“It’s The Facts Stupid”: The GOP Should Stop Lying About Obama’s Economy
Friday’s boffo jobs report—the 58th straight month of jobs growth in an expansion that has now entered its 67th month—was only the latest in a long string of positive economic data.
This recovery, which started in July 2009, has been the most politicized, partisan expansion I can recall. Indeed, for the last six years, monthly data like the employment report –as well as new initiatives and proposals to get the economy rolling—have been greeted by critics with apocalyptic declarations. For the last six years, we’ve seen a continuing response from Republicans: Under the set of policies pursued by President Obama (some of them continuations of policies enacted by President Bush) and of Federal Reserve Chairman Ben Bernanke (a Bush appointee) and Federal Reserve Chairman Janet Yellen, the U.S. economic ship is like the Titanic—rudderless in dangerous seas, bound for doom, about to sink.
Let’s review some of the greatest hits. In March 2009, at the depths of the recession, when the stimulus bill passed Michael Boskin, economic adviser to the first President Bush, took to the Wall Street Journal editorial page on March 6, 2009, to proclaim ”Obama’s Radicalism is Killing the Dow.” Were his budget and stimulus plans to be adopted, the U.S. would risk becoming a “European-style social welfare state with its concomitant long-run economic stagnation.” That day, the Dow touched, 6,600. Almost immediately, the markets commenced a raging, historical bull run. The Dow closed Friday at 17,737, an increase of 168 percent from March 2009.
In February, 2011, Rep. Paul Ryan, the former vice presidential candidate, took out after Bernanke, arguing that the Fed’s efforts to support an economy still laboring under the fallout of a financial crisis and a deep recession were poison. Specifically, Ryan assured the public that the Fed’s bond-buying efforts would ignite runaway inflation and tank the dollar. “There is nothing more insidious that a country can do to its citizens than debase its currency.” Whoops. Since then, inflation has been remarkably tame. The consumer price index, the official measure of inflation, actually fell .3 percent in November, and is up a mere 1.3 percent in the previous 12 months—far below the historical norm. And the dollar? Far from depreciating, it has been going gangbusters. The trade-weighted dollar index, which measures the strength of our currency against those of our major economic partners and competitors, has soared 15 percent since early 2011 and now stands at a nine-year high.
As the Bureau of Labor Statistics started pumping out reports that showed the economy adding jobs starting in early 2010, the response was generally to ignore them, or worse. In October, 2012, former General Electric CEO Jack Welch famously tweeted, “Unbelievable jobs numbers…these Chicago guys will do anything..can’t debate so change numbers.” In fact, we now know that the September 2012 jobs report was one of a continuing series—59 straight months and counting—in which the economy has added jobs. More than 10 million in all, more than recouping all the positions lost in the deep recession.
In 2011, candidate Mitt Romney claimed that, were he to be elected, the unemployment rate would fall below 6 percent by the end of his first term in 2016. Last month, under Obama, the rate fell to 5.6 percent, the lowest level since June 2008.
Next we were assured, the botched rollout of Obamacare was certain to manage the twin tasks of tanking the economy as a whole and resulting in a massive loss of insurance. In March 2014, House Speaker John Boehner noted “there are less people today with health insurance than there were before this law went into effect.” In fact, as countless studies and the continuing series of Gallup polls have shown, the percentage of people without health insurance has declined dramatically—from 18 percent in the third quarter of 2013, to 12.9 percent in the final quarter of 2014, a decline of nearly 30 percent. Oh, and in the year since Obamacare formally launched, the U.S. economy has posted solid growth while adding 2.95 million jobs—the best such performance since 1999.
Look. The recovery is nowhere near complete—there are still too many people who want and need jobs but can’t find them. And wages remain stagnant. But the larger narrative that has played out in front of our eyes has defied the one predicted by Republican establishment economists and economic thinkers, and vindicated those who argued America was coming back (like me). The stock market is booming, not tanking; interest rates are muted, not out of control; the deficit is shrinking, not expanding; the economy is adding lots of jobs, not shedding them; the dollar is robust, not weak; inflation is nonexistent, not out of control; energy prices have plummeted, not soared; millions of people have gained health insurance, not lost it.
