Today’s release of July employment data has vastly greater political consequences than economic or financial. Those consequences extend beyond elected officials to policymakers at the Fed, and inside the Obama administration and out.
Net of all the moving parts (Census workers) and revisions (June adjusted down 152,000), job creation is flat. A minor uptrend in private-sector jobs has been offset by newly down-trending state and local government employment.
Confirming an overall "stuck in mire": Weekly claims for unemployment insurance rose to 479,000, a four-month high.
The economy does have some forward momentum: the twin Institute for Supply Management reports for July, manufacturing and services, came in at 55.5 and 54.3, respectively.
The trouble is at home: July personal income and spending were unchanged from June. Flat.
All things being equal, the economy could stumble along at this pace forever. But all things are not equal. The Treasury is hosing $125 billion in borrowed money into the economy every month, roughly $1.5 trillion this year.
We can continue that transfusion for some unknown period of time, but no one knows how long. Before that clock expires, economic growth must rise to a healthy level so that tax revenue will rise, so that spending can be cut, and so that tax rates can rise.
The administration and Fed insist that patience is all that is required. We will slog at low-slope growth for a long time, but we’re doing all of the right things and we’ll get to good growth before the fiscal alarm goes off.
A few serious, honest people still make that case. The obvious economic slowdown since May could be temporary and, even if it extends and runs into 2011, could avoid a true double dip back to recession.
The game changes from financial to political when faith breaks among the people — the actual economic actors. Slogging is OK if we’re getting somewhere, but not if we’re not.
Political happy-talk is normal, but this situation is not. Administration efforts to smiley-face this thing are now absurd, even offensive.
At the next level of political economics, who is in charge and what to do? Now three years into this unprecedented predicament, we have deployed every remedy imagined in the 80 years since the Great Depression — every one that we might have and should have deployed in the ’30s. They worked, too: the bailouts, the fiscal stimulus and the Fed’s courageous use of its balance sheet ("quantitative easing" money-printing.)
Skeptics of those interventions rise on the right and Tea Party to claim that they caused our trouble. The left says we should do more of everything. The sensible center has lost its credibility by overpromising, and now nobody is in charge.
Federal Reserve Chairman Ben Bernanke, the hero of this post-Lehman era who had the financial run under control before the Obama administration arrived, this week said: "In the household sector, growth in real spending seems likely to pick up, supported by gains in income and improving credit conditions."
There is no evidence to back this forecast; this is the sort of oblivious nonsense in which the Fed was trapped for 18 months pre-Lehman.
Very fine economist Christina Romer today resigned as chair of the White House Council of Economic Advisors. Nobody inside will talk, happy or otherwise, but everybody outside would prefer to see Economic Czar Larry Summers go instead, and take "all-talk, no-do" Timothy Geithner with him.
The president is eyeball deep in his own Kool-Aid, focused on a left-side agenda that wore out the nation 40 years ago.
The opposition has nothing to offer: "Go to hell!" alternating with, "Shut government!"
Here’s the good news: We were never going to get off dead policies until the people lost faith. I believe in the good sense of the electorate when fully awake; there is some danger of a lurch to extremism, but that’s not been our way, no matter what the peril.
I have no idea how it will break between now and November, and beyond, which party or people will rise to the occasion, but every politician and policymaker is going to feel this cold glare: "You have let us down. You have not done your jobs. You have not paid attention to reality. We need excellence, and you have failed."
Source: Calculated Risk Blog