“The contrast in results between the current recovery and the Reagan years is instructive because the policy mix was so different,” the Wall Street Journal notes, highlighting, “The Keynesian Growth Discount.” “In the 1980s, the policy goals were to cut tax rates, reduce regulatory costs and uncertainty, let the private economy allocate capital free of political direction, and focus monetary policy on price stability rather than on reducing unemployment. This is the policy mix we need to rediscover if we are going to escape our current malaise and stop suffering from the Keynesian discount:”
The most recent recession of comparable depth and job loss was in 1981-1982, when unemployment hit 10.8%. Huge chunks of industrial America shut down and never re-opened. Yet once the recovery began in earnest in the first quarter of 1983, the economy boomed. As the nearby table shows, growth exceeded 7.1% for five consecutive quarters, and it kept growing at nearly a 4% pace for another two years. Growth didn’t dip below 2% in any quarter until the second three months of 1986. This was the Reagan boom.
Now look at the first seven quarters of the current recovery. Only briefly has growth hit 5%, in the fourth quarter of 2009 as businesses rebuilt inventories that had been pared to the bone. Growth has been mediocre ever since, sputtering to a near-stall in the middle of last year, accelerating modestly late last year, and now slowing again. This recovery is as weak as the much-maligned “jobless recovery” of the last decade, which followed a mild recession and at least gained speed after the tax cut of 2003.
Most striking is that this weak growth follows everything that the Keynesian playbook said politicians should throw at the economy. First came $168 billion in one-time tax rebates in February 2008 under George W. Bush, then $814 billion more in spending spread over 2009-2010, cash for clunkers, the $8,000 home buyer tax credit, Hamp to prevent home foreclosures, the Detroit auto bailouts, billions for green jobs, a payroll tax cut for 2011, and of course near-zero interest rates for 28 months buttressed by quantitative easing I and II. We’re probably forgetting something.
Imagine if President Obama had introduced his original stimulus in February 2009 with the vow that, 26 months later, GDP would be growing by 1.8% and the jobless rate would be 8.8%. Does anyone think it would have passed?
So what happens next?
Well, here’s one scenario; click to embiggen:
In “The 2012 Election in Pictures,” George Savage of Ricochet lays out the savage forecast:
The indispensable Heritage Foundation has just released its 2011 Budget Chart Book. Take a gander, alert your friends, especially the skeptics, and maybe lob a message into the youngster manning the phones at your congressman’s office.
You will not find a clearer or more compelling resource illustrating the fiscal mess we find ourselves in…or its cause.
Which could be, as Peter Wehner suggests at Commentary, “How the Smartest President Ever Becomes a One-Term President:”
In a Gallup poll, 29 percent said the economy is in a depression while 26 percent said it is in a recession, with another 16 percent saying it is “slowing down.” The Gallup Economic Confidence Index is as low as it’s been since the height of the Great recession. According to the New York Times/CBS News poll, 70 percent of Americans think the country is on the wrong track. Nearly two-thirds of Americans believe the nation is in decline. As David Brooks wrote earlier this week, “The country is anxious, pessimistic, ashamed, helpless and defensive.”
And in a Quinnipiac poll that must have sent shivers up and down the spines of Obama’s political advisers, in Pennsylvania—a state Obama carried by double digits not quite two-and-a-half years ago—the president’s approval rating is down to 42 percent.
Obama will not win reelection if he loses Pennsylvania.
What is happening is a series of interrelated developments. Many of the objective economic conditions of the country are getting worse. The country’s mood is darkening. And support for the president, and especially his policies, is dropping to dangerously low levels.
The president can hold as many town halls as he wants. He can attack Republicans to his heart’s content. He may be, as his supporters insist, hyper-rational, the very model of the complex, nuanced thinker, perhaps even “the smartest guy ever to become president.” He can be charming on Oprah. He can do lots of things. But one thing he cannot do is escape the consequences of his actions. And if the economy remains flat on its back—if things don’t pick up significantly between now and the summer of 2012—then the odds are quite high that we’re looking at a one-term president.
If Obama does wind up losing Pennsylvania (insert the usual “election’s a year and a half away, anything could happen in the interim” boilerplate here), then history would have truly rhymed indeed.