Although the Administration was crowing about February’s release of new job figures showing a drop in the unemployment rate to 8.3%, for some reason they are less vocal about the newest job figures in for the month of March. February’s increase of 243,000 jobs was nothing to sneeze at, however the increase of only 120,000 for March looks like, once again, yet another slowdown in the midst of recovery. Of course, we’ve been in “recovery” since July of 2009 and we are still facing a crippling unemployment rate. Yes, the unemployment rate dropped another point down to 8.2% thanks to those who volunteered to stop looking for work and in the face of a grim economy, just give up. But historically speaking, shouldn’t we have been doing a lot better than this for the past three years?
And historically speaking, yes we should have had a much stronger recovery, but given the type of response the administration chose, and for reasons I’ve been saying since February 2009, when there was an active debate about the Obama stimulus, pro and con, we were doomed to have a dragging sluggish recovery. So yes, I predicted this. This was the wrong type of recession to respond to a Keynesian stimulus (actually I’m not sure any recession is the right kind. History has not been kind to this economic theory). I felt sure at that time that Obama’s stimulus idea would be a big dud. The economy would “recover” but it would do that anyway whether there was a stimulus or not, and we would be stuck with sluggish growth for years.
But wait, you say, how could you have been right all along and real, actual economists, including those who worked in the White House (that team has largely fled to the hills now) been wrong? After all, these guys graduated from the most elite schools, had the most training, and had access to the most updated and accurate economic data and models available. What’s your background?
I had a semester of both Micro and Macro in college. Plus a lower level survey course but I’m not counting that.
So by the logic of credentials, experience, and education, those guys should have been right on the money and I should have been just talking out of my ass. Instead, it was the other way around.
So why did I think what actually happened was going to happen? Two reasons, first, there was Japan. Japan had a recession very similar to the one we had. They had a real estate boom that went bust, taking their property values into the toilet. Japanese economists and politicians had read all the same books that White House economists read, so they started borrowing a great deal of money for “stimulus;” spending projects and infrastructure. What was the result of those multiple stimuli? They got a sluggish economy that dragged and dragged and dragged on.
Then of course, there was proof closer to home. We already had a stimulus program. In 2008 President Bush signed into law a tax rebate program to pump cash into the economy and forestall a recession (the data was not yet in by February 2008 to know that the recession began in December 2007). But by February of 2009, when we were debating the Obama stimulus, we already knew that the tax rebates failed. So why would we think further stimulus would do any good?
Because these knuckleheads told us so!
And they were wrong
You first have to remember what kind of recession it was. The financial crisis that we suffered was a symptom of the housing market collapse. We were already well into a recession when the financial crisis happened. And also well into a stimulus. We had already had a Bush stimulus in 2008, the rebate checks. By the time we were discussing Obama’s stimulus in February 2009, we already had the data in on how that worked, which was; it didn’t. It failed because households were in so much debt that this time they really did use the stimulus to pay down debt rather than spend, spend, spend; which had been the intent. This was because the US saving rate was actually in the negative right before the recession, so when the recession hit, people started out in a deep hole.
So what was the Obama response to those conditions? More stimulus! Naturally it didn’t work. And for the same reason the Bush stimulus didn’t work. We were already too deep in a debt hole. All it did was add the nation’s indebtedness to the nation’s household indebtedness, so it made things worse of course.
The other issue was the Bush/Obama response to the financial crisis. Apparently establishment, Harvard educated economists don’t understand that in capitalism, crappy firms are supposed to go out of business. It kills me that for years the liberals had bitched about Wall Street and the finance industry, but when the free market was actually going to correct that and eliminate the worst firms and trim the industry down to a size that would fit our economy, the government came in and showered tons of money on these same bad actors. The more stupid your decisions, and more venal your finances, the more money you got from the government.
Lesson learned unfortunately.
Recessions are a lot like a hard freeze that kills the weakest plants, but as conditions improve, allow the hardiest ones to thrive. That’s why job creation and economic growth is usually very strong after recovering from a recession.
Except for this one.
We fertilized the weeds, and then are surprised that weeds took over the whole lawn.
Bush did a lot of damage before he left office with TARP and bailing out firms like AIG, but Obama, supposedly the smartest guy in the history of forever, came in and double downed on the Bush bailout policies, continuing the bailout of AIG, bailing out GM, and spending the rest of the TARP money.
Probably the only effective program was the FED backing up of the banks, QE1. But even then, they sabotaged their own program by paying the banks interest on the dollars sent to the banks. Considering the low interest rates and uncertain economy, it made more sense for the banks to sit on the money and not loan it out, which choked off new lending and economic growth.
I learned some valuable lesson in all this. First, credentialed experts are wrong, a lot. Just because a guy from Hahvahd says it, doesn’t make it so. Secondly, I should trust my own instincts. Prior to the recession and financial crisis, I was handed the keys that showed we were heading for an economic collapse and I chose to ignore them. First, median family home prices in the Orlando area (where I live) jumped to over $300,000. Secondly, in 2005 US households had a negative personal savings rate. I remember reading the paper and turning to my wife asked, “How in the world can the average working class family afford to buy a house in this town?” Well the answer was, they couldn’t. But no highly credentialed experts were warning that we were heading for the brink. Instead it was blue skies and clear sailing. Those two data points available in your local newspapers were worth more than all of the reams of economic data the government collected and all of the Ivy League economists that the government employed.
So I apologize is advance if in the future I fail to be impressed by highly educated people with advanced degrees that can’t do the job that an average working class shmoe can do just by reading the daily fish wrap.