James Pethokoukis

Politics and policy from inside Washington

Why only 41 percent of Americans approve of Obama’s job performance

Aug 18, 2010 18:42 UTC

The latest Gallup numbers are not good for the White House or congressional Democrats. The overnight tracking has Barack Obama’s approval-disapproval rating at 41 percent-52 percent. Based on the Rahm Emanuel formulation that for every point below 50 percent, the Dems lose five House seats, it looks like the GOP will take the lower chamber. This bit from a Weekly Standard piece I did pretty much explains it:

Declaring a “Recovery Summer” victory tour at the start of June must have looked like a pretty safe wager for the Obama administration. The economy seemed to have shifted firmly into gear during the spring. Lawrence Summers, director of the National Economic Council, told the Financial Times in early April that the economy was “moving toward escape velocity. You hear a lot less talk of ‘W’-shaped recoveries and double-dips than you did six months ago.”

A big reason for White House optimism was a stronger job market. The economy added an average of 320,000 net new jobs a month during March, April, and May, about half of them in the private sector. Granted, the unemployment rate still hovered close to 10 percent. But if the economy kept growing at a 3 percent annual clip or greater—creating lots and lots of new jobs in the process—unemployment would eventually fall, perhaps dramatically. As one White House insider remarked upon reviewing all the macro-indicators and then evaluating the economic team’s performance, “It looks like we got things just about right.

Since then, however, the economy has fallen back to earth, and “Recovery Summer” looks more like a bad bet. Private sector job growth has fallen by two-thirds, and the unemployment rate is still at a sky-high 9.5 percent. And if the size of the U.S. workforce, as measured by the Labor Department, had stayed constant since April—instead of shrinking by a million—the unemployment rate would be 10.4 percent. Jobless claims are at their highest level since February. Worse yet, the expansion is decelerating. After growing by 5.7 percent in the final quarter of 2009 and 3.7 percent in the first quarter of 2010, GDP advanced by just 2.4 percent from April through June, according to the Commerce Department. And new data show the final second-quarter number may actually be closer to flat, with growth for the rest of the year just 1 to 2 percent at best.


Not to mention, Potato, that not all government spending is “stimulus,” so what you quoted isn’t actually a contradiction. It might be an unrealistic expectation, but it’s not a contradiction.

Posted by ZPT | Report as abusive

Are Fannie and Freddie really worth it?

Aug 18, 2010 18:11 UTC

CNBC’s John Carney nails it right on the head:

Defenders of Fannie and Freddie insist that their role in making mortgages cheaper is vital to the market and expanding home-ownership.

But this is nonsense. Fannie and Freddie never made mortgages cheaper — they merely hid the costs. The subsidy was illusory.

Economists estimate that over the course of their lifetimes, Fannie and Freddie probably saved homebuyers $100 billion in mortgage payments. That compares very badly to the $145 billion in bailout funds they’ve already received — and horribly with the $386 billion the Congressional Budget Office says the companies will cost taxpayers over the next decade. Homebuyers got cheaper mortgages but at a very stiff price for taxpayers.

Any sensible person can see that this is a bad deal.

If we really want to make home-mortgages cheaper, we would do far better admitting that we cannot do this for free. The money saved on the mortgage will end up on the tax bill.

Several studies show that the benefit to mortgage rates is quite slight, perhaps as little as 20 basis points.


Carney forgets one important point in his equation – home prices! The private market screwed up the housing market with their greed and dispassionate arrogance and we, the taxpayers have had to make up for their avarice.

Without Freddie and Fannie, though they are going to cost us a tremendous amount of money, home values across this country would probably decline by $2 trillion at the least.

So, Jimmy P, your insistence to quote Carney is a huge and disingenuous mistake that points directly back to the excess of free-market capitalism.

Posted by jim_worth | Report as abusive

Yeah, states have plenty of fat to cut

Aug 18, 2010 18:09 UTC

It may be long past time that US state and local governments start watching their pennies a bit more closely. As new research from George Mason University has found (bold mine):

Since the close of World War II, aggregate state and local spending grew 34 percent faster than the private sector and 37 percent faster than federal government spending. In recent years, the difference in growth rates has widened. From 2000 to 2009, state and local government spending grew nearly twice as fast as the private sector (while over the same period, the federal government grew even faster). … In this paper, I review some of these trends and then estimate what would have happened under an alternate scenario in which spending growth had been restrained. I look at the ten states with the largest FY2009 budget gaps and the ten states with the largest FY2010 budget gaps. Because six states make both lists, I analyze fourteen states in total. For each, I estimate what its FY2009 spending level would have been had its budget grown at the pace of population growth and inflation, beginning in two periods: 1987 and 1995. In twelve of the fourteen states, the entire FY2009 budget gap would have been avoided had the state kept spending at real 1995 per capita levels. In thirteen of the fourteen states, the budget gap would have been avoided had the state kept spending at real 1987 per capita levels.



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How U.S. stimulus is being exported

Aug 18, 2010 18:08 UTC

Interesting to see if any politicians pick up on this argument from former Morgan Stanley economist Andy Xie:

Stimulus is prescribed as a panacea for recession. In today’s global economy, it isn’t effective in the best of circumstances and is outright wrong for what ails the West now.

Trade and foreign direct investment total half of global gross domestic product. Multinational corporations drive both. They shop around the world for the lowest-cost production centers and ship goods to wherever the demand is. Demand and supply are dislocated. So when a government introduces stimulus, the initial increase in demand doesn’t necessarily boost local supply. More importantly, if multinationals decide to invest somewhere else, there wouldn’t be an increase in jobs to sustain the growth in demand beyond the stimulus.

Just as water flows down, stimulus affects low-cost economies more, wherever it is initiated. As the West pours money into the global economy through large fiscal deficits or central banks expanding balance sheets, the emerging economies are drowning in excess liquidity. Everything is turning red-hot.