Virtually everything GOP critics have told us would follow from the policies put in place has not come to pass. You would think that this would occasion a few mea culpas, some rethinking, an admission of poor prognostication. But, alas, it continues. Rep. Paul Ryan is now warning in a column that Obamacare “is weighing down our economy and discouraging hiring” and will ultimately “collapse under its own weight.”
I shouldn’t say nothing has changed. Efforts to deny economic gains have been increasingly difficult to carry off the longer the expansion continues. And so we’re now seeing a slight shift in narrative. Rather than argue that the economy and everything associated with it is in the crapper, Republicans are conceding that things might be looking up. But it’s only because the GOP won control of the House and Senate in November. “After so many years of sluggish growth, we’re finally starting to see some economic data that can provide a glimmer of hope,” Majority Leader Mitch McConnell said last week. “the uptick appears to coincide with the biggest political change of the Obama Administration’s long tenure in Washington: the expectation of a new Republican Congress.”
By: Daniel Gross, The Daily Beast, January 12, 2014
“Betraying His Ignorance”: Mitch McConnell Blames The Slow Recovery On Regulation Because He Doesn’t Understand How The Economy Works
On CNN’s “State of the Union” Sunday, incoming Senate Majority Leader Mitch McConnell said that Republicans in the 114th Congress will focus on blocking environmental and healthcare regulations: “We need to do everything we can to try to rein in the regulatory onslaught, which is the principal reason that we haven’t had the kind of bounce-back after the 2008 recession that you would expect.” But that is exactly the wrong lesson to take from the slow recovery. Rather than laying the foundation for the GOP’s agenda, McConnell is betraying his ignorance on economic issues.
After the financial crisis struck, consumers cut back on their spending and businesses stopped investing. This created a shortfall in aggregate demand—people weren’t buying enough stuff. As consumers stopped buying goods and services, businesses were forced to fire workers, who then cut back their purchases—a vicious cycle. The government’s role is to fill the shortfall in demand, which it can do either through fiscal or monetary stimulus. We’ve done both in the past few years. The stimulus pumped hundreds of billions of dollars into the economy through targeted tax cuts and spending programs. The Federal Reserve cut short-term interest rates to zero to spur investment and used unconventional monetary policy tools like large-scale asset purchases to lower long-term rates. All of this helped avoid a second Great Depression. In fact, as Paul Krugman explained in Rolling Stone in October, the current recovery is actually above average compared to recoveries from past financial crises.
It’s understandable that McConnell would think that this recovery has undershot expectations. Economic growth has been slow and wages haven’t rebounded for the majority of Americans. In fact, only recently—more than six years after the Great Recession—have Americans become more upbeat about the recovery. In other words, this recovery may be above average, but that doesn’t mean it’s been good.
McConnell’s real sin Sunday was his belief that “regulatory onslaught” has been the “principal reason” for the slow recovery. Republicans have made this argument throughout the Obama presidency. If we would only cut government spending, eliminate red tape, and cut taxes for the rich, they say, the economy would thrive. The problem is that these are all supply-side solutions intended to increase productivity and prevent government from crowding out investment. Yet, the economy has faced a demand problem. The GOP’s job agenda, or what they call a jobs agenda anyway, does little to address it.
That doesn’t mean that their agenda will always be unresponsive to the economy’s issues. As the recovery continues and the economy nears full employment, the demand problems will be much less of an issue. Then, Republican supply-side proposals will look more like a legitimate plan to boost growth. Those ideas still may not make sense for other reasons, but at least they could be considered an actual economic platform. Throughout the Obama presidency, though, they have failed to offer such a platform. By suggesting that excessive regulations are the primary driver of the weak recovery, McConnell is only revealing that the GOP hasn’t learned anything during that time either.
