It is natural that any group of human beings will divide into camps... it is what we do. Disagreements will be magnified and formalized.
Even in a world with very few problems, like America 1994-1998, people were still capable of intensely polarized tribal/group behavior.
Okay, so DU has developed camps on the economy. A person's economic analysis and projections are treated as markers of some other attitude, as if it were impossible for a person who supports Democrats to believe the economy remains shockingly weak.
We are all frustrated and frustration leads to agression. Understood.
So let's step outside the heated realm of politicians (who lie for a living) and bloggers (who hold extreme positions for a living) and government claims (which haven't always been the most objective no matter who is president) and look at the real world of m-o-n-e-y.
Since the final collapse hit last fall a lot of folks in the know have been relying on the predictive and analytic work of Goldman-Sachs economists in preference to government numbers (including published Fed analysis) because they have a better tack-record (relatively) and less motive to shade their conclusions.
There is a reason that since Clinton our government is always full of Goldman-Sachs people. Goldman has a history of hiring economic geniuses while other firms (like Merrill Lynch) hired Texans with firm handshakes. (This history may arise in some measure from long-standing Wall Street anti-semitism.) Clinton and Bush did the same thing... start out with a mainstream Amurikan at Treasury like Lloyd Bentsen or Bush's Alcoa guy then realize that being a soolid Amurikan doesn't cut it, and go to the Goldman-Sachs brain trust. Obama has continued the trend, but since he started with an economic crisis didn't have the luxury of starting out pretending to do things differently.
God knows Goldman is not a disinterested party. They are a chief beneficiary of recent government policy. But the question here is not whether Goldman could have a motive for skewing projections but rather whether they have done so. However arrived at, their work has beat the living hell out of everyone else's work including the US government. Had we been relying on Goldman instead of Treasury we would have been six months ahead of this thing (in relative terms) every step of the way.
(Since Goldman has grown while others exploded I think of them in the way FDR thought of JFK's father when making him SEC head... when the crooks are the only ones who know all the angles...)
Nobody in the bigmoney world got the economy completely right, of course. That's how we got here in the first place. But even in the environment of failure and clueleeness Goldman was merely wrong, versus WRONG. It's relative. Obama wasn't campaigning in August on the assumption that Lehmen brothers would explode in September. Nobody got it all right except some accademics, and a few of them were such perma-bears that they were bound to be right eventually.
Anyway... the recent GDP figure (5.7% growth in Q4-2009) didn't make waves in the economics world because it wasn't a surprise and wasn't particularly good news... though it could have been really bad news and wasn't and that counts too.
The entry below is from two weeks
before the GDP number was released. I offer it to show both Goldman's accuracy (in a short term projection) and--much more importantly--their thinking even
after factoring in last quarter. (Albeit factoring it in a little in advance.)
By CalculatedRisk on 1/16/2010 02:24:00 PM
In a research note released last night, Goldman Sachs raised their estimate of Q4 GDP from 4.0% to 5.8%. They cautioned that the "headline will be an eye-popper", but that this growth is mostly due to inventory changes: "More than two-thirds of our estimated increase comes from a sudden stabilization in inventories". They also noted "anything between 4½% and 7% is possible given the volatility of the inventory data".
The rest of the note cautions on 2010, and Goldman still sees sluggish growth of just under 2.0% with the unemployment rate peaking in early 2011. This is what we've been discussing - GDP boosted by inventory changes in the 2nd half of 2009, followed by sluggish growth in 2010.
http://www.calculatedriskblog.com/2010/01/q4-gdp-beware-blip.html
This is not 100% out of line with what the Fed thinks or what Treasury thinks, but Fed and Treasury have a perceived responsibility to bolster confidence. They don't cook numbers outright but they massage their conclusions. And, unlike a private entity like Goldman, Treasury and Fed cannot take a strong stance. They have to average and be conservative. A private outfit can be bolder. (More room to be wrong but also more room to be right.)
For instance... Goldman was much closer to right about unemployment than Treasury. Why? Because Treasury used "blue chip forecasts" that were an
average of what all the top economists were saying and were thus certain to be wrong. When the environment is
defined by grotesque analytic errors by the big boys you don't continue to average the big boys to see where we go next.
