Now We’re In A Position To Really Accelerate

With the economy apparently not responding to the stimulus President Obama is trying to reassure the nation that everything is on track. At least that is the story of this article.

WASHINGTON (AP) – President Barack Obama assured the nation his recovery plan was on track Monday, scrambling to calm Americans unnerved by unemployment rates still persistently rising nearly four months after he signed the biggest economic stimulus in history.

Obama admitted his own dissatisfaction with the progress but said his administration would ramp up stimulus spending in the coming months. The White House acknowledged it has spent only $44 billion, or 5 percent, of the $787 billion stimulus, but that total has always been expected to rise sharply this summer.

I can’t help but feel that this was precisely the objection that many raised in regards to a massive spending bill. That the time it would take to spend the money would likely mean that very little of it would actually be stimulus spending during the recession.

“Now we’re in a position to really accelerate,” Obama said.

He also repeated an earlier promise to create or save 600,000 jobs by the end of the summer.

Ahhh, don’t you love the smell of politicians weaseling…it smells like cow farts. Of course, even saving those 600,000 jobs puts the Administration well behind its initial stated goals in regards to unemployment. Still it looks like most Americans are not falling for this is “create of save” line of silliness.

The economy has shed 1.6 million jobs since the stimulus measure was signed in February, far overshadowing White House announcements estimating the effort has saved 150,000 jobs. Public opinion of Obama’s handling of the economy has declined along with the jobs data.

For the first time, the administration admitted the economic forecasts it used to sell the stimulus were overly optimistic.

“At the time, our forecast seemed reasonable,” Vice President Joe Biden’s top economic adviser, Jared Bernstein, said Monday, explaining that the White House underestimated the scope of the recession. “Now, looking back, it was clearly too optimistic.”

Really? Lets think about this…we are about on track for unemployment with no stimulus spending and we have virtually…no stimulus spending. What a shocking result. How about the forecast was actually not all that bad and the Administration has not been spending the money fast enough. That the “shovel ready” projects really weren’t all that ready?

Some analysts believe the White House is still not being realistic, that Obama will be lucky if any real job creation from his recovery effort is seen by the end of the year, let alone the employment explosion he predicts.

I think this is correct. The past two recessions have had increasingly longer lag times in terms of unemployment responding to a growing economy. The last recession was over in November of 2001, but the unemployment rate didn’t start to decline for another 19 months.

Obama spoke Monday about “modest progress” in the economy, citing fewer jobs lost last month than expected. He said he hopes to build on that in the months ahead with stimulus programs.

“We’ve done more than ever, faster than ever, more responsibly than ever, to get the gears of the economy moving again,” he said.

But he acknowledged, “I’m not satisfied. We’ve got more work to do.”

[…]

By any measure, spending $44 billion in less than four months – and with unprecedented openness – is an uncharacteristic feat in Washington: The $44 billion amounts to about 9 percent of the stimulus money that is not going to tax cuts. But the expectations have been even higher.

It may well be true that the $44 billion so far represents rather fast spending, but there is another possibility as well…that this is as fast as it can be spent. If this is the case then we will not see much impact from the stimulus for sometime.

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Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. odograph says:

    In other places you acknowledge that macroeconomic prediction, especially in fine detail, is impossible, and yet you open with:

    With the economy apparently not responding to the stimulus […]

    How do you figure that? Do you have a counterfactual?

  2. odograph says:

    Really? Lets think about this…we are about on track for unemployment with no stimulus spending and we have virtually…no stimulus spending.

    What is the internal logic on that? With government less hiring there would be more jobs? Where would the money come from, as consumer spending dives and businesses deleverage?

  3. Steve Verdon says:

    What is the internal logic on that? With government less hiring there would be more jobs? Where would the money come from, as consumer spending dives and businesses deleverage?

    The logic is simple.

    We have to projection paths for unemployment.

    1. With stimulus.
    2. Without stimulus.

    We were told that we are still on path number 1, but that the initial forcasts for both series were overly optimistic.

    My claim is that we are on path #2 above which fits with the no stimulus given the paltry level of spending so far.

    In short, as you would say,

    “I’ll take ‘all unemployment estimates are political’ for $200 Alex.”–link

    But the politics is to pretend things are actually much worse than they really are so that we can still proclaim the current policies a success. You see, we toss the old projections…or acutally just add several percentage points to both of them and claim, “No, no, the stimulus is still working even though we’ve hardly spent anything. Just the mere thought of it is creating jobs!!”

