Is the administration economic team Delusional?

[Kurt_and_Hunter]

Here is a vanilla breakdown of the effects of the stimulus package from last year. This was the same general analysis everyone came up with, from progressive econ professor types to projections from Goldman Sachs. It was not an exceptional or overly theoretical prediction set.

Accounting for these lags, the maximum contribution from the stimulus should occur in the second and third quarters of 2009, when it will add more than 3 percentage points to annualized real GDP. This suggests that if policymakers had not been able to pass a stimulus plan, real GDP would have declined nearly 6% in the second quarter and by more than 3% in the third. With the stimulus, GDP is expected to fall close to 3% in the second quarter and rise a bit in the third. The contribution of stimulus to growth fades quickly, adding just over 1 percentage point to annualized growth in the fourth quarter of this year and the first quarter of 2010 and actually detracting from GDP growth by the second half of 2010. The impact on jobs and unemployment is also significant, as the stimulus results in approximately 2.5 million more jobs by the end of 2010 than would have been the case without it, and leaves the unemployment rate almost 2 percentage points lower.



http://www.economy.com/dismal/article_free.asp?cid=116000&src=msnbc

And here is how things are turning out...

The first chart is isolated effects of the stimulus. It looks like it was in the ballpark. Comparing it to real GDP growth suggests that the economy never really recovered at all... government spending IS the economy. We have a flat economy that can be goosed up and down by government action.

Now then... the Obama administration surely KNEW that normal non-wacky economic theory said that the effects of the stimulus would fade fast and that by election day 2004 the stimulus would be subtracting from GDP growth.

(An Aside: Our interest in GDP is growth. i.e. relative change. Way back when Krugman noted that the growth effect of the stimulus would fade fast. But there are many articles about how little of the stimulus has been spent. Both are true. Spend a borrowed $150 Billion this quarter and GDP grows a certain amount. Spend another 150B next quarter and it has no effect on GDP growth. It is flat for the quarter. Then spend $100B the next quarter and GDP growth with go down. There is $50B less being added to the economy that quarter. That is why the stimulus will actually be subtracting from growth soon. Not from the absolute size of the economy, but from growth. This is like unemployment...we can be adding jobs while the unemployment rate goes up because the pool of would-be workers increases every month.)

So what is the deal?

Seriously...

I do not believe that Barrack Obama is a criminal or trying to lose Congress or any of that. I think he is trying to do good in terms of whatever value system he has.

Assuming the president means well, I see two possibilities:

1)The WH completely misunderstood the economic situation and thought this was functionally just an unusually bad cyclical recession. They assumed that the economy would pick up on its own and that the stimulus was a measure to soften the blow while the economy fixed itself.

2) The WH economic team and the President were somewhat delusional and used some sort of unconventional economic models and thought the normal "what the stimulus will do" analysis was too pessimistic.

I am at a loss. They surely knew where we were headed, so why didn't they govern accordingly? Or did they govern accordingly?

Theories?

_____________________________

This post were inspired by:
Nobody Could Have Predicted
http://krugman.blogs.nytimes.com/2010/08/27/nobody-could-have-predicted-2/

[xchrom]

1. Recommend

[msongs]

2. who would hire know thieves & burglars to install their alarm system? nt

[Lebam in LA]

3. In a word...

YES

[fasttense]

4. Hmm, your first possibility is contradicted.

If the WH, and Obama in particular, completely misunderstood the economic situation and thought this was functionally just an unusually bad cyclical recession, then why all the haste and speed to bailout banksters?

The sky was supposedly falling on all those investment banks/insurance corporations and the economic world, as we knew it, was about to be destroyed if we did not hand Trillions of tax dollars to banksters (and save Goldman sucks from itself). I know the bushes were the ones responsible for final passage of the bailout, but the Dems did not take on the fight against it. In fact if not for votes from the likes of Senator Obama, the bailout for banksters bill may never have been passed.

So, Senator Obama thought the economic world was about to implode and despite all the uproar from the masses (many a congress critter's e-mail locked up), he voted for a bailout of the uber wealthy (with no strings attached). But when he finally took over as President, he thought it was just an unusually bad cyclical recession. Why the change in attitude? Or perhaps he thought if we bailed out the banksters the rest of the economy would right itself.

