There’s a new view taking hold in the commentariat: the U.S. economy is in much better shape, but the public—and even the president—aren’t quite ready to acknowledge the improvement.
It’s an interesting argument, and I can’t help but wonder if it was fueled a bit by expectations that the National Bureau of Economic Research would today declare an end to the recession. (Didn’t happen.) NBER has allies in the hold-out camp, and most of them, so far, seem to be to its left.
The latest dose of optimism came today from Robert Samuelson, who puts his cards right on the table:
When things were going well, it was said that the United States enjoyed a Goldilocks Economy. Growth was fast enough to produce jobs and higher incomes but not so fast as to generate inflation. In the same vein, it might be said that today we have an Oscar-the-Grouch Economy. Good news is discounted. Pessimism is trendy. Growth is considered too feeble to help real people. But there is some genuine good news — and it deserves attention.
Samuelson builds his case by pointing to good news—in the labor market, in pent up demand, and in “corporate America’s strong cash position.”
Then, as any columnist who has announced that he is paddling upstream should, Samuelson acknowledges the pessimists’ case (emphasis mine).
One cause of pessimism is that the U.S. economy is undergoing a fundamental change — and it’s unclear how successful the transition will be. Beginning in the 1980s, American prosperity depended increasingly on a debt-financed expansion of consumer spending and housing, as the Economist’s Greg Ip notes in a recent survey of the economy. In 1991, consumer spending and housing accounted for 70 percent of GDP; by 2005, their share was 76 percent. That boost has ended, because many families overborrowed, overspent and undersaved.
Interesting. Something else happened during that time. As David Leonhardt recently pointed out in a healthcare column we liked, “Since 1980, median real household income has risen less than 15 percent.”
Could that pessimism come from that awful feeling of being underpaid?
Writing last week in BusinessWeek, Bloomberg’s Mike Dorning sounded a bit like Samuelson.
A Bloomberg national poll in March found that Americans, by an almost 2-to-1 margin, believe the economy has gotten worse rather than better during the past year. The Market begs to differ. While President Obama’s overall job approval rating has fallen to a new low of 44%, according to a CBS News Poll, down five points from late March, the judgment of the financial indexes has turned resoundingly positive. The Standard & Poor’s 500-stock index is up more than 74% from its recessionary low in March 2009. Corporate bonds have been rallying for a year. Commodity prices have surged. International currency markets have been bullish on the dollar for months, raising it by almost 10% since Nov. 25 against a basket of six major currencies. Housing prices have stabilized. Mortgage rates are low. “We’ve had a phenomenal run in asset classes across the board,” says Dan Greenhaus, chief economic strategist for Miller Tabak + Co., an institutional trading firm in New York. “If Obama was a Republican, we would hear a never-ending drumbeat of news stories about markets voting in favor of the President.”
Little more than a year ago, financial markets were in turmoil, major auto companies were on the verge of collapse and economists such as Paul Krugman were worried about the U.S. slumbering through a Japan-like Lost Decade. While no one would claim that all the pain is past or the danger gone, the economy is growing again, jumping to a 5.6% annualized growth rate in the fourth quarter of 2009 as businesses finally restocked their inventories. The consensus view now calls for 3% growth this year, significantly higher than the 2.1 % estimate for 2010 that economists surveyed by Bloomberg News saw coming when Obama first moved into the Oval Office. The U.S. manufacturing sector has expanded for eight straight months, the Business Roundtable’s measure of CEO optimism reached its highest level since early 2006, and in March the economy added 162,000 jobs—more than it had during any month in the past three years. “There is more business confidence out there,” says Boeing (BA) CEO Jim McNerney. “This Administration deserves significant credit.”
The New Republic’s Jonathan Chait noticed a similar problem with this one:
I think the interesting question right now is not whether the economy is due for strong growth, but whether and when that growth will create rising living standards. The recovery from the 1991 recession took years before it began producing wage gains. The recovery from the 2001 recession basically never produced real wage gains — essentially all the gains went into corporate profits and gains for the very rich. Moreover, there’s very little consensus as to why that happened. So we have no idea to what extent growth and higher productivity will create conditions that people have any reason to recognize as real growth.
Yeah. Like we said.
But wait. There’s more to this meme-change in-the-making.
Here’s Floyd Norris, in the Times:
The American economy appears to be in a cyclical recovery that is gaining strength. Firms have begun to hire and consumer spending seems to be accelerating.
That is what usually happens after particularly sharp recessions, so it is surprising that many commentators, whether economists or politicians, seem to doubt that such a thing could possibly be happening.
Norris is especially interested in why the White House has been slow to cheer the recovery, pointing out that, even as he sounded optimistic after a recent strong jobs report, President Obama seemed to put the recession in the present tense.
Kevin Drum came up with a useful list of Top Ten “things that gnaw” at him when he reads these optimistic economic pieces. Number 10:
Unemployment and long-term unemployment continue to look terrible. Yes, these are lagging indicators, but still.
Norris knows that employment is a lagging indicator. But he seems to argue that hiring will recover quickly:
Employers can be slow to cut back when business turns down, and slow to rehire when it picks up. It stands to reason that when employers cut back sharply — as happened in this cycle — they will have to rehire faster than if they had been slow to fire, as was true in the two previous downturns.
I hope he’ll check back on that theory.
But I’m most interested in how Norris explains why optimism may be lacking this time around.
Both Republicans and Democrats have good reasons to be negative. Republicans are loath to give President Obama credit for anything, and no doubt grate when he points to his administration’s stimulus program as a cause of the good economic news, as he did in North Carolina.
Democrats would love to give the president credit. But much of the Democratic Party wants another stimulus bill to be passed, notwithstanding worries about budget deficits. Chances for that are not enhanced by the perception the economy is getting better.
Wow. Are our pols purposefully pushing pessimism? That’s something we should read more about.Holly Yeager is CJR's Peterson Fellow, covering fiscal and economic policy. She is based in Washington and reachable at email@example.com.