James Pethokoukis

Politics and policy from inside Washington

Why Obama’s big economic gamble is failing

June 19, 2009

A string of new polls seems to show that America’s belief in the wonder-working power of Obamanomics has begun to fade. A Pew poll found President Obama’s economic approval rating has fallen to 52 percent from 60 percent in April. A Wall Street Journal poll found 53 percent disapprove of his handling of GM and Chrysler vs. 39 who approve. And the New York Times found that 60 percent don’t think Obama has a “clear plan” to deal with the monstrous budget deficit.

Okay, here’s the thing: Obama took a tremendous economic and political gamble last January. The new president had the option of putting forward a stimulus plan that would attempt to reverse or significantly dampen America’s terrible economic downturn ASAP. The quickest and most effective approach would have been a big cut in payroll taxes. For $800 billion, combined Social Security and Medicare taxes could have been slashed by 6 percentage points, or 40 percent. That would have put $1,500 in worker paychecks and, according to one credible study, increased employment by 4 million jobs in 2009.

Instead, Obama chose to listen to Rahm “Never let a crisis go to waste” Emanuel and put forward an $800 billion plan that advanced his healthcare, energy and education policy goals — but pretty much neglected the economy in 2009. Team Obama had to fully understand this. Indeed, a study from the Congressional Budget Office study — when led by current Obama budget chief Peter Orszag — concluded that an Obama-like economic stimulus package would be “totally impractical” because it would take so long to implement. (True enough, only seven percent of the American Recovery and Reinvestment Act has been doled out so far.)

Presidential gamble. In short, Obama wagered that the deluge of money coming from the Federal Reserve would do the heavy lifting as far as stabilizing the financial sector and keeping the already apparent recession from turning into a real disaster. Voters would, thus, continue to support his policies to assert more government control over healthcare, heavily regulate energy through a costly cap-and-trade program and further intervene into the financial industry.

The gamble appears to have failed miserably, both economically and politically. The terrible tale of the tape: a) the current downturn is arguably the worse since the Great Depression; b) household wealth has fallen by $14 trillion during the past two years, including the first quarter of 2009; c) while the economy may not shrink as much this quarter as it did in the previous three months (-5.7 percent) or the final quarter of 2008 (-6.3 percent), unemployment is soaring; d) Obama himself said the jobless rate will hit 10 percent this year; d) even worse, the Federal Reserve sees it approaching 11 percent next year. (Recall, that the original White House economic analysis of the Obama economic plan never saw unemployment exceeding 8 percent if Obamanomics was passed by Congress.)

Falling public support. So now many Americans are rightfully wondering just what they are getting for that $800 billion, as well as massive budget deficits as far as the eye can see. And it goes beyond the mercurial world of polling. Pricey plans to deal with perceived climate change and healthcare are also appear on the ropes or are being scaled back as voters view them as lower priorities than job creation and taming out-of-control spending.

Green shoots? Oh there are some to be sure. Just yesterday, the Conference Board said its index of leading economic indicators rose by its biggest monthly amount in five years And the stock market is up nearly 40 percent from its lows as depression fears ebb. Gluskin Sheff economist David Rosenberg, by contrast, declares that the “era of the green shoots is over.” He points out that 1) bellwether FedEx described the economy as “extremely difficult” when it reported disappointing earnings , 2) United Airlines said second quarter traffic fell as much at 10.5 percent, 3) commercial real estate loan concerns led S&P to cut ratings on 22 non-”too big too fail” regional banks; 4) incomes are being pinched by rising gas prices, and 5) surging interest rates are refreezing the housing market.

Too little, too late.
Then, of course, there is rising unemployment, which is either a lagging indicator of an economy slowly on the mend or a forward indicator of a possible double-dip recession. Either way, it takes a long time for economic perceptions to change after a nasty downturn. Just ask all those congressional Democrats who lost their jobs in 1994. Even though the economy had then been growing for 14 straight quarters since the 1990-91 recession and the unemployment rate was down to 5.8 percent from a high of 7.8 percent, 72 percent of Americans still thought the economy was “fair” or “poor” and 66 percent though the nation was headed in the wrong direction. What do you think the national mood will be like on Election Day 2010 if unemployment is over 10 percent, gas prices near $4.00 a gallon and homes prices moribund? Certainly by then, the effectiveness of the “Blame Bush” mantra will have hit its expiration date for Obama and the rest of the Democratic Party.

