“It’s the Economy, Stupid”
Jun 4, 2009 20 Comments ›› Pat Dollard
By KARL ROVE
Tomorrow will likely bring more bad news for President Barack Obama on the number one issue for voters — the economy. The Labor Department’s monthly job report will almost certainly show unemployment topping 9%, with a couple hundred thousand more jobs lost in May.
It will get worse before jobs get better. Congressional Budget Director Douglas W. Elmendorf recently predicted that unemployment will continue rising into the second half of next year and peak above 10%.
Mr. Obama has an ingenious approach to job losses: He describes them as job gains. For example, last week the president claimed that 150,000 jobs had been created or saved because of his stimulus package. He boasted, “And that’s just the beginning.”
However, at the beginning of January, 134.3 million people were employed. At the start of May, 132.4 million Americans were working. How was Mr. Obama magically able to conjure this loss of 1.9 million jobs into an increase of 150,000 jobs?
As my former White House deputy press secretary Tony Fratto points out on his blog, the Labor Department does not and cannot collect data on “jobs saved.” So the Obama administration is asking that we accept its “clairvoyant ability to estimate,” and the White House press corps has let Mr. Obama’s ludicrous claim go virtually unchallenged.
Still, there are limits to Mr. Obama’s rhetorical tricks. Even he cannot turn job losses into real job gains. And he won’t be rescued by stimulus spending.
Former National Economic Council Director Keith Hennessey made a persuasive case on his blog that the stimulus will be ineffective because the additional economic growth it spurs will come six to nine months later than it could have.
This is partly because, as the Congressional Budget Office estimates, only $185 billion (23% of a $787 billion stimulus package) will be spent this fiscal year. The government will spend an additional $399 billion next fiscal year. The balance — $203 billion — will be spent between fiscal years 2011 and 2019, long after the economy has turned on its own power and for its own reasons. In addition, much of the stimulus that went this year for tax cuts and transfer payments has been saved, not spent. (The national savings rate went from less than 0% to about 5%.)
If the Obama administration were more serious about growing the economy than just growing government, the stimulus would have been front-loaded into this fiscal year.
In addition, the claim made by Team Obama that every dollar in stimulus translates into a dollar-and-a-half in growth is economic fiction. The costs of stimulus reduce future growth. No country has ever spent itself to prosperity. The price of stimulus has to be paid sometime.
Any real improvement in the economy so far is more likely the result of the Federal Reserve expanding the money supply and the Fed and Treasury shoring up the financial sector.
But the Fed’s actions are risky. Easy money and expansionary policies are not sustainable. We may soon be in for a bout of inflation unless the Fed soaks up much of the money it flooded into the system. The government is also likely to hamper private investment as it uses a vast amount of capital to finance its debt. And when the Fed stomps on its monetary brakes, as eventually it must, we’ll get sluggish growth.
The irony for Democrats is that the Fed may hit the brakes in the run-up to the 2010 congressional elections or the 2012 presidential election.
It is becoming clear that the economy is now the top issue. Mr. Obama’s presidency may well rise or fall on it. The economy will be his responsibility long before next year’s elections. Americans may give him a chance to turn things around, but voters can turn unforgiving very quickly if promised jobs don’t materialize.
That’s what happened in Louisiana, where voters accepted Democrat Gov. Kathleen Blanco’s missteps before Hurricane Katrina but brutally rejected her afterward because she failed to turn the state around.
Until now, the new president has benefited from public willingness to give him a honeymoon. He decided to use that grace period to push for the largest expansion of government in U.S. history and to reward political allies (see the sweetheart deals Big Labor received in the GM and Chrysler bankruptcies).
The difficulty for Mr. Obama will be when the public sees where his decisions lead — higher inflation, higher interest rates, higher taxes, sluggish growth, and a jobless recovery.