You look to see who seems to have the first fricking clue.
Goldman's projections are not perma-bear gloom-and-doom. They are not offered to shake confidence in Obama. (Goldman has been the single greatest beneficiary of the Obama presidency thus far so it's not obvious they are unhappy with the situation.)
And in any event, even if it's a big conspiracy it's a conspiracy with great predictive power. (If we postulate that Goldman runs the world their projections are even likelier to be right.)
So we all have some obligation to look at the simple literal statements from an outfit with an above-average track record and see what they mean politically and policy-wise.
The Fed is shooting for 2% inflation in 2010 but doesn't think they can hit that target. That is after the greatest dilution of the dollar since WWII.
Goldman is predicting 2% growth for the US in 2010 and predicting that unemployment will not peak until early 2011. That means unemployment will start out at crisis levels and then
rise throughout an election year.
Now, here's an important question... "Don't you think Obama knows this? Don't you think he is a little more on top of this than you are?"
That sort of hero worship is a short-cut to political disaster.
I have lived under eleven different Presidents and every single one of them has fucked up some things, often spectacularly. Rather than reasoning from an assessment that Obama is smart and good (which he is) look at history. Even the very best presidents miss the obvious sometimes and pursue stupid policies sometimes and mishandle the economy and leave us shaking our head five or ten years. They ALL do sometimes. They do it in foreign policy also. Our system all but ensures that preisdents will make big mistakes... the inevitable intersection of policy and politics and the "running around putting out fires" nature of the job lead to mis-steps that appear right at the moment.
Incredibly smart and good people fuck up all the time. They fuck up a little less than incredibly dumb wicked people, however, which is why we prefer smart good people.
I do not know for sure that any President would have done a better job than Obama. The job as it exists today may well preclude doing better.
But for whatever reasons, the administration has not handled the economy well and promises to begin handling it spectacularly less well.
Why? Because all presidents are optimists. The job will break you in a week if you are not a naturally optimistic person.
But the fact remains that this economy is not rebounding. The "pessimistic" L-shaped recovery scenario that was put forth by ever non-idiot analyst a year ago has been vindicated at every turn. If folks had read their work as something other than ping-pong volleys in a binary attitude game they would realize that the pessimists ALL said the stimulus would do what it has done. They ALL said we would have positive GDP growth in Q3 and Q4 of 2009. Nothing has happened to change what was a very obvious scenario to begin with.
You don't break the back of an economy and then enjoy self-sustaining V-shaped growth on the other side of it.
Lets talk about what an actual recovery looks like. Go back to the recovery from the bad downturn of 1981-1982... the last time unemployment cracked 10%. That recovery ran off quarter after quarter after quarter of 7%, 8%, 9% GDP. 1983 was over 8% for the whole year.
The recovery (sic) of 2010 is shaping up as 2% GDP growth. That isn't even enough to create one net new job! That isn't a recovery. That recovery is barely what the Fed views as the stall-point of the economy.
When you start from a social disaster 2% doesn't fix anything. It is economic stasis.
What ended the Great Depression in the US? Everyone knows this. World War II. A forced stimulus plan that dwarfed everything FDR ever did for the purpose of stimulus. There would never have been the political will to build a million airplanes and tanks in 1936 and then dump them into the Grand Canyon but that doesn't mean it wouldn't have been effective. (It would have been even better to build a million of something useful, of course.)
So when someone says we need MAJOR help that dwarfs what our political class can conceive that doesn't mean they are wrong. Sometimes what is right is a little hard to imagine.
This shit is serious and it has not been handled in a serious way. That's not all on Obama. The Republicans are beyond unserious and cripple our ability to act. The conservadems too.
I don't call for Obama to act because it's all his fault, but because he is the President. If not him, then who?
Given the realities of today, economic and political, if I were president I would call for a one year moratorium on all payroll taxes from both employee and employer. That isn't the best solution at all but it may be the best solution that isn't completely foreclosed politically. (At least it reduces the specific costs of employing someone and is somewhat progressive, insofar as SS deductions are capped... it would benefit actual wage-earners and benefit the low end slightly disproportionately.)
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