If he thought this, then he has swallowed the free market poison like it was candy.

[Kurt_and_Hunter]

8. I make a distinction there

Team Obama recognized the severity of the shock. (As did Team Bush.)

The distinction is their analysis of the injury.

One camp would think that this shock was like 9/11... a severe trauma to an otherwise healthy patient. Set the bone, dispense pain-killers and let nature take its course.

The other camp held that this shock was part of a deep change in the patients general health.

Down-turns arising from financial crises do not, historically, rebound in the way that cyclical inventory recessions or induced interest rates recessions (1981) or current events shocks (70s oil embargo, 1991 invasion of Kuwait, 2001 9.11) do.

Since this deal arose from a deep crisis of confidence in the very underpinnings of everyone's balance sheets there was no reason to expect a V-shaped recovery.

I am sure they got the severity, but seem to have assumed the patient would simply heal itself with a little stimulative TLC.

[OHdem10]

5. I agree this is simply baffling. Could it be there are a mix of factors.

1, From the very beginning there were writers, economists
saying the Stimulus Pkg was not large enough. There is
some indication that the Dems on the Hill(Deficit Hawks)
put the squash on a larger bill. Likewise, Deficit
Hawks in the Adm. fought against a larger Stimulus.
IMO, this set up for a failure.

2. From the graphs the WH should have been able to see
the coming storm. Why they did not get out in front
and fight for more stimulus early on, I cannot explain.
Had they been so blindsided and stunned by the Republican
Attack Machine on Obama personally, "socialist" etc,
that they were rendered paralyzed.

3. The biggest mistake, by far, was in the beginning ;
They never gave the American People a clear lesson
in the Economic Principles they were using and exactly
what they were trying to accomplish. Was there too
much fear??? Not just the Administration, but Democrats
in general (Politicians) have never been able to intellecualize
and assimilate one fact: Americans will support you
even when they disagree with you on some issues---if yuu
show strength and belief in your own position. Too often,
Democrats just do the "Me TOO" and affirm the Republican
position.

In conclusion, the Conservadem probably won the battle
and may have lost the war.

[Kurt_and_Hunter]

9. I highly recommend your reply. Point 3 is vital.

[NNN0LHI]

6. Americans are purchasing plenty. They just aren't purchasing what their neighbors make

The administration can't legislate against stupidity.

Don

http://www.khaleejtimes.ae/biz/inside.asp?xfile=/data/business/2010/August/business_August405.xml§ion=business

(AP)

Imports drag US 2nd-quarter growth lower

27 August 2010

WASHINGTON - U.S. economic growth slowed more sharply than initially thought in the second quarter, held back by the largest increase in imports in 26 years, a government report showed on Friday.

Gross domestic product expanded at a 1.6 percent annual rate, the Commerce Department said, instead of the 2.4 percent pace it had estimated last month.

However, the reading was a touch better than market expectations. Analysts polled by Reuters had forecast GDP, which measures total goods and services output within U.S. borders, revised down to a 1.4 percent growth rate. The economy grew at a 3.7 percent pace in the first three months of the year. snip

The recovery from the worst economic downturn since the Great Depression had been largely fueled by a $862 billion government stimulus package and businesses rebuilding inventories from record low levels.

IMPORTS CHOKING GROWTH

Growth in the last quarter was stifled by a 32.4 percent surge in imports, the largest since the first quarter of 1984, dwarfing a 9.1 percent rise in exports. That created a trade deficit, which sliced off 3.37 percentage points from GDP, the largest subtraction since the fourth quarter of 1947.

[Kurt_and_Hunter]

16. Is people without money buying the cheaper products really stupidity?

I can't fault the consumer.

(The same way I can't fault the consumer for not spending or borrowing. Bad trends can be made of a lot of little individual actions that are each rational, in and of themselves.)

