Recession Over, Obama Takes Credit
As widely expected, the Powers That Be have declared the recession over, while cautioning that the economy still has a long way to go. And, of course, the Obama administration is crediting its stimulus packages for the good news.
It might not feel like it to most voters, but the U.S. economy is growing again after a more than a year of contraction. The nation’s gross domestic product grew at a seasonally adjusted rate of 3.5 percent for July through September — the first growth since the spring of 2008, the Commerce Department said Thursday. That marks a sort of unofficial end to the recession that has bedeviled President Barack Obama since he took office. Economists credited the growth to consumer spending — up 3.4 percent — fueled in part by government stimulus, such as the popular Cash-for-Clunkers car-buying program.
But Obama economic adviser Christina Romer stopped well short of declaring victory. “The U.S. economy is moving in the right direction. However, this welcome milestone is just another step, and we still have a long road to travel until the economy is fully recovered,” Romer said in a statement.
That’s because more than 15 million Americans remain out of work, and a jobs report is due next week that’s likely to show the nation’s unemployment rate continues to creep upward toward 10 percent. That means the White House and politicians on the Hill will be very careful about declaring the recession over, even if the economy has finally started growing again.
The Obama administration said its analysis found that the $787 billion stimulus program contributed between 3 and 4 percent points to the GDP growth — meaning the nation’s output would have risen little, if at all, in the past quarter without it.
Now, taking credit for good things that happened on their watch is simply what presidents do. Bush took credit for his recovery, Clinton for his, and Reagan for his. Naturally, few presidents take the blame for bad times, which they attribute variously to the business cycle, their predecessors, the Congress, or a national malaise.
But it’s rather clear that neither the $787 billion stimulus nor the Cash for Clunkers programs had much to do with the recovery, such as it is. Aside from the disputed AP report claiming that the administration’s report used some fuzzy math and bizarre calculations, the fact of the matter is that the recession was global and so, too, is the recovery. Things happening all over the world, generally, are not explainable by small gestures made in a single country — even a hyperpower.
Cash for Clunkers, most agree, simply moved up sales that would have happened later in the year. That’s not such a bad thing so far as it goes, except that many dealers are still waiting to get paid. It’s hard, then, to credit money that hasn’t been distributed for stimulating the economy. But, yes, condensing several months’ sales into a single month does boost the books for that quarter.
Ditto the “stimulus” package, almost all of which has all along been targeted for out years. Again, very little of that money has been spent and therefore it’s impossible for it to have done much stimulating, aside from whatever psychological impact the government’s “doing something” may have had. Most of the “stimulus” will presumably be spent well into the recovery, making it more akin to ordinary “pork.”
Again, this isn’t a partisan attack on Obama. He inherited an economic crisis and is doing what politicians do under the circumstances. And, yes, I similarly rejected George W. Bush’s claims that his modest tax rebate ended the recession he inherited from Bill Clinton. For that matter, I didn’t blame Bill Clinton for said recession nor overly credit him for the economic boom that took place over much of his tenure. He had the good fortune of being in office during the Internet boom and post-Cold War booms and the good sense not to screw it up. Presidents have some impact on the economy but not nearly as much as we attribute to them.
As to the recovery itself, the administration is right to downplay expectations. NPR’s Kevin Whitelaw:
“We’re no longer simply on the roller coaster to hell,” says Donald Luskin, the chief investment officer for Trend Macrolytics LLC, an economics consulting firm. “But the idea of returning back to normal growth levels? That will be well into next year.”
[…]
“In a normal recession, the leaves fall off the trees because it’s autumn,” Luskin says. “In this recession, the leaves fell off the trees because there was an enormous forest fire. It’s a little bit of uncharted territory to know how long it will take to come out of that.”
This time, the damage was so severe that companies and consumers alike appear more reticent to return to their old habits. With Americans still adjusting to the tough new economic realities, consumer spending might not recover for quite some time.
“We have seen a permanent change in consumer behavior after seeing their retirement savings and home values go down,” says Gus Faucher, the director of macroeconomics at Moody’s Economy.com. “People are going to be more cautious coming out of this recession than they have in previous recessions because of the depth of the downturn.”
“Permanent” is the wrong word here. Consumer confidence always rebounds. We’ve had numerous booms and busts since the Great Depression, after all. But not only was this recession deeper than any in quite some time it was this first major economic crisis in today’s 24/7/365 media climate and therefore the most hyped in history. It’ll naturally take longer to recover.
And some significant percentage of the 10 percent unemployed — a figure that’s all the more staggering after decades of record employment — will never get their old jobs back. Most will eventually land somewhere but this is a serious shakeup of the composition of our jobs base, not the standard business cycle.
Photo credit: For Granted
“Now, taking credit for good things that happened on their watch is simply what presidents do. Bush took credit for his recovery, Clinton for his, and Reagan for his. Naturally, few presidents take the blame for bad times, which they attribute variously to the business cycle, their predecessors, the Congress, or a national malaise.”
Absolutely. One should pick their national leaders more on foreign policy issues IMHO. The government’s primary real influence is in how well it performs its referee functions and what rules it sets. Individual presidents have little influence on short term change.
It will take much longer for the economy to recover because it will take longer for demand to recover, plus the ongoing globalization which is changing our economy.