Comments

Back and forth.

Is Bush to blame? Is Obama at fault? Flame on.

Who deserves more blame?

Maybe it’s the unsustainable American Way of Life that has brought us to this sad state of affairs: Oversized McMansions, pockets stuffed with the latest personal electronic marvels, gas-guzzling SUVs and people living below the poverty line who still manage to make themselves morbidly obese.

More. more. and still more.

Something’s gotta give. Something did.

Cheap oil fed the beast. Oil spiked, the system crashed.

The re-boot could last years. Get used to it. Best to try to keep your wits about you and your sense of humor if you have any left. Otherwise your own stress will take you down.

Posted by Bryan X | Report as abusive
 

And just wait until the minimum wage hike that Congress so proudly passed last year kicks in next month and leaves most business owners with the choice of seeing their payroll increase with no return on that money, or keep payroll the same and shed its least skilled workers.

Posted by Ian B | Report as abusive
 

Bush’s economic policies where terrible toward the end. Obama’s economic policies appear to be even worse from start to finish. But don’t blame him per se—-he pounced all over McCain for saying he wasn’t an economist……turns out neither was Obama.

But I’m sure he had some experience managing government funding as a community organizer and even more experience overseeing those millions in campaign contributions form Acorn……shoot, I’ll bet he’s still sitting on what…….60? 70 million?

Posted by Obushma | Report as abusive
 

hey taher, you are an idiot man. first of all, they are not bush’s wars. They are America’s war….better yet it is the war of the free world vs. islamic terrorists. You can debate whether the Iraq war was just. (which I think it was) but you cannot debate the war in Afghanistan. The Taliban would not give up Bin Laden after the 9/11 attacks. What would you have done you moron? You would have said ok no problem taliban. You are a fool. We ousted the taliban and Bin Laden is hiding in a cave. No attacks since because we have weakened them so much. And as far as obama and the economy. He has no idea what he is doing. NONE. He is gonna to prolong this recession just like FDR did with his crappy “NEW DEAL”. We need the GOP back in power. Obama is clueless on domestic policy and way to weak on foreign policy.

Posted by MIKE | Report as abusive
 

Looks as though the Equalization of Opportunity Act should pass by EOY. Too big to fail, emergency powers, soon we may take our complaints up with the Unification Board…

How prophetic, yes, never let a good crisis go to waste indeed.

Posted by Hank Reardon | Report as abusive
 

Thank you for this great analysis.
Whe have to be truthful and wake up from the Obama delusion.

Posted by Yemanou | Report as abusive
 

I read a lot of posts that fail to address about THREE MAJOR items’
A. What would have happened had nothing been done?
B. What all did Obama inherit, as this thing was NOT his making and in fact is world wide, most nations doing same stuff.
C. There is the REAL issue that USA medical lags way behind the rest of industrial world.. and NO PROOF of the various lies told about Canadians dieing off from lack of health care or rushing south to USA AKA 1990′s R spin brought back. There is proof massive dollars and lobby going to DC to prevent Obama plans. What is the TRUE cost to USA of remaining where we are now, as only a fool would thing USA Corps are going to improve their employee’s health programs.. as record shows different. So what is TRUE cost if we do not change..
NOTE Most of USA to dumbed down to even do compound interests. fully 1/3 did not grad HS.. so good bet lot’s of posting via lobby backing, as most of public simply to stupid to understand it anyway.

Note: On auto, even Japan funding auto, but then in one way or other always have, but USA is ONLY nation so dumbed down as to support it;s workers get wages cut to compete with plants run by foreign owners.. Somehow cannot see that happening in China, India or Japan or Germany…
PLEASE would everyone in favor of no change post their health care, costs, deductible, and if “paid for by self” is it somehow tax deductible via LLC, business owner, etc as that is in fact lost tax money AKA “single payer plan” and THAT INCLUDES CONGRESS AND ALL THE MEDIA, even the blowhards on “talk” as I suspect they pay for “own” via their “corp” and get tax deductions AKA you pay for it.. but would be nice to know about and put things in better perspective.

Posted by Charles | Report as abusive
 

YES! Punish the Industrialists, the Capitalists and those that support them!

How dare they seek to make a profit in ‘these’ troubled times. The public good must take precedence over an individual’s so-called rights.

Liberty is a fallacy…get over it.

Even Rob’t Reich has hit the trail and is espousing making capitalism better. A new “democratic capitalism” that protects “everyman”.

