Archive for February 7th, 2010

The Obama Recovery?

I had not yet heard that term, but Rawstory links to a blog titled “Antipartisan” by Sahil Kapur which has now thrown the phrase “Obama Recovery” into the political lexicon.   He also posts a pretty impressive chart:

This chart shows that the US economy hit rock bottom in January 2009, and since then has been slowly moving upward.   Note that this is not a chart showing economic growth — that’s been even more impressive, though driven by the stimulus funds.   Rather, this is something more important: jobs lost.

When an economy bleeds jobs, things don’t turn around on a dime.   Every job lost can lead to more jobs lost, as fewer have income and thus there is less consumption and demand.   This can spiral in on itself with no clear method of how to get out of it – that happened during the Great Depression.   Markets aren’t magic, they can get stuck.   The goal of a stimulus package is to turn that around, to start creating jobs again so that hiring begins and spirals the other way — to go from bust to boom.

The thing that people often don’t understand is that you can’t go from losing 800,000 jobs a month to creating new jobs right away.  The stimulus money at first can only stop more jobs from being lost to “turn around” the trajectory.   That’s good in that it works against a negative spiral, and starts upward movement.   But it also means that jobs are the most lagging indicator of when you leave a recession.   Jobs return last.   As I noted a couple of posts ago, Ronald Reagan’s job approval rating hit 38% in mid-1983.   Job losses had been going on throughout his administration, and thus he appeared early on to be failing as President.  Once jobs started coming back, so did his numbers.

If job creation starts later this year, even at a slow pace, the Democrats might find their prospects in November to be much better than they looked in February.   The Republicans are likely peaking too early.   Moreover, many on the right vastly misread the public mood.   They believe that the public is in line with the ‘tea party’ movement, disgusted with Obama and wanting small government and lower taxes.   But the public voted overwhelmingly Democratic just a year ago; the public is not ideological, they just want results.  The public wants the country to be on the right track, and the opposition party is always the ‘voice of change.’   The GOP could mix to rabid a campaign with a recovering economy to find that 2010 won’t be the comeback they’d been hoping for.   They’ll certainly make gains, but talk of regaining the House or taking the Senate is at best pre-mature, and most likely fantasy.

Still, even if the jobs picture picks up, the next task is to deal with the debt and deficit in a way which doesn’t spark a double dip recession.    The fact that the dollar is now at $1.36 a Euro, much stronger than just a month ago, even as the new budget with a $1.3 trillion deficit is released, is heartening.   It makes me think that perhaps economists like Paul Krugman are right in saying we need not worry about a collapsing dollar, and perhaps my analysis which has been pretty alarmist about that prospect is wrong.   Believe me, I hope my analysis has been wrong on that issue!

Still, I don’t think we can continue building debt and regain economic stability.  We have to produce more at home, keep our current account and trade deficit down, and explore new technologies, especially in the areas of energy and environment.   Maybe I’ll go back to my gloom and doom posts of the past year, and someday chalk this up to a mid-winter bout of optimism.   But with the dollar gaining value, job growth on the horizon, and the economy growing again, there is a sense that maybe, just maybe there is cause for optimism.

We cannot go back to the bubble economy, and a repeat of the consumerism craze of the mid 00’s isn’t on the horizon.  Rather, a sustainable economy built on investment, production, work, and a realistic assessment of risk is necessary.  We need a better regulatory structure, and most importantly, as a culture we need to have learned from the mistakes of the past decades.   As I noted last week, we’re not out of the woods yet, but there are rays of hope I didn’t expect to see shining forth.