Rainmaker & recession

The formula for restoring national confidence — part good policy, part good politics, part good luck — can be hard to find. It eluded Herbert Hoover after the Crash of ‘29, Lyndon B Johnson after the Tet offensive, Jimmy Carter after the energy shock and George W Bush after Iraq turned from quick victory to bloody insurgency.
But President Obama has tried to do just that in a time of crisis. Obama has carefully begun trying to mine any national leader’s most precious commodity in a crisis: Optimism. His past references to “glimmers of hope” were modestly upgraded at the White House on Friday, with his declaration — which he stumbled over, taking some of the assertiveness out of the line — that “the gears of our economic engine do appear to be slowly turning once again.”
His aides have been reaching tentatively for similar metaphors, then adding, as Obama quickly did, that real recovery is months, if not years, ahead. Fear and aversion to risk have been part of the economy’s problems since the downturn began, and Obama’s aides have been highly attuned to the risks of a downward spiral of pessimism.

Central paradox of crisis

In recent weeks, his economic team has begun flagging signs that the worst could be over, even as it carefully released the results of its bank examinations in a way that suggested a desire to reassure the financial markets and consumers. They got a bit of backing this week from the Federal Reserve Chairman, Ben S Bernanke, who forecast that the economy was likely to begin growing again by the end of the year.
“Remember this central paradox of financial crisis,” Lawrence H Summers, Obama’s top economic adviser in the White House, said in mid-March, when every arrow was pointing down, “that while the problem was caused by excessive complacency and excessive optimism, what we need today is more optimism and more confidence.” Obama’s own words on Friday signaled that he was worried about the perils of getting out ahead of the numbers. He spent more time talking about the letters he received from the desperate and out-of-work than he did dwelling on the decline in the pace at which Americans are losing their jobs. After all, 539,000 job losses in a single month is not exactly cause for celebration, even if it represents an improvement over the previous month.
“There’s a kind of artistry to this, isn’t there?” said Robert Dallek, the presidential historian best known for chronicling how Lyndon Johnson, the consummate politician, never led the public out of its view that everything was falling apart. “You don’t want to come out and say the recession is over. You want to do a version of Churchill’s line about how this isn’t the end, or the beginning of the end, but rather the end of the beginning.”  In Obama’s case, polls showed that a significant chunk of the public was predisposed to look for the bright side.
But there are plenty of skeptics out there, from economic historians who know that history is littered with false recoveries, to those who argue that Obama has engineered a turnaround at the cost of phenomenal deficits and a huge new role for the government in the private sector.
Robert Reich, President Bill Clinton’s secretary of labour and one of Obama’s critics on the left, was on television Friday arguing that to create this sense of optimism Obama’s team essentially put its finger on the scale when weighing the ability of the banks to survive a deeper downturn. Given the depth of the concerns about the stability of the financial system and the debates about whether Obama was being tough enough on the banks, administration officials recognised that they could not afford the kind of mistake they made in early February, when Timothy F Geithner, new to his job as Treasury secretary, provided vague assurances that the banks would be saved but said he was not prepared to give details. He was hammered in the markets and derided as inexperienced.
So when it came to releasing the results of the bank stress tests, much was done differently. When the tests were first announced in late February, administration officials said that bank-by-bank results would not be announced. It quickly became clear that would court disaster:
Banks that were given a clean bill of health would scream that news to the markets, leaving the rest of the 19 appearing to be in far direr straits. Inside the administration, according to two officials, Geithner argued that the results had to be announced in considerable detail. And this week Geithner defended the soundness of the administration’s approach.
“A huge part of the dynamic of a crisis is confidence,” Geithner said in a telephone interview on Friday. He was influenced in part by his days as a young Treasury official in the American Embassy in Japan, where he saw what happened when the Japanese government talked up the economy but failed to act.  He said Obama was opting for “directness and candour and openness about the scope of the problem,” but steering clear of “talking up the numbers” in ways that predict what the future will bring.
But administration officials said they recognised that the numbers that resound most with Americans were the unemployment statistics, and those were usually the last to recover.
They are also subject to surprise downturns, which explains Obama’s hesitance to describe the job-loss figures on Friday as the beginning of an improving trend.
“The hardest part of this is balancing optimism with credibility,” said Dallek. “Hoover’s ‘Happy days are here again’ wasn’t credible. Bush’s ‘Mission accomplished’ became a running joke. No one wants to make that mistake again.”