Excepting those with a differing point of view.

“We can rebuild it. We can make it stronger, better…>insert theme from 1.6 Trillion dollar Man<

Posted by Hank Reardon | Report as abusive
 

Yes, the Prez inherited some problems, but nothing he’s doing will correct them. Looks like his administration is turning out to be a big flop.

P.S. To Orion – enjoy your posts.

Posted by Lee | Report as abusive
 

When you read article and the blithering of extreme partisans (on both sides)you find what appears as cracks in various rants as gaping Grand Canyon “cracks”. The bit about “$4 Tril lost” and other such rants is at best amusing garbage as the “Funds” are not real, they are just over inflated estimates of some sort of “values” that did not really exist. As such, the various systems collapsed as they were based upon “value of paper”, which the smart folks collected REAL DOLLAR FEES”, not paid in “derivatives and other funny paper. Most were simply incompetents, that just road the gravy train and lawyers got congress to give them special interest benefits as in those LLC type billionaires that were in 14$ MAX tax bracket BEFORE deductions.
The real issue is nearly the last 30 years of R or D rule has been on where the “other 85%” got increasingly less and the upper end, which starts at $100K or more, got a lot more. THE AVERAGE wage in USA, pretax is $35K, and that means half earn even less. Now try and support family of four on that one and if DUAL income, pay around $600/month (low side) for health with a $5K deductable, which is quite real.
THE AVERAGE INCOME of those 65 or older is less then $18K, and pull $100/month out for medicare payments.
USA wages and benefits are going down, as is job market. We have been sold out by special interests. We have NO “Fair Trade the H3 in demand in China” costs $130K there, in USA $30K and the list of other USA auto is same. We cannot export auto’s to S Korea and most of Asia as their “fees” (not tariff as that is illegal) drive up cost of imports. Most of the lobby for foreign goods, WS, Banks and Health Care is revolving door DC types that wrote the rules they now know how to get around. We have a “ruling class” in Congress and business that simply does not care about the populace, and please none of the partisan “they did it as my side is great” garbage as not a hill of beans delta between either side as the Bills for greed always get “just enough votes” or a amendment to Bills corrects the “error of honesty” that might have slipped through by mistake.
The last time USA saw greatness was the golden ages of the 50-60′s when USA had highest number of HS/college grads thanks to the GI BILL
They were bright, they shut down the Gotta Commie behind every bush Senator Joe, they sent us into space, they built the nation and corrected the errors/horrors good ole boys and of Segregation, voter abuse, fought poverty, and tried to make a lot of playing fields more level. Unlike today they did not want quasi military weaponry as did not buy into “Fear of gov” as they found they were the government and acted.
They passed a lot on to their kids, whom hit the streets to stop a war (and avoid draft as did the upper end kids) toss our a crooked Nixon and many “went south” to fight the KKK’s and such. They actually stood up and shouted.. which is not done now days by the “me first and always” generations.
Today’s USA is no longer the golden age USA, it is not full of a dumbed down populace where a hot button minor issue gets votes as most simply to stupid to deal with major items. We live in a “what if they might or may, possible etc. based on rumors and fear as most simply to stupid to deal with facts, if they can even be flushed out. Now I read posts of “taxes to be increased” but I have yet to see where and whom, other then those in the 3-4% area, $250 K or more, are impacted. Less and less health care, now what was third world emergency medical volunteers active inside USA, why? Every industrial nation in world going single payer and not “Broke due nor have I seen any mass rallies to “End single payer plan in ANY nation”. No Canadians protesting, real world is NO evidence of Canadians pouring over borders for USA medical, nor die off’s, in Canada, unlike USA for lack of medical.
I see NO real plans as to alternates to Obama plans by posters or R’s, just the predictable “tax raised, inflation’s, less medical care, communist plots, etc with ZERO hard data, even less REAL workable alternates. The REAL data, the REAL measure of this “Free nation and how it is doing is “REAL WORTH”.. that for the less then bright is what you 100% own vse what you OWE.. or some simply state it as what you own free and clear. The 95%’rs are going down, the upper end 5% are growing at record rates. The systems that used to at least try to balance such are broken,as is now obvious and it is going to get worse. The fact is the upper end will benefit most, as they did in Great Depression is expected.
The basis of this nation being great is NOT “Freedoms, choice, protections,Constitution, Bill of R’s and all those great words. The real basis and keystone for the greatness of this nation and it’s continuation as such, is 100% based upon a big educated and informed,active (thinking) Middle Class. The founder KNEW of Europe where the Royalty, inheritable lords and ladies courts ruled, and the masses not smart enough to question well and listen better, to organize to correct the errors, as we say “Toss the bums out”. They knew that what they wrote of this nation would ONLY WORK if we had strong educated, smart middle class capable of controlling their government, not the other way around. They feared the Career Politician’s (we now have 95% return rate in Congress, as high at state levels) as much as a dumbed down society that was easily placated by meaningless hot button rhetoric’s. I suggest the worse fears of the founder has happened, as defined by “real worth term” the Mid Class, is gone, the trappings might remain as dressings, but real ownership is gone. 90% of the posts are pure partisan puke, offer only fear, lies, what if’s and ignore hard facts as they just might not fit today’s “key words to spread in support of” etc.
The USA is in deeper mess then most can comprehend, and it shows. The lies abound and feed the fears, paranoids, and fools shout them. We have even reached state where citizens buying up “all the guns and ammo we can find” for silly reasons. Yes a review of posts pretty much proves a well informed mid class that questions well and reasonably with the ability to grasp all sides of the issues is not there and backs up the educational-financial data that mid class is failing if not down to about 20-30% of nation. No “Free nation” or any other has survived without a strong mid class, ever. So I suggest for a bit, let’s act like a nation, not a bunch of partisan pukes that anything the other side says is wrong and if wrongs were done, post and admit them, as part of success is learning from history.
I am not thrilled by the spending or direction of the nation, nor was I over last 30 years, but last 10 or so were obviously out of control. I am more fed up with this nations bitter and vicious divisions where all D or R plans are automatically attacked by other side. I for one would like to see the nation returned to the citizens by BOTH parties.. so go ahead with the rants and raves and offer no real solutions.. just part of the “NEW (failing) USA where we now vote mindlessly “Against the other guy” rather then “For the guy we want as he told me what he will do and does it”.. Time to bring the nation together or kiss it good bye, there is no mid grounds.. The big thing is the demise of the Mid Class and no one seems to want to acknowledge the Mid Class has little real worth left.. how do we fix that not what “libs of neo’s” wand done.. as they are simply partisan fools.