    And just to be clear here Odograph, my statement wasn’t at all intended to imply that without the stimulus we’d have more jobs. Really. Not. At. All. It was meant to call Bravo Sierra on the statement that the initial forecast was too optimistic. I don’t think it was, I think it was probably not bad, and that there has been little to show for jobs because, like many indicated, the spending isn’t happening fast enough…at the very least. With bond markets reacting the way they have, that could also be putting a dampener on things as well. If businesses are looking at interest rates and thinking they might go up they might hold off on a project they were contemplating. Take a wait-and-see approach.

    I guess you could say that all this spending is too much of a good thing. While a case for modest stimulus could be made (as per Arnold Kling) the amounts we are talking about are potentially huge.

    Oh and here is another thought. If the lag in unemployment is as long as the last recession and James Hamilton is right that the recovery wont be very robust, then the fiscal picture will get worse, not better. That wont be good if the bond market is already “unhappy” with the way things are looking in regards to spending, monetary policy and so forth.

  4. odograph says:

    I think it is much simpler (satisfies Occam’s razor) to say that the recession is proving deeper and longer than optimistic predictions. (See your following article.)

    Now, I think it is also important to note that anti-stimulus arguments (including those here at OTB) said “spending won’t arrive until the (V-shaped) recession is over.” Those complaints were tied to the “V” and an expectation of a bounce-back economy.

    Putting this all together, it seems strange to fault the stimulus that should not have been for the recession we did not get.

  5. odograph says:

    BTW, you amuse me to say “but the politics [were] to pretend things are actually much worse than they really [would be]” when OTB was one of those at the forefront of calling any pessimistic prediction “fearmongering” or “talking down the economy.”

  6. So, does …

    President Barack Obama assured the nation his recovery plan was on track Monday…

    … and …

    Obama admitted his own dissatisfaction with the progress but said his administration would ramp up stimulus spending in the coming months.

    … mean President Obama is dissatisfied with his own plan even though it is on track? Of course, why should I expect anyone to care about this little inconsistency when he is allowed to get away with whoppers like this:

    He also repeated an earlier promise to create or save 600,000 jobs by the end of the summer.

    Why not just claim that his very essence has raised the IQs of all children in the United States by 8 points. Oh, because that would be something actually measurable. Never mind. But the hits just keep on coming:

    By any measure, spending $44 billion in less than four months – and with unprecedented openness – is an uncharacteristic feat in Washington: The $44 billion amounts to about 9 percent of the stimulus money that is not going to tax cuts. But the expectations have been even higher.

    Really, he gets credit for spending money faster than ever before? Even if there aren’t any results to show for it? Aside from the “created or saved” jobs, of course. And that flat out lie about unprecendented openness? Please.

    Any guesses what happens to the unemployment statistics once interest rates start rising and inflation starts to heat up? Even if the the Masters of the Universe knew what they were doing and it was the right thing to do, their success still depends on everyone else not knowing what they are up to, otherwise the feedback loops make their plans and calculations perhaps worse than worthless. FWIW, I don’t have any faith that they are doing the right thing and I am rapidly losing faith that they know what they are doing at all.

    So, any suggestions on the best investments for a multi-year severe economic decline?

  7. Steve Verdon says:

    I think it is much simpler (satisfies Occam’s razor) to say that the recession is proving deeper and longer than optimistic predictions. (See your following article.)

    Read it again. Hamilton is noting that if the pattern holds the recession will be over sooner than later, but that the recovery will be anemic.

    Now, I think it is also important to note that anti-stimulus arguments (including those here at OTB) said “spending won’t arrive until the (V-shaped) recession is over.” Those complaints were tied to the “V” and an expectation of a bounce-back economy.

    That was only part of the anti-stimulus argument. The other part is that it just might not work. If we don’t have the ‘V’ shaped recovery, than that argument is correct.

    Putting this all together, it seems strange to fault the stimulus that should not have been for the recession we did not get.

    That is because that is not my argument. My argument is that we aren’t seeing the boost to employment we were supposed to get. I’d say there are two reasons for that,

    1. The stimulus isn’t providing as big a multiplier as they thought,
    2. There isn’t that much stimulus so far.

    I’ve never implied, anywhere, that the stimulus caused the recession. That is something your own imagination cooked up.

    BTW, you amuse me to say “but the politics [were] to pretend things are actually much worse than they really [would be]” when OTB was one of those at the forefront of calling any pessimistic prediction “fearmongering” or “talking down the economy.”

    The inconsistencies of presidential administrations are not my problem.

