Wednesday, August 25, 2010

Can Bush be blamed? 

The headline from the AP article is not good -- "Bad news on homes, goods adds to air of recession" -- and the lede is worse:
It's starting to feel like another recession.

Businesses are ordering fewer goods. Home sales are the slowest in decades. Jobs are scarce, and unemployment claims are rising. Perhaps most worrisome, manufacturing activity, which had been one of the economy's few bright spots, is faltering.

"The odds of a double-dip are rising and uncomfortably high," said Mark Zandi, chief economist at Moody's Analytics, referring to the possibility that the nation will tip back into recession. "Nothing else can go wrong. There is no cushion left."
George W. Bush has not occupied the Oval Office for more than 19 months, so it will become more and more difficult to blame a double dip on his administration. Even a short and mild secondary recession will be a difficult hurdle for President Obama's re-election campaign, which must start in earnest in 17 months.

I am a believer that a sitting president can't do all that much to help a weak economy, no matter how much he owns it politically. The executive branch can do some things independently, but the more meaningful work must involve other parts of the government. Many economists believe that the Reagan tax cuts of 1981 -- really, the Kemp-Roth bill or ERTA -- had some positive effect, although such effects may have been modified by TEFRA the following year. Congress passed those bills, albeit with strong leadership from the White House economic and legislative team, as well as the Fed. Clearly, it would be politically more difficult for a 21st Century Democratic president to captain a similar effort involving tax cuts favoring wealthier taxpayers and businesses, since such legislation is anathema to most Democratic members of the House and Senate, and much of the party's base.

One thing a president can do -- which Ronald Reagan loved to do -- is to use the bully pulpit to talk up the entrepreneurial spirit of American business. Reagan understood that economic growth and the associated (and politically important) job growth would flow largely from non-S&P 500 companies. That is still true today, notwithstanding the rather large cash balances on many public company balance sheets, which possibly can be seen as a barometer of managerial uncertainty, and not so much a venture capital fund.

That raises the question of why President Obama has not used his bully pulpit to deliver rousing speeches encouraging American ingenuity and business savvy. There are plenty of people who voted for him who are in positions of leadership in large and small businesses, and many would be very receptive to a bit of cheerleading. There is very little political downside, even if a rah-rah tone might be slightly outside of President Obama's comfort zone. True, he has never really worked in or run a growth business, other than his campaign organizations, which didn't have conventional P&L and balance sheet parameters or objectives. Yet, President Obama has many close and early supporters who have that life experience, and he is an astute enough politician to understand the importance of such experiences and incorporate them into a set-piece speech. The teleprompter is presumably agnostic and non-partisan with respect to the words it accepts and shows on screen.

I don't know that a series of Reaganesque speeches on American entrepreneurship would actually help to spur economic growth, but it might buy President Obama some political time and space to operate in, and steer what will almost certainly be a more evenly split Congress toward some legislation that is at least mildly positive for business and employment growth.


By Blogger Assistant Village Idiot, at Thu Aug 26, 12:26:00 AM:

Congress, not the president, has the greater power over the economy. And because it takes long for its legislation to pass, become law, and begin to affect the economy, its effects are long delayed from the moment we elect them. Just about the time they are ripening, we are electing a new batch.  

By Anonymous Anonymous, at Thu Aug 26, 05:56:00 AM:

Two things.

1. While the President has been in office for 19 months, the Democrats have held the House and Senate for 43 months.

2. How come when we enact a tax rate reduction for the rich, the rich end up paying a larger percentage of total income tax revenues? Just askin'.


By Anonymous Anonymous, at Thu Aug 26, 06:08:00 AM:

For the most part the Reaganesque speeches had little impact on the unemployment or approval rating numbers for the most of his first term. Despite tax cuts and huge spending, the unemployment rate hovered in the 9.6-9.8% through 1981, 1982, and didn't begin improving until late summer 1983, In fact, following the 1982 mid-term elections, Reagan's approval was at 35%.

Oh, and the current tax rate--even if all the Bush tax cuts were allowed to expire--are still lower than under the first 6 years of Reagan's presidency.  

By Blogger TigerHawk, at Thu Aug 26, 06:30:00 AM:

Oh, and the current tax rate--even if all the Bush tax cuts were allowed to expire--are still lower than under the first 6 years of Reagan's presidency.

This point is technically true but very misleading. Until the tax reform of 1986, which brought the top rate down to 28%, you could still deduct unlimited passive losses, which meant that it was possible to shelter huge amounts of income in various leveraged investments schemes. Getting rid of tax shelters (a phrase young people do not know, like "record" or "8-track") was good policy for the economy, but it means that the rich actually pay the taxes at the posted rates, a phenomenon that simply was not true until 1986.  

By Anonymous E Hines, at Thu Aug 26, 08:15:00 AM:

Barack Obama took an axe,
And gave our global standing 40 whacks.

And when he saw what he had done,
He gave our health care 41.

And when he saw what he could do,
He gave our economy 42.

Eric Hines  

By Anonymous Anonymous, at Thu Aug 26, 09:53:00 AM:

Obama's owners are incapable of writing such speeches and Obama would be incapable of reading them.
Obama is so arrogant (with so little justification for being arrogant) that, if he tried to ignite the economy, his speeches would be mostly about him.
No, his best hope is the plan I believe he has already launched; Obama will have some of his Muslim brothers strike again, attacking a dramatic target either here or abroad. The Golden Gate Bridge would be best but might reduce the value of dem politicians' (and their husbands) assets.  

By Anonymous Anonymous, at Thu Aug 26, 11:22:00 AM:

I fear that you have been hanging out too long with Ivy League Progressive economists, who take the productive economy as a given, and think of everything in terms of how to manipulate the public via monetary/fiscal policy.

Robert Higgs introduced the term "regime uncertainty" in his 1997 article on the Great Depression -- one thing the Pres can do very well indeed is create huge regime uncertainty, which freezes all the private economic actors, and Obama and the other Progressives are doing this to the maximum. See the NAM analysis of new EPA boiler rules, last Monday's talk by the pres of Intel, or the huge uncertainty surrounding "net neutrality."

Yes, it is hard for a President to produce a good economy-- but he can sure as hell prevent one.  

By Anonymous vikingTX, at Thu Aug 26, 02:57:00 PM:

Let us not forget that the president is always the "face" of the economy, but it is Congress that holds the purse strings. Congress is responsible for letting the housing bubble fester over the course of three presidents. Presidents really have little ability to improve the economy. But as anon above notes, they sure can freeze it.  

By Blogger Stephen, at Thu Aug 26, 11:14:00 PM:

I am not sure how you cannot blame the president for the political uncertainty he has created. Businesses will not invest or hire because of the uncertainty. If the government made clear it was going to a pro-growth agenda by lowering taxes and reducing the regulatory burden, there are trillions of dollars that could flood the market--more than any tax and spend stimulus.  

By Blogger JPMcT, at Fri Aug 27, 08:12:00 PM:

One cannot help but wonder whether Obama's political blunders in recent months are tied to his resounding silence and abandonment of the bully pulpit in fostering economic confidence.

He and his wife take lavish vacations while the jobless rate festers. Worsening economic reports are met with half-hearted White House announcements that we are "on the right track".

Frankly, is the the behaviour of a man who wants to be re-elected??

Is this the behaviour of a man who wants the economy to improve???

Everything he has done to date has be, more or less, spectacularly "stupid" when viewed from an economic perspective.

Either he is the most incompetent, politically ignorant, brain dead politician ever to grace the halls of public service....


he has another agenda. One that involves public discord, economic collapse and on going crisis.

I could accept either alternative as being likely. That's sad!!!  

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