By: Danny Vinik, The New Republic, January 10, 2015
“Presidents And The Economy”: Serious Analyses Of The Reagan-Era Business Cycle Place Very Little Weight On Reagan
Suddenly, or so it seems, the U.S. economy is looking better. Things have been looking up for a while, but at this point the signs of improvement — job gains, rapidly growing G.D.P., rising public confidence — are unmistakable.
The improving economy is surely one factor in President Obama’s rising approval rating. And there’s a palpable sense of panic among Republicans, despite their victory in the midterms. They expected to run in 2016 against a record of failure; what do they do if the economy is looking pretty good?
Well, that’s their problem. What I want to ask instead is whether any of this makes sense. How much influence does the occupant of the White House have on the economy, anyway? The standard answer among economists, at least when they aren’t being political hacks, is: not much. But is this time different?
To understand why economists usually downplay the economic role of presidents, let’s revisit a much-mythologized episode in U.S. economic history: the recession and recovery of the 1980s.
On the right, of course, the 1980s are remembered as an age of miracles wrought by the blessed Reagan, who cut taxes, conjured up the magic of the marketplace and led the nation to job gains never matched before or since. In reality, the 16 million jobs America added during the Reagan years were only slightly more than the 14 million added over the previous eight years. And a later president — Bill something-or-other — presided over the creation of 22 million jobs. But who’s counting?
In any case, however, serious analyses of the Reagan-era business cycle place very little weight on Reagan, and emphasize instead the role of the Federal Reserve, which sets monetary policy and is largely independent of the political process. At the beginning of the 1980s, the Fed, under the leadership of Paul Volcker, was determined to bring inflation down, even at a heavy price; it tightened policy, sending interest rates sky high, with mortgage rates going above 18 percent. What followed was a severe recession that drove unemployment to double digits but also broke the wage-price spiral.
Then the Fed decided that America had suffered enough. It loosened the reins, sending interest rates plummeting and housing starts soaring. And the economy bounced back. Reagan got the political credit for “morning in America,” but Mr. Volcker was actually responsible for both the slump and the boom.
The point is that normally the Fed, not the White House, rules the economy. Should we apply the same rule to the Obama years?
Not quite.
For one thing, the Fed has had a hard time gaining traction in the wake of the 2008 financial crisis, because the aftermath of a huge housing and mortgage bubble has left private spending relatively unresponsive to interest rates. This time around, monetary policy really needed help from a temporary increase in government spending, which meant that the president could have made a big difference. And he did, for a while; politically, the Obama stimulus may have been a failure, but an overwhelming majority of economists believe that it helped mitigate the slump.
Since then, however, scorched-earth Republican opposition has more than reversed that initial effort. In fact, federal spending adjusted for inflation and population growth is lower now than it was when Mr. Obama took office; at the same point in the Reagan years, it was up more than 20 percent. So much, then, for fiscal policy.
There is, however, another sense in which Mr. Obama has arguably made a big difference. The Fed has had a hard time getting traction, but it has at least made an effort to boost the economy — and it has done so despite ferocious attacks from conservatives, who have accused it again and again of “debasing the dollar” and setting the stage for runaway inflation. Without Mr. Obama to shield its independence, the Fed might well have been bullied into raising interest rates, which would have been disastrous. So the president has indirectly aided the economy by helping to fend off the hard-money mob.
Last but not least, even if you think Mr. Obama deserves little or no credit for good economic news, the fact is his opponents have spent years claiming that his bad attitude — he has been known to suggest, now and then, that some bankers have behaved badly — is somehow responsible for the economy’s weakness. Now that he’s presiding over unexpected economic strength, they can’t just turn around and assert his irrelevance.
So is the president responsible for the accelerating recovery? No. Can we nonetheless say that we’re doing better than we would be if the other party held the White House? Yes. Do those who were blaming Mr. Obama for all our economic ills now look like knaves and fools? Yes, they do. And that’s because they are.
