Its standard procedure for top White House and Federal Reserve officials to get an early look at the numbers, but there was nothing standard about this particular report.
It showed that job losses had all but stopped in November, after nearly two years of big declines. White House aides exulted. Economist Christina Romer brought a copy of the numbers to the Oval Office, and President Obama embraced her. A photograph of the moment, with a Christmas tree off to the side, was hung in the office of the Council of Economic Advisers. The good news and the optimism would continue for the next few months.
Today, that brief period of optimism looks like one of the worst things that could have happened to the White House, other Democrats and, above all, the economy. The nascent recovery removed the urgency that the Obama administration and Democratic senators felt in early 2009. They still favoured more action, like aid to states and tax cuts, but it was no longer their top priority. They assumed a recovery was under way.
We now know, of course, that the recovery has stalled. From November of last year the month whose job report brought cheer to the White House to May, the economy added almost one million jobs, thanks partly to census hiring. Since May, almost 4,00,000 jobs have disappeared.
More than anything else, that change explains the mid-term losses that Democrats are bracing for next week.
The main determination that the press and the public make about the president is not really liberal or conservative, Former President George W Bush’s former chief speechwriter Michael Gerson said in March. Its strong or weak. Back in the spring, job growth was picking up, the health care bill had passed and Obama looked strong. Today, he does not.
None of this means that the White House and Congress have wasted the last two years, as some on the left have charged, or enacted a radical agenda, as some on the right claim. Obama has in many ways been a moderate. He cut taxes and demanded more accountability from schools. He neither nationalised the banks nor pushed hard for the so-called card check bill, which unions believe would expand their membership and which conservatives hate. At the same time, he and Congressional leaders did succeed where Presidents Harry Truman, Lyndon Johnson, Richard Nixon and Bill Clinton all failed: putting the country on a path to universal health insurance coverage. The White House and Congress also toughened regulations on Wall Street and increased funding for education and scientific research. The health care bill alone is the most significant and far-reaching piece of domestic social policy in my lifetime, says chief operating officer of the liberal Center for American Progress Neera Tanden, who worked in the Clinton and Obama administrations and was a top official in Hillary Clinton’s campaign. In all, Tanden added, “It is hard to see a more productive session of Congress in decades.”
Yet on the issue that drives elections more than any other the current state of the economy the White House and Congress have fallen short by any reasonable standard, including their own. By now, they forecast that the unemployment rate would be below 8 per cent, not 9.6 per cent. Perhaps more important, they also expected joblessness to be steadily falling.
The problems began with the original stimulus, passed in February 2009. Centrist senators, whose votes were needed, opposed the kind of huge, $1 trillion-plus program that now seems as if it would have been best. But even within those confines, the ultimate $787 billion bill was flawed. Some $70 billion of it went to a tax cut that Congress would surely have passed anyway.
Still, the stimulus made a big difference. As analyses by the Congressional Budget Office and others have shown, the bill was a major reason that the economy turned around in early 2009 and was growing by years end.
Recoveries from financial crises tend to be long and slow. The European debt crisis, which began early this year and sent stocks around the world falling, seems to have taken away the American economys slim margin for error. By May, hiring by companies had slowed. Stimulus spending was starting to slow, too. And White House political aides were looking at polls showing voters were worried about deficits and spending. Put it all together, and the aggressive policy response of 2008 and 2009 faded.
In December 2009, the House passed a second stimulus bill, totaling $154 billion. But it languished. By the time the Senate took it up in February, a special Senate election in Massachusetts had cost the Democrats their filibuster-proof majority. The bill that the Senate eventually passed, and that became law, was only one-tenth as large as the House version.
At the Fed, meanwhile, some officials were warning incorrectly, its now clear that the economy could be at risk of growing too quickly and setting off inflation. Yet Obama let two Fed seats sit vacant for months, rather than fill them with economists who could have lent more balance. Only recently has the Fed started trying to lift growth again. White House officials respond to these criticisms by pointing out that they helped break the back of the worst financial crisis in 80 years and that Republicans opposed nearly every tax cut or spending increase Democrats proposed. Thats all true. But I keep coming back to the fact that this administration is full of people who knew that financial crises tended to produce weak recoveries and that the typical policy mistake was being too timid.
Were just not going to make that mistake, Timothy Geithner, the incoming Treasury secretary, told me, as Obama was preparing to take office. Were not going to do that. Well keep at it until its done, whatever it takes.
Obama and his team may yet succeed at doing that. But for reasons both beyond and within their control, it will take longer than they hoped or expected. And longer than voters hoped or expected.
