Obama’s premature economic celebration
New York Times economics columnist David Leonhardt has been a dependable communicator of the White House take on domestic policy. And by those standards, today’s column was worth noting. In his own gentle way, Leonhardt takes the Obama administration to task for a bit of premature economic celebration:
On the evening of Dec. 3 last year, the Bureau of Labor Statistics sent an advance copy of the next morning’s jobs report to the White House. … It showed that job losses had all but stopped in November, after nearly two years of big declines. White House aides exulted. Christina Romer, a top economist, brought a copy of the numbers to the Oval Office, and President Obama embraced her. … Today, that brief period of optimism looks like one of the worst things that could have happened to the White House, other Democrats and, above all, the economy. The nascent recovery removed the urgency that the Obama administration and Democratic senators felt in early 2009. They still favored more action, like aid to states and tax cuts, but it was no longer their top priority. They assumed a recovery was under way.
Even through the spring, Team Obama was upbeat, never buying the whole “New Normal” interpretation of the aftermath of the Great Recession. This is a point Leonhardt fails to recognize.
But I keep coming back to the fact that this administration is full of people who knew that financial crises tended to produce weak recoveries — and that the typical policy mistake was being too timid. “We’re just not going to make that mistake,” Timothy Geithner, the incoming Treasury secretary, told me, as Mr. Obama was preparing to take office. “We’re not going to do that. We’ll keep at it until it’s done, whatever it takes.”
What? I don’t know what Leonhardt is talking about. I have found the WH to be dismissive of talk about “lost decades” and the long-term economic impact of financial crises. And they are still skeptical of the work of Kenneth Rogoff and Carmen Reinhardt that shows high-debt countries suffer slower economic growth, at least at anything close to current U.S debt levels. Bottom line: Team Obama thought the economy would be doing a lot better by now, which would help ensure continued Democratic control of Congress. As I wrote in The Weekly Standard in August:
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.”