD’s (when George Tenant told him it was a slam dunk and even Hillary Clinton believed they existed) then Obama can be Excoriated for not really understanding what was going on in the economy (we were told how bright he is etc,sort of like his paying 200 million to send GitMO detainees to Palaue and they won’t go, but I digress)…That still doesn’t excuse they shoddy product that was produced or the fraud that is enharent in the stimulus package or they way it was sold to the American people!
Interesting post here.
[blockquote]No one expected the stimulus bill of 2009 to turn the economy around by mid year. To say at this point that it has failed is a partisan political red herring.[/blockquote]
On the contrary, the Obama Administration specifically said it would begin to turn around by now. The unemployment numbers used to generate the graph in the link I provided came straight from Obama’s economic team. Those numbers were used to sell the porkulus bill.
When the results of what Obama has done don’t match his own predictions, are we supposed to ignore them?
None of the foregoing cmments deal with the main cause of the crisis, only symptoms. Any recovery depends upon stabilizing the real estate market, not at throwing money at victims. By failing to deal with the root cause for so long, the crisis spread from housing to banking, commercial real estate, autos, etc.
One year ago, July ’08, Congress passed Hope for Homeowners, a brilliant plan that created a win-win structure for banks and up to 400,000 homeowners. Sadly, the program was ignored by banks, who refused to imlement it. As a result, foreclosures increased, as did failures of banks and other financial institutions.
Throughout the crisis, there has been only one person who has had a consistent and effective strategy: Sheila Bair, head of FDIC. In her NOV ’08 testimony to Congress, she estimated that her model would save 75% of the delinquent loans at IndyMac Bank, which FDIC had taken over. In essence her model modified mortgages so that the housing payment was reduced to 31% of gross income. Then they checked to see if the modified mortgage package would yield more to the lender than a foreclosure. If yes, the mod was approved; if no, go to foreclosure.
Even though this approach was very prctical – i.e. it required lenders to determine if they were better off under a mod than a foreclosure, it was widely unused until the Obama plan wisely adopted it verbatim. Now we are beginning to see a slowing of the forclosure tsunami. But the delay in dealing with the foreclosure, while throwing out hundreds of billions treating symptoms is tragic.
I put in they instead of the sorry, I can’t spill worth baens and typo a lot…
Has the San Francisco swamp mouse gotten it’s money yet?
And for what it’s worth, I’m a gov’t employee and I NEVER vote for bigger gov’t. Conservative to the core.