Steve
But it’s rather clear that neither the $787 billion stimulus nor the Cash for Clunkers programs had much to do with the recovery, such as it is. […] [A]lmost all of [the stimulus] has all along been targeted for out years. Again, very little of that money has been spent and therefore it’s impossible for it to have done much stimulating, aside from whatever psychological impact the government’s “doing something†may have had. Most of the “stimulus†will presumably be spent well into the recovery, making it more akin to ordinary “pork.â€
This is wrong on a couple of levels.
First, a significant chunk of the stimulus has indeed already been spent.
Second, the proposition that behavior can never be influenced by an expectation of future cash receipts is absurd on its face. (Likewise for pooh-poohing “psychological impact”: the recession did not come about because Godzilla emerged from the Pacific and physically destroyed a big chunk of the country’s productive economic base.)
Man, this is what you get for being a 3rd source in a conservative (or libertarian) game of telephone.
Pssh. What does she know compared to a memeorandum daisy chain?
Really? Perhaps your view of the business cycle is too short. Then again, maybe you’re right given the way this crisis isn’t going to waste as we watch the government get ever bigger and badder, whole industries taken over by the government, health care rationing by the pure at heart coming soon to a clinic or hospital near you, and the largest financiers being put on short leashes held by the government. Never before has so much good money chased after bad and the effect will not be a good one.
Something like 20% of the stimulus has gone out. It’s disbursement schedule is kind of wave shaped, and we’re still headed toward the peak. That said, it’s thus far comprised of:
Tax Benefits: $62.5 B out of $288 B
Tax benefits are reasonably inefficient, in that they go to people who are on the whole better off. These people put a larger proportion of the money into paying off debt and into savings. While this is a good idea from a personal finance perspective, it has a limited effect in terms of stimulus.
Contracts, Grants, Loans: $47 B out of $275 B
These are a mixed bag, in terms of efficiency. Construction-related contracts are fairly efficient because that is where the greatest number of people have lost (or would otherwise lose) their jobs. In other words these govt jobs are not crowding out private jobs. Unfortunately, construction spending takes longer to implement.
Entitlements: $63.7 B out of $224 B
This can be very efficient (unemployment, food stamps, etc) when it is focused on people who will immediately spend the money. It can, however, be rather inefficient (social security) when it is direct toward people who on the whole are fairly financially stable.
FWIW, I don’t call this recession over. Not by my definition. It is possible that if you strictly consider the recession to be the contraction phase, and not the “down time,” we might be past that. Down time will continue with everyone’s house prices, savings, and jobs hammered.
Drew’s idea of a “splat” might not be wrong either, as the contributions of the stimuli drop out.
But surely those billions spent did something. It really does take a talking point daisy chain feeding on itself to invent the idea that this was immaculate spending, with no impact on GDP.
alkali,
35% is not significant. And how are car sales doing now that cash for clunkers is over?
The stimulus likely would have happened under a President McCain. We already had two under President Bush. I opposed them but understood why they happened.
I’m not arguing the spending was totally irrelevant — just not an explanation for a very large part of a global phenomenon. (And, please, Romer is brilliant but on Obama’s payroll.)
James, I highlighted my point of contention:
Your response seems a non-sequitor.
“But it’s rather clear that neither the $787 billion stimulus nor the Cash for Clunkers programs had much to do with the recovery, such as it is.”
It’s not clear to me. Do you always just make stuff up?
Oh, and this part,
That is why the stimulus will likely not have had much impact. I doubt we’ll see the bounce back that so many inside and outside the administration claimed. If we’d had the standard cyclical recession like we saw in the decades after WWII the stimulus might have had a larger impact. We don’t have that economy anymore, and it is questionable that we’ll get that kind of response to stimulus.
Now recessions have had a much longer lag time in regards to unemployment. Why? I don’t know, but if this recession continues the way things have gone with the previous two recessions we’ll likely see unemployment staying high for a long time.
The real danger in declaring the recession is over is that it will effectively close off the easy out of blaming Bush for anything else that happens henceforth. As Peggy Noonan said, it really is his pile of rubble now.
I also think this is right. We’ve seen 1 quarter of positive growth, while good it is hardly much to hang your hat on. The old definition used to be two quarters of positive growth…we haven’t seen that yet. I think declaring the recession over is premature.
Don’t worry Charles. I still blame Bush (for not tapping the brakes when the bridge was out). Oh, and for gutting SEC oversight in exactly the wrong decade. That’s enough for now.
Well, the recession is over so we’ll see how they spin a dismal Christmas buying season. For those not economic weenies, the recession will end when they get a job or feel more secure in the one they are clinging to. That means a lean Christmas buying season.
Of course, we still have a looming increase in taxes from healthcare, cap and trade and the taxes on everything enjoyable.
I expect that the personal recession indicator will be used and not the “official” determination of some people who now claim the recession started back in 2007 come election time.
It is for your own good JKB. Let the technocrats tell everyone how to live their lives and we will have utopia.
I’ve got a whole bunch of economists for you, at that socialist nest the Wall Street Journal yet, discussing how difficult it is to separate stimulus from GDP:
http://blogs.wsj.com/economics/2009/10/29/economists-react-gdp-puts-last-bit-of-dirt-on-great-recessions-grave/
Perhaps that is true. But we all know who was asleep at the helm while the building was collapsing around us…