I detect among some Democrats in Washington a palpable unease about the direction of the U.S. economy, and about the unemployment rate in particular. Notwithstanding hindsight bias, it is fair to say that the decline in the rate of the growth of the unemployment rate -- read that carefully a few times -- isn't responding as well as some Democrats had hoped to the $800 billion stimulus package that was sold as a jobs creator.
The realities of government and the economy are such that the UI rate -- an artificial, constructed, value-laden number, to be sure -- tend to lag behind economic growth; no matter how quickly the Obama administration wanted the stimulus money out of the door and into the hands of individuals and businesses, it just, darn it, takes time. (Rahm Emanuel worries about this problem more than many of his colleagues are aware.)
The truth, of course, is that the unemployment rate is a reflection of many things, aggregate demand being just one: confidence in the direction of the economy (which is rising), businesses beginning to add inventory again (not clear if this is happening yet), credit markets functioning normally (not yet, really), and jitters about inflation/deflation simmering down (not yet.)
The more important point question Democrats are asking themselves: when will the trend turn? When will Obama be able to argue that he has created jobs -- or a single job?
The problem is that the unemployment rate is a big political number, and a rate that exceeds 10.0 -- another artificial level -- is tough. Democrats worry that if the UI rate isn't down substantially by the time voters make up their minds -- roughly, a year from now, mid-summer, 2010, their party will suffer. It's one thing to say that voters don't blame Democrats for the UI rate now -- they don't -- and it's entirely another to presume that voters won't be angrier at the slow pace of progress by this time next year.
Would a second stimulus package help? That's for economists to say, although I presume that most would say, "not soon enough." Politically, it's a non-starter. Democrats can't afford another fight about deficit spending, the White House has no desire to start one, and ideas that might attract GOP votes, like major tax cuts, are off the table.
The White House is putting its faith in the ability of the American people to accept a complicated argument about the state of the economy, one that allows for leading, coincident and lagging indicators. It's a gamble, but a reasonable one.
As usual, the politics and policy converge and then diverge. If, come this fall, the unemployment rate exceeds 10 percent and Congress demands a head from the administration, will they be given one?
True, the administration's top economic thinkers, like Jared Bernstein and Christina Romer, projected a much different pathway for the unemployment rate. But so did private forecasters, who are able to quietly revise their forecasts weekly. It's clear that the Obama economic brain trust did not anticipate how bad January and February would be. Then again, few policy-makers, economists or otherwise, did.
If Democrats lose their cool and their patience, they could wind up hurting themselves even more. Democratic panic will turn the economy into a political weapon that Republicans can use against the Democrats.
It wouldn't surprise me if they lost their cool or managed to blow this opportunity. These are the same Dems who were wringing their hands over decisions that then candidate Obama made. How many times did they worry that "he'd cost himself the election" by not picking Mrs Clinton for VP? Passed on public financing? Gave the speech in Germany? Allowed the Clintons to have too much of a presence in Denver? I could go on, but basically they worried he'd lose an election that had everything in his favor. The only way Obama could have lost that election is if he'd been caught in bed with a dead girl or a live boy. And even then it still might have been close! Yet to hear them talk the sky was falling whenever the media said things were getting tough. Instead of a resolution to label them the Socialist Party the Republicans should have tried to get them to change their mascot from a donkey to a jellyfish.
You seem to be saying that everything is pretty much fine, that 'some dems' are uneasy, and that politically-bad things could happen if the UI doesn't change a year from now. I ask this in the most genuine way, what's the purpose of this post?
I second IDTT's post and also wonder, like Peter L, what Marc is trying to say here. Of course the numbers are not down yet! How could they?
This is the fundamental problem with our current system. As soon as Obama took office he was focused on doing the things that he thought the American people would like and trying to "pump up the economy" in order to get re-elected. The moves that have been made are just the efforts of the government to delay the inevitable, we need to go through tough times to build the foundation for something better but the American people don't want to hear that so Obama tries to get the economy going as fast as possible so that the people are happy. In the end instead of gutting the inside of the house and building it right he slapped paint on it and everyone smiles because the think it looks better when in reality the pipes are leaking along with the roof.
Nothing has changed with respect to the big corporations driving our country but now we are in even more debt and each party is really playing a game to just beat out the other (and really solve nothing). I guess the term party is quite appropriate. Obama wrote of these problems in his books but in the end is playing the game himself.
I also have to comment on the statement that no one saw this economic storm coming. This is blatantly wrong. And in fact any true economist saw it coming and sees the issues in what we are doing today and our debt. These issues were seen by many and those that spoke out about the coming problems were laughed at and those stating that we are making our problems worse by throwing money that we don't have at the problem are getting laughted at today. This is the issue, Americans are no longer strong enough to face the idea that they have to suffer through difficult times in order to build something sustaining. We are the ultimate NOW country and it is going to cause us great harm.
By the way, Greenspan and the "economists" of the time created the housing bubble on purpose to get the economy going again and knew it would have to end sometime, now we are simply trying to create the next bubble. This is not economic theory, it is playing games with the financial world and has a large impact on us all.
Democrats should pass health care with a robust public plan and that will take care of much of their UI worries. Of course when they sit down and do nothing (or, even worse, behave like Dianne Feinstein who undercut Obama's helth care efforts) they do not stop worrying...
Krugman, Stiglitz and others said from the beginning that the stimulus amount was not enough: at least $1 trillion was needed. I don't know why Bernstein, Romer and the other 'private forecasters' expected differently. http://www.huffingtonpost.com/2009/02/17/paul-krugman-stimulus-too_n_167721.html
"I detect among some Democrats in Washington a palpable unease about the direction of the U.S. economy"
.........What did you do....cast the runes.....read the Tarot cards.....use hazel twigs.......Preposterous.