Posted by Charles | Report as abusive
 

P.J. O’Rourke summed it up: “I’m not sure I learned anything (about government) except that giving money and power to government is like giving whiskey and car keys to teenage boys.” If the crowd on the Hill and in the White House all went on vacation for a year, we’d be a helluva lot better off. Turn off the air-conditioning!

(Charles (previous) is very enthused about the idea of Repubs and Dems having a kumbaya moment – not good – keep them fighting each other – maybe they’ll leave us alone.)

Democracy is loud and messy – it’s when things are very quiet that we should start to worry. They’re plotting.

Posted by Lee | Report as abusive
 

Lee, they all to often get “quite”, as they never stop plotting, for selves… I am fed up with the whole bunch and really troubled when on of the Swineate or House of Reprehensible s says “never in 12,20,30 etc years here have I ever etc”…

I note they often become “quite” at those rather odd midnight secessions, where “things go about in the dark”. We need to toss any on more then second term.. as they are simply to secure, and could care less about the commoners.. There is NO reason for the partisan garbage as they already know what the Bills and votes will be ahead of time. I guess China is way ahead of us in politics and law, they tend to shoot their crooks, we retire ours. Ever tried to get one of the Creatans in Congress, OR their aids to FULLY Explain their retirments, (which can start after 6 years of “service” when the crook hits 62, or the total medical, and all they get.. Simply to much for them to pass on to mere mortals
NOTE FULL DISCLOSURE in the Health Care, DO WANT ALL WHOM GET INTO IT, from the DC and even State Capitals, to the media to the shouting radio jerks, experts, etc. I WANT ALL before they speak to tell me whom pays for their-family health care, what are their costs deductibles, etc.
IF “well I buy my own etc” do “I” get it via some corp or LLC I set up, a tax deduction perhaps AKA stealth “single payer plan” as the taxpayer is in fact paying for it.
SO LET’S ALL DEMAND of the pro and cons of Health Care. FULL DISCLOSURE PLEASE.. then talk..

Posted by Charles | Report as abusive
 

GMT – brevity is the soul of wit and,
me think you protest too much.
Good day.

