Yes, we can get through this. Eventually. Probably.
That seems to be the economic slogan coming from the White House these days. Nearly 30 months into President Obama's first-term, the markets and the economy are showing signs of fatigue. High unemployment, high gas prices and moderating growth are taking their toll on the national mood and the president's poll numbers. The response at 1600 Pennsylvania Avenue seems to be one of grudging acceptance: The U.S. economy is methodically plowing its way through the post-bust mess, grinding out economic growth one job, one export order, one modified mortgage at a time. And for political and temperamental reasons, the administration isn't going to freak out and roll out a bunch of initiatives that could radically speed that process anytime soon.
That's the message I took away from a White House session set up yesterday for financial journalists. The half-day event included overviews from officials including Council of Economic Advisers Chairman Austan Goolsbee; Elizabeth Warren, the adviser responsible for the Consumer Financial Protection Bureau; and National Economic Council Director Gene Sperling — with a surprise drop-in from the president.
While the May unemployment report was disappointing, Goolsbee said there should be "no sense of panic" from a single data point in a series that varies greatly. Goolsbee thumbed through a paperback copy of the Economic Report of the President and said that things were going better than expected — to a degree. The Economic Report, issued in February, projected that, for 2011, the unemployment rate would average 9.3 percent and payroll employment growth would average 146,000 per month. That's basically what's happened in the first five months of the year. The addition of 1 million private sector jobs in the past six months "while not stellar," Goolsbee said, "is solid."
Goolsbee launched into a brief course on the shift from debt-fueled-consumption growth (2001-2007) to a period in which growth was spurred largely by government spending (2009-2010) to an expansion that is more broad-based but inevitably not sufficiently robust (2010-present). "We went down into a very deep hole, and we're coming out of it," he said. Later, he described the 2008-2009 recession as "an extremely deep hole, as deep as we have faced in any of our lifetimes."
When Ryan Avent of The Economist asked whether the government should be doing anything to spur aggregate demand, Goolsbee responded with a list of initiatives: incentives for business investment, education, research & development efforts, trying to change the patent system. "They aren't big-budget items," he said. But while worthy, these items seemed a strange bunch to list in response to a question about how the government could directly spur more consumer spending. Goolsbee acknowledged as much. "I have a Ph.d. in economics," he said. "If you're relying on me for message, you're making a terrible mistake."
In the accompanying video, Henry Blodget and I discuss the event.
"We all know it's a long climb coming out," said Gene Sperling, who popped out from negotiations on spending with Vice President Joe Biden and Congressional leaders. Sperling similarly played down expectations for short-term stimulus. "We believe it is important for confidence in the economy to show significant progress on deficit reduction in the very near future," he said. Even without the impending debt-ceiling deadline, "we would still believe that one critical element of strengthening the economy going forward and creating the confidence needed to spark more investment in the U.S. would be a significant down payment" on lower deficits. (As he spoke, I could imagine the steam coming out of New York Times columnist's Paul Krugman's ears. Confidence? The U.S. borrows for 10 years at 3 percent. How much more confidence do you want?) As he gently filleted Republicans' plans to slash entitlements and cut taxes for high earners, Sperling expressed optimism that a deficit reduction plan would be forthcoming.
It's hard to find support anywhere in D.C. for aggressive short-term stimulus. The Fed is running low on ammunition and is somewhat cowed. Ask Obama administration officials about why they're not pushing more stimulus, and they point to the building with the Dome down at the end of the Mall — i.e. Congress. (The New York Times did report today that the administration is floating ideas about a payroll tax cut for employers.) I asked Obama about whether he'd consider releasing some oil from the Strategic Petroleum Reserve . After all, helping to lower the price of gasoline would be an effective, popular form of short-term stimulus. The response: Not yet. "My general view is that the SPR is to be used where you don't have just short-term fluctuations in the market but a significant disruption event." And we're not there yet. The economy will have to grind its way toward insulating itself from high gas prices, through lower demand, and increase production where possible. "The long-term trend lines tell us that all the work we're doing on energy efficiency, alternative vehicles, the potential we have with respect to natural gas for big fleets -- that's going to have to be our major focal point."
And that kind of sums up the Grind-it-Out Economy in a nutshell. The political appetite for dramatic efforts is low. The administration has an aversion to moves that seem like stunts, or that seem motivated by panic. Asked repeatedly why it didn't seem like the White House had a sense of crisis or alarm regarding employment, the response was: This is how we look when we're alarmed. Aside from placing a great deal of stock in the appearance of being cool, the Obama administration (like the Clinton administration before it) places a great deal of stock in technocracy. They genuinely believe that good long-term policy -- the investments in education, health care, technology, infrastructure, alternative energy, etc -- is the key to long-term growth.
That may be true. But you can't implement long-term plans unless you get re-elected. And the longer the economy simply grinds it out, the greater the risks to Obama's re-election. And as we munched on cookies and contemplated ways to pocket White House notepads and cups, I detected a certain of sense of fatalism. The economic circumstances the Obama administration inherited were terrible. The extraordinary exertions started in the Bush administration and continued in the Obama administration stopped collapse, averted a second depression and helped get the economy growing again. On all these fronts — employment, demand, deficit reduction, entitlement reform, gas prices, fixing the mortgage mess — there are no quick fixes. And it's simply a reality that, when you fall into a hole this deep, with a crisis brought on by housing and financial problems, the bounce-back is going to be a long, hard slog.
This happens to be true. But it raises two questions. First, at some point, does the slow, grinding nature of the comeback itself become an impediment to recovery? Consumers, companies and investors are in something of an existential crisis at the moment about America's future. (It's not one I share). And second, while grinding it out may work over the long term as an economic strategy, it's dubious as to whether that's an effective short-term political strategy. We'll find out next November.
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- consumer spending
- Austan Goolsbee
- Gene Sperling
- aggregate demand
- President Obama s
- National Economic Council Director
- Council of Economic Advisers
- Elizabeth Warren
- Vice President Joe Biden
- the White House
- Henry Blodget