The current state of Obamanomics, according to former White House economist Keith Hennessey:
For the time being, the Administration and its allies are implicitly wagering that the new jobs report is not an early warning sign of a new downward trend. They are sticking to their existing policy and message.
I see at least five challenges on the path they have chosen:
- It might be wrong. If the July employment report (to be released August 7th) is worse than the June report, the Obama team will look like they have missed a turning point. In their preemptive defense, it’s often quite difficult to identify turning points.
- The Vice President’s comment that “we misread the economy,” followed by the President’s comment that “we had incomplete information,” undermines confidence in the Administration’s ability to diagnose and address major macroeconomic trends. Sticking with the current path under potentially changed circumstances risks reinforcing this feeling.
- They have to rally nervous allies to echo their message that “the stimulus is working,” while the evidence to prove this is in question. Just as it’s impossible for opponents to prove that the stimulus did not “save or create” jobs, it’s impossible for the Administration to demonstrate that 467,000 lost jobs is better than it would have been without the stimulus. On a raw political level, how do you convince people that the stimulus is working when the economy is still in visible decline?
- They have to publish the Mid-Session Review of the President’s Budget this month, with a new updated economic forecast. That forecast was almost certainly locked down weeks ago. Do they revise it downward based on last week’s bad jobs data? Either choice has significant downsides.
- They have to combat a press trend for a “weakening U.S. economy” storyline to overwhelm their desire to move health care legislation through the Congress in July. This storyline has exploded today in the Washington-centric press.