Posted by kdizzydaze | Report as abusive
 

disregard last post – wrong thread entirely and GMT?? Wth was I thinking??

Obama has mortgaged the future and the poor will now get poorer and the rich will get richer (as they also seek to protect their wealth – who wouldn’t in their position?).
Me, my job is in peril because my prospects and clients that would normally be spending on my produts and services to reduce their expenses in their data centers are putting projects on hold indefinitely OR they are now demanding guarantees that anything offered will save them money and have a satisfactory ROI. Showing people how money can be saved is one thing, but what I am being asked is akin to telling a car salesman that you want a guarantee that the car you buy will NEVER get into an accident or lose its value over the next ten years. Oh man, I am losing it!!!!

Posted by kdizzydaze | Report as abusive
 

Ya wanted a Rockstar in the White House – Ya got one.

David Lee Roth or Alice Cooper for President 2012!

Posted by Glenn P Morris NYC | Report as abusive
 

Ya wanted a Rockstar? Ya got a Rockstar…

Where’s David Lee Roth when we need him?

Posted by Glenn P Morris NYC | Report as abusive
 

@Charles

What to do about Washington? Easy.
ID all the redistributionists aka RINO’s and Progressives and vote them out.

Then:

A two-year, 50% reduction in the Social Security and Medicare tax for both the employee and the employer. This provision would guarantee that virtually everyone who pays federal taxes (many of whom do not pay income tax but do pay payroll taxes) will have an immediate boost in income and that small businesses will see a dramatic increase in available cash to hire more people or make investments for the future. This reduction would also help the cash flow problems of government at all levels, which also have to pay the employer’s match.

This proposal creates the opportunity for a serious conversation with every employer about how it would increase their income and give them more resources to create jobs. The revenue loss to the trust funds would be transferred from the general fund (a better use for the money than either TARP or the Politicians Spending Act of February).

Permanently match the Chinese capital gains rate, which is zero. This is the rate Alan Greenspan testified in the late1970s was best for economic growth. It is also a relatively inexpensive thing to do in the current economy because people are going to have smaller gains.

Match the Irish corporate tax rate of 12.5%. America has had the highest corporate tax system in the world (if you combine federal and state taxes). Moving to a 12.5% corporate tax rate and combining it with zero capital gains will make America the most desirable economy in the world in which to invest.

Eliminate the death tax permanently. Inheritance is the most powerful accumulator of capital and eliminating the death tax has been consistently supported by over 75% of the American people.

Give President Obama the Opportunity to Keep His Word. Adopt the best of the small business tax proposals announced by candidate Obama in October 2008 and forgotten by the Obama Administration in 2009.

Posted by Glenn P Morris NYC | Report as abusive
 

Obama owns this economy now. Quit the Bush bashing. I am also sick of seeing him on TV trying to convince the American people what is good for them. Thank God the true Americans are voicing their opposition,it is not too late. Go capitalism!!!!!

Posted by glenda martin | Report as abusive
 

I understand the article and the economic and political debates (arguments) being made here by the analyticals on both sides. I would like to suggest to posters that they read articles on behavioral investing or behavioral purchasing. This may surprise the readers here but the vast majority of people do not follow politics. And they certainly are not educated in economics or even capable of spelling GDP much less understanding a chart forecasting GDP quarterly percentage growth.

So to the point, voters measure candidates on how they feel about the candidate. For example:

1) I feel Candidate X is for the little guy. I am a little guy. Candidate X is my choice.

2) I feel Candidate X is for unions. I am a union guy. Candidate X is my choice.

3) I feel Candidate X is for women. I am a woman. Candidate X is my choice.

4) I feel Candidate X is for gays. I am gay. Candidate X is my choice.

5) I feel Candidate X is for minorities. I am a minority. Candidate X is my choice.

(And I use the demographics on the Dem side only in order to shorten the post. For fun, create your own list for Repubs.)

If Candidate X has enough voter support to win, victors then go to Washington to create personal family wealth for themselves, their friends and possibly their community, in that priority order. Are the voters original feelings accurate, relevant or even considered by the candidate? Perhaps..

But lets get real about the role analytics of any sort whether healthcare, energy, engineering, but especially economics have to play in the voters decision process or the ensuing support.

The overwhelming majority of people I have dealt with never let facts or data get in the way of their opinions (feelings).

Posted by GotLife | Report as abusive
 

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