[NNN0LHI]

17. Is importing teachers who work cheaper while we have American teachers unemployed stupidity?

http://www.ajc.com/news/dekalb/dekalb-teaching-jobs-outsourced-569233.html

.DeKalb County News 8:08 p.m. Monday, July 12, 2010

Decrease Increase DeKalb teaching jobs outsourced to imported teachers

By Megan Matteucci

The Atlanta Journal-Constitution

Despite hundreds of teachers left unemployed throughout Georgia, DeKalb County will hire 67 teachers from other countries.snip

“I have a problem with this particular one because our surrounding districts have laid off so many teachers," Roberts said. "I find it difficult we have to go outside the United States to find teachers to come to DeKalb to teach. I think we should be looking to care for our own before we start going to the outside.” snip

DeKalb has used international teachers for the past 5-10 years. Last year, the international firms provided 74 teachers.

------------------------

I think it is stupid. Its the same thing as purchasing cheaper imported goods that our fellow citizens could be producing. Thats why we have a +10% unemployment rate right now.

[Kurt_and_Hunter]

7. ERRATA: "Election day 2004" should be 2010. Doh!

[Edweird]

10. I'm reasonably certain things are going the way they want them.

[Kurt_and_Hunter]

12. Too disturbing to contemplate (eom)

[SammyWinstonJack]

26. You can bank on it.

:evilgrin:

[Poboy]

11. rec,

[inna]

13. Recommended, but there is really no mystery what's going on.

It really has very little to do with Obama, it is simply the result of deliberate policies by the financial elites and it is an ongoing process that started at least 30 years ago (and has been only accelerated by the financial crisis). It is a very well described and characterized process, and there are no great secrets to it; it is extensively covered even by mainstream economists/authors in the mainstream press/literature.

At this point, corporate profits are decoupled from the workers' wages and quality of life, and social contract with labor and workers' prosperity and full employment are abandoned as policy goals. Basically, it's classical neoliberal policies with an added twist (increased concentration of power/wealth, stratification of the society, American workers as "fair game", etc. etc. ...)

[Touchdown]

14. Trickle down has always been delusional magical thinking.

As long as there's the Chicago Seminary of economics, there will be a steady supply of religious fanatics. Geitner & Summers are just 2 of them.

[BzaDem]

22. Really now. How much of the stimulus were "trickle down" tax cuts for the top 1%?

Oh, none of it? I see.

In fact, the tax cuts in the stimulus were bottom-up checks written to the working class, which as a percentage of one's income, were VERY progressive.

[Touchdown]

24. Are they down to pre-Reagan levels?

I thought not.:hi:

[bvar22]

15. How is the top 1% doing?

THAT is what is driving the Economic Plan, and has been for the last 30 years.

[Orsino]

18. Kabuki bit-players, mostly.

They pretend very, very hard.

[amborin]

19. summers is a disciple of reaganomics.....otherwise, Krugman had

a good comparative analysis of US vs Germany, in terms of gov't stimulus spending

only skimmed it, but, contrary to perceptions, Merkel (who had pooh poohed a big stimulus) has wound up with more fed gov't spending than the us has

don't have the link in front of me now.....

[bobbolink]

20. The collateral damage... besides giving ammo to the idea of cutting entitlements,

is that now the cat is out of the bag.. the stimulus didn't help,, so it gives credence to the free market babble.

Foot was shot.

[BzaDem]

21. I think it was a combination of undue optimisim and the lack of ability to get a bigger stimulus

through the Senate. It was Collins and Snowe that pared the 870+ billion bill down to 770 billion. Would they have only pared off 100 billion if the initial proposal were 1.2-1.5 trillion? Or would they have pared it down to 770 billion in some sort of "grand compromise?" Or would it have simply died (along with Obama's hope for a future for the rest of his legislative agenda)?

No one knows for sure. Though I would hope some people in the administration would have a better read on this than I do (or Krugman does). While I greatly respect Krugman on the issue of economics, he himself has undue optimism on what is politically feasible with our insane Senate.

[Odin2005]

23. No, they know EXACTLY what they are doing, helping their masters.

[girl gone mad]

25. 13 Trillion to Wall Street, 700 Billion to the rest of the country.

They might as well have put up a flashing neon sign because the implications are very clear.