By: Paul Krugman, Op-Ed Columnist, The New York Times, January 4, 2015
“Rock Bottom Economics”: The Inflation And Rising Interest Rates That Never Showed Up
Six years ago the Federal Reserve hit rock bottom. It had been cutting the federal funds rate, the interest rate it uses to steer the economy, more or less frantically in an unsuccessful attempt to get ahead of the recession and financial crisis. But it eventually reached the point where it could cut no more, because interest rates can’t go below zero. On Dec. 16, 2008, the Fed set its interest target between 0 and 0.25 percent, where it remains to this day.
The fact that we’ve spent six years at the so-called zero lower bound is amazing and depressing. What’s even more amazing and depressing, if you ask me, is how slow our economic discourse has been to catch up with the new reality. Everything changes when the economy is at rock bottom — or, to use the term of art, in a liquidity trap (don’t ask). But for the longest time, nobody with the power to shape policy would believe it.
What do I mean by saying that everything changes? As I wrote way back when, in a rock-bottom economy “the usual rules of economic policy no longer apply: virtue becomes vice, caution is risky and prudence is folly.” Government spending doesn’t compete with private investment — it actually promotes business spending. Central bankers, who normally cultivate an image as stern inflation-fighters, need to do the exact opposite, convincing markets and investors that they will push inflation up. “Structural reform,” which usually means making it easier to cut wages, is more likely to destroy jobs than create them.
This may all sound wild and radical, but it isn’t. In fact, it’s what mainstream economic analysis says will happen once interest rates hit zero. And it’s also what history tells us. If you paid attention to the lessons of post-bubble Japan, or for that matter the U.S. economy in the 1930s, you were more or less ready for the looking-glass world of economic policy we’ve lived in since 2008.
But as I said, nobody would believe it. By and large, policy makers and Very Serious People in general went with gut feelings rather than careful economic analysis. Yes, they sometimes found credentialed economists to back their positions, but they used these economists the way a drunkard uses a lamppost: for support, not for illumination. And what the guts of these serious people have told them, year after year, is to fear — and do — exactly the wrong things.
Thus we were told again and again that budget deficits were our most pressing economic problem, that interest rates would soar any day now unless we imposed harsh fiscal austerity. I could have told you that this was foolish, and in fact I did, and sure enough, the predicted interest rate spike never happened — but demands that we cut government spending now, now, now have cost millions of jobs and deeply damaged our infrastructure.
We were also told repeatedly that printing money — not what the Fed was actually doing, but never mind — would lead to “currency debasement and inflation.” The Fed, to its credit, stood up to this pressure, but other central banks didn’t. The European Central Bank, in particular, raised rates in 2011 to head off a nonexistent inflationary threat. It eventually reversed course but has never gotten things back on track. At this point European inflation is far below the official target of 2 percent, and the Continent is flirting with outright deflation.
But are these bad calls just water under the bridge? Isn’t the era of rock-bottom economics just about over? Don’t count on it.
It’s true that with the U.S. unemployment rate dropping, most analysts expect the Fed to raise interest rates sometime next year. But inflation is low, wages are weak, and the Fed seems to realize that raising rates too soon would be disastrous. Meanwhile, Europe looks further than ever from economic liftoff, while Japan is still struggling to escape from deflation. Oh, and China, which is starting to remind some of us of Japan in the late 1980s, could join the rock-bottom club sooner than you think.
So the counterintuitive realities of economic policy at the zero lower bound are likely to remain relevant for a long time to come, which makes it crucial that influential people understand those realities. Unfortunately, too many still don’t; one of the most striking aspects of economic debate in recent years has been the extent to which those whose economic doctrines have failed the reality test refuse to admit error, let alone learn from it. The intellectual leaders of the new majority in Congress still insist that we’re living in an Ayn Rand novel; German officials still insist that the problem is that debtors haven’t suffered enough.
This bodes ill for the future. What people in power don’t know, or worse what they think they know but isn’t so, can very definitely hurt us.
