The Other McCain

Ed Morrissey and Ace of Spades both highlight a Big Government item about the Obama administration fudging employment statistics:

The number of jobs in the U.S. is currently 129.7 million. So to justify the Administration’s current claim of 2.8 million jobs “created or saved” by stimulus, they need to also claim that without that stimulus there would be only 126.9 million jobs. That’s exactly what they do, displayed as the “baseline projection” level in the graphic below from an April 14, 2010 report . . .
An inconvenient truth, at least for the Obama Administration, is that once upon a time, in their January 2009 Romer/Bernstein Report they told America that without their stimulus there would be 133.9 million jobs. That’s right, in order to make it look like their stimulus has “created or saved” 2.8 million jobs, the Obama Administration first had to whack 7 million jobs from their previous estimates.

In other words, they’ve retroactively altered their predictions to make it look like their policies worked. Meanwhile, as Ace also highlights, the market-psychology game is being played by Daniel Gross of Newsweek:

In 2009 and 2010, Democrats passed Keynes-inspired stimulus efforts and pushed through health-care reform over the uniform and frequently shrill opposition of Republicans. The economy stabilized and a recovery began to gain traction. Fast-forward to October 2010. Assuming recent trends continue, the U.S. economy will be in its sixth quarter of GDP growth . . . While not producing nearly enough jobs, the economy will be producing a sufficient number to bring the unemployment rate down. Should the stock market simply move sideways, it’ll still be 70 percent higher than its March 2009 nadir

It’s all sunshine and light, you see? Nothing to worry about — except for the fact that the economy was “stabilized” via a taxpayer-funded blank check to Wall Street (the TARP bailout) and $789 billion in deficit-funded stimulus spending, to say nothing of various federal programs to protect delinquent mortgage-holders. Despite all of which, White House economic adviser Christine Romer still insists that the economy is suffering from a shortage of “aggregate demand” — which, in Keynesian logic, translates to a call for yet more stimulus spending. (Tyler Cowen and Arnold Kling discuss this, for the benefit of economics buffs.)

What is being ignored by the sunshine-and-light crowd is that, once more to borrow an excellent phrase from Michelle Malkin, the fundamentals suck. Unprecedented levels of deficit spending in Washington are sucking up — through auctions of Treasury bonds — already tight supplies of capital that might otherwise be used for private business investment.

Furthermore, the IMF has just warned that the banking crisis isn’t over yet. And the problem of “sovereign debt” could cause a “new phase” of crisis:

Greece’s upheaval could mark the starting point of a “new phase” in the global crisis if countries don’t get their fiscal houses in order, despite the low risk of contagion, the International Monetary Fund said Tuesday.
While the IMF slashed its projections for bank losses from the crisis to an amount deemed manageable, the rapid buildup of sovereign debt among advanced countries to levels not seen since the end of World War II has emerged as the biggest threat to global financial stability.
“In spite of recent improvements in the outlook and the health of the global financial system, stability is not yet assured,” said Jose Vinals, director of the IMF’s monetary and capital markets department, at a press conference to discuss the semi-annual Global Financial Stability Report.
“If the legacy of the present crisis and emerging sovereign risks are not addressed, we run the real risk of undermining the recovery and extending the financial crisis to a new phase,” he said.
The report called on governments to “design credible medium-term fiscal consolidation plans in order to curb rising debt burdens and avoid taking the credit crisis into a new phase.”

This scary “big picture” is aggravated by problems in commercial banking, on pace to exceed last year’s 140 bank failures:

U.S. regulators on Friday shuttered eight more banks in Florida, California, Massachusetts, Michigan and Washington, pushing up U.S. bank failures to 50 so far in 2010. This compares to a total number of bank failures of 140 in 2009, 25 in 2008 and only 3 in 2007. . . .
The eight failed banks together would cost the FDIC’s Deposit Insurance Fund about $984.8 million. . . .
Increasing loan losses on commercial real estate are expected to cause hundreds more bank failures in the next few years. The FDIC anticipates bank failures to cost about $100 billion over the next three years.

Lest anyone suppose that my pessimism is political — a mirror-reverse of Daniel Gross’s sunshine-and-rainbows pro-Obama optimism — let’s hear from liberal economics professor Joseph Stiglitz:

Even if the banks are fully fixed, that leaves overleveraged households and a lack of demand needed to get the economy going.
Unemployment remains very high. The pace of home foreclosures is likely to increase this year over last. A quarter of all homeowners are underwater on their mortgages, and problems are starting to hit commercial real estate as well.
Meanwhile, forecasters expect more bankruptcies among regional banks. Many of them are the traditional lending institutions for small and medium-size businesses. I hear from a lot of small businesses that credit is becoming less available.

Understand that Stiglitz believes that the problem with the stimulus was that it wasn’t big enough, so that like Romer and other Keynesians (obsessed with pumping the consumer demand side of the supply-and-demand equation) he wants the government to do even more deficit spending. Yet balance that against the IMF’s warnings of a “sovereign debt crisis” and calls for fiscal restraint, and you see that the Obama administration and Congress have climbed out toward the end of a thin, shaky limb. If they don’t do more stimulus spending, the weak “recovery” will grow weaker; but if they don’t reduce the deficit, the bond market could go sideways, causing a Greece-style crisis.

Stephen Spruill in National Review examines the concerns of some conservatives (including Larry Kudlow) that it is politically dangerous for Republicans to stake their mid-term fortunes on the failure of Obamanomics. Excuse me for discounting Kudlow’s bullishness; the man is a stock tout and reminds me of those real-estate agents who, year in and year out, will always tell potential customers that “there’s never been a better time to buy.”

The current bullish trend in the stock market — at a time when the official unemployment rate is over 9 percent and the unofficial number twice as high — makes no sense if you view the DJIA as a barometer of overall economic prospects. Friday’s 125-point drop on news of the Goldman Sachs fraud investigation indicates the kind of skittishness we might see if, as I suspect, investors feel the market is nearing a peak.

Conservatives don’t like to derogate the American economy, and so there is a natural resistance to gloom-and-doom talk among Republicans. And one understands the risks of saying everything’s going to hell in a handbasket when, for all we know, Gross’s predictions of an improving employment picture this fall may come true.

However, given the hidden millions of underemployed and “discouraged” workers not counted in the official unemployment statistics, it would take a wildly improbable boom to get the unemployment rate below 8 percent by Election Day. And that would be the most rosy scenario imaginable, based on the assumption of no new “shocks” to the system in the intervening seven months.

So as to the question of what Republicans should say about the economy in the meantime, prophetic forecasts of impending catastrophe would be unwise. If an economic calamity actually happens, there will be time enough to play pin-the-tail-on-Pelosi, but there’s no political benefit to warning of an economic disaster that might be forestalled (through the machinations of Ben Bernanke and Tim Geithner) until after Nov. 2.

Avoiding jeremiads, then, Republicans candidates can and should talk about the unprecedented deficit spending and other dubious economic policies of the Obama administration (and the Bush administration, too), and soberly discuss the unfixed problems that could lead to another 2008-style meltdown. Most voters understand that endless deficit spending (and zero-interest inflationary policies at the Fed) cannot go on forever, and the neo-Keynesian stimulus-and-bailout approach remains unpopular.

Obamanomics still isn’t working, and the only political danger in betting against it is the possibility that the administration might be able to produce the temporary illusion that it is working. This fall, Democrats will have a harder time selling that hopeful illusion than Republicans will have selling the sobering reality.