  8. odograph says:

    Others have stuck with a Summer ’09 prediction for end of official “recession” but I don’t see that in this Hamilton piece.

    I have also seen a few people make predictions about future NBER judgments about the end of this recession, and pontificate from there. That’s piling it kind of deep, when you think about it.

    1) That the future will be X
    2) That NBER will judge the future as X
    3) That therefore I can skip ahead now
    4) and editorialize on 1-3 all being true

    The easiest way to know the future is to predict it?

  9. odograph says:

    The inconsistencies of presidential administrations are not my problem.

    Even as you rely on them?

    The only way you can make your claim that unemployment has not been helped by stimulus (or other federal action) is to use them, when convenient.

  10. Steve Verdon says:

    Others have stuck with a Summer ’09 prediction for end of official “recession” but I don’t see that in this Hamilton piece.

    Its in the part I quoted,

    In each of the last 6 recessions, the 4-week average of this series reached a peak less than 8 weeks before the economic recovery began. None of the readings over the last 8 weeks exceeded the value reached April 9, consistent with the hypothesis that we are past the peak in new claims for this cycle.

    What Hamilton is saying, is that within 8 weeks prior to the end of the recessions the 4 average of new unemployment claims has peaked. In other words, we could see the end of the recession in the next few weeks…although we probably wont know it till well past it.

    1) That the future will be X
    2) That NBER will judge the future as X
    3) That therefore I can skip ahead now
    4) and editorialize on 1-3 all being true

    Are you suggesting I have written something like this here or in the other post you referenced? If so, I don’t think it squares with this statement I wrote,

    In other words, if the pattern holds that we’ve seen in the last 6 recessions we may be at the low point in the recession, and that the economy might start growing again. Note I said might.

    Even as you rely on them?

    The only way you can make your claim that unemployment has not been helped by stimulus (or other federal action) is to use them, when convenient.

    Not quite. It would help if you grasped the basic concepts first. That you can’t is your primary problem.

  11. odograph says:

    I think my position is much simpler Steve, and not reliant on anyone else’s old economic projections.

    My simple observation is that to the extent the recession (and recovery) are longer, deeper, or slower, then that old stimulus becomes more justified and less likely to be “late.”

    Now, this paragraph?

    In each of the last 6 recessions, the 4-week average of this series reached a peak less than 8 weeks before the economic recovery began. None of the readings over the last 8 weeks exceeded the value reached April 9, consistent with the hypothesis that we are past the peak in new claims for this cycle.

    I would not call that a strong call for end of recession, especially given the following paragraph:

    On the other hand, the most recent values for initial unemployment claims have not shown further improvements. Although the number released on Thursday was widely reported in the press as a drop in the number of new claims, it actually resulted in a slight increase in the 4-week average, putting the latter pretty much back where it was 4 weeks ago. If we were really beginning a recovery similar to that experienced in previous episodes, we should be seeing sharper drops in this number at this point.

    On:

    Are you suggesting I have written something like this here or in the other post you referenced? If so, I don’t think it squares with this statement I wrote,

    I get that, but how does the whole argument hang if you really let it go, and say you don’t know when this thing ends?

    The idea that the old projection ‘without stimulus’ is really our future ‘with stimulus’ is looking pretty odd, even without that.

    Really, you are confusing me using that ‘without stimulus’ prediction at one moment, and an ‘open if’ at another.

    As I say, that is pretty complicated, and much less simple than this observation that this isn’t the traditional recession we were told to expect .. back when OTB got its panties in a bunch about the phrase “worst since the Great Depression.”

  12. Steve Verdon says:

    I would not call that a strong call for end of recession, especially given the following paragraph:

    I never said it was. Backpedalling on your part duly noted.

  13. odograph says:

    LOL, what kind of environment do you live in Steve?

    You think anything that isn’t an insult is backpedalling?

    You wrote:

    In other words, we could see the end of the recession in the next few weeks…although we probably wont know it till well past it.

    No not “in other words” (do I need to call you a name at this point, for you to get it?).

    Instead, Hamilton piled on data going in the other direction entirely.

  14. Steve Verdon says:

    Instead, Hamilton piled on data going in the other direction entirely.

    Not true. The rest of the data is not great, but not horrid either. It suggests that if we see the recovery that it will be anemic, or that we might not see the recovery for some time yet to come…which fits with what I wrote in the second post today,

    In other words, if the pattern holds that we’ve seen in the last 6 recessions we may be at the low point in the recession, and that the economy might start growing again. Note I said might.

    In other words, either an L-shaped or U-shaped recover…if we see one starting soon.