By: Paul Krugman, Op-Ed Columnist, The New York Times, November 23, 2014
“The Forever Slump”: The Debate Between The ‘Too-Muchers’ And The ‘Not-Enoughers’
It’s hard to believe, but almost six years have passed since the fall of Lehman Brothers ushered in the worst economic crisis since the 1930s. Many people, myself included, would like to move on to other subjects. But we can’t, because the crisis is by no means over. Recovery is far from complete, and the wrong policies could still turn economic weakness into a more or less permanent depression.
In fact, that’s what seems to be happening in Europe as we speak. And the rest of us should learn from Europe’s experience.
Before I get to the latest bad news, let’s talk about the great policy argument that has raged for more than five years. It’s easy to get bogged down in the details, but basically it has been a debate between the too-muchers and the not-enoughers.
The too-muchers have warned incessantly that the things governments and central banks are doing to limit the depth of the slump are setting the stage for something even worse. Deficit spending, they suggested, could provoke a Greek-style crisis any day now — within two years, declared Alan Simpson and Erskine Bowles some three and a half years ago. Asset purchases by the Federal Reserve would “risk currency debasement and inflation,” declared a who’s who of Republican economists, investors, and pundits in a 2010 open letter to Ben Bernanke.
The not-enoughers — a group that includes yours truly — have argued all along that the clear and present danger is Japanification rather than Hellenization. That is, they have warned that inadequate fiscal stimulus and a premature turn to austerity could lead to a lost decade or more of economic depression, that the Fed should be doing even more to boost the economy, that deflation, not inflation, was the great risk facing the Western world.
To say the obvious, none of the predictions and warnings of the too-muchers have come to pass. America never experienced a Greek-type crisis of soaring borrowing costs. In fact, even within Europe the debt crisis largely faded away once the European Central Bank began doing its job as lender of last resort. Meanwhile, inflation has stayed low.
However, while the not-enoughers were right to dismiss warnings about interest rates and inflation, our concerns about actual deflation haven’t yet come to pass. This has provoked a fair bit of rethinking about the inflation process (if there has been any rethinking on the other side of this argument, I haven’t seen it), but not-enoughers continue to worry about the risks of a Japan-type quasi-permanent slump.
Which brings me to Europe’s woes.
On the whole, the too-muchers have had much more influence in Europe than in the United States, while the not-enoughers have had no influence at all. European officials eagerly embraced now-discredited doctrines that allegedly justified fiscal austerity even in depressed economies (although America has de facto done a lot of austerity, too, thanks to the sequester and cuts at the state and local level). And the European Central Bank, or E.C.B., not only failed to match the Fed’s asset purchases, it actually raised interest rates back in 2011 to head off the imaginary risk of inflation.
The E.C.B. reversed course when Europe slid back into recession, and, as I’ve already mentioned, under Mario Draghi’s leadership, it did a lot to alleviate the European debt crisis. But this wasn’t enough. The European economy did start growing again last year, but not enough to make more than a small dent in the unemployment rate.
And now growth has stalled, while inflation has fallen far below the E.C.B.’s target of 2 percent, and prices are actually falling in debtor nations. It’s really a dismal picture. Mr. Draghi & Co. need to do whatever they can to try to turn things around, but given the political and institutional constraints they face, Europe will arguably be lucky if all it experiences is one lost decade.
The good news is that things don’t look that dire in America, where job creation seems finally to have picked up and the threat of deflation has receded, at least for now. But all it would take is a few bad shocks and/or policy missteps to send us down the same path.
The good news is that Janet Yellen, the Fed chairwoman, understands the danger; she has made it clear that she would rather take the chance of a temporary rise in the inflation rate than risk hitting the brakes too soon, the way the E.C.B. did in 2011. The bad news is that she and her colleagues are under a lot of pressure to do the wrong thing from the too-muchers, who seem to have learned nothing from being wrong year after year, and are still agitating for higher rates.
There’s an old joke about the man who decides to cheer up, because things could be worse — and sure enough, things get worse. That’s more or less what happened to Europe, and we shouldn’t let it happen here.
By: Paul Krugman, Op-Ed Columnist, The New York Times, August 14, 2014
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