Oooh, I can take only so much double-speak in a single sitting. The object lesson today is a Reuters article reporting on a Larry Summers speech, “Obama policies averted economic “abyss”: Summers.”
Let us not forget that “Obama policies” in this case are “Larry Summers policies.” Obama has never displayed much interest in economics; he has clearly delegated this area to his team, which really means to Summers and Geithner, and it is a given that Geithner largely defers to Summers (based on their history, Summers’ aggressive style, and Summers’ nominal expertise). The only parties on the economics team who might have differed with the the Hamilton Project party line were Paul Volcker and Austan Goolsbee. As we noted, Volcker has been marginalized, and Goolsbee had been largely missing from action (perhaps unfairly, we never saw Christina Romer as likely to have much influence). So Summers is evaluating his own work. It isn’t surprising that he’d view it favorably.
But his revisionist history is pretty ballsy. Pretty much no one liked the first stimulus package. The folks who don’t place any stock in that sort of thing of course hated it (remember, Republicans wanted tax cuts, their default cure for any and all evils), while pretty much every left-leaning economist thought the spending program was too small and too slow in coming (i.e, it was critical that the adrenaline shot be administered quickly). But many of the spending programs took time to gin up. Unfortunately, it isn’t possible to turn investments in infrastructure or clean energy on overnight.
And then we have the Administration through Summers claiming its mortgage mod program is a success. Huh? Half a million people have gotten TRIAL mods. These are typically not real mods, but payment catch-up plans. So it is not clear how many will even get real mods. And of those, the evidence is overwhelming that mere payment restructuring plans, as opposed to mods that involve meaningful principal reductions, have lousy success rates. The industry has every reason to prove that mods don’t work to get the White House off their back and return to business as usual, since the status quo ante was much more profitable to them than doing right by borrowers (and investors, who in aggregate are better served by getting 2/3 of a loaf via a deep mod than 40% via a foreclosure).
The one bit of policy, if you care to call it that, that has worked well is the Administration’s concerted campaign to talk up the stock market. Its success in using the bogus stress tests to goose bank stocks was remarkably effective, particularly since anyone who knew anything about banking and was not in on the con was highly critical of the tests. But the media played them to the max, some saw evidence of short squeezing, everyone celebrated earnings that Meredith Whitney described as manufactured. And the Administration kept pointing to the improved tone of the markets as proof that the economy was on the mend. And some readers have noticed a cheerleading stance in news outlets that were once more evenhanded, particularly Bloomberg.
Can a con job lead to recovery? The continuing lousy news on the employment front suggests not, but as long as the stock market remains relatively buoyant, few want to challenge this thesis. I had drinks with a hedge fund manager who was recently pilloried at a buy side/sell side get together when he dared suggest that the fourth quarter might not look as robust as everyone assumed. He said the argument against him boiled down to, “We are all feeling better and spending more, so everyone else surely is too.” The fact that they are all in the top 1% of the population and beneficiaries of TARP and other government bennies means it is a huge leap to generalize from them to the other 99%, but they didn’t see it that way.
The Obama administration has helped pull the U.S. economy back from the “abyss” with aggressive efforts to spur growth and stabilize financial markets, a top White House adviser said on Monday…
“Thanks largely to the Recovery Act, alongside an aggressive financial stabilization plan and a program to keep responsible homeowners in their homes, we have walked a substantial distance back from the economic abyss and are on the path toward economic recovery,” Summers wrote to House Republican leader John Boehner….
“Every American is asking this administration: Where are the jobs?” Boehner said in a statement. The Ohio Republican noted the economy had lost roughly 3 million jobs since Congress had approved the stimulus package in mid-February.
Responding to a letter Boehner had sent Obama, Summers pointed to a slowing pace of job losses as evidence that the administration’s policies were working. “We have seen a substantial change in the trend of job loss,” he said.
In an interesting bit of synchronicity, reader Skippy sent another take on Summers singing his, whoops, Obama’s praise from the Washington Post:
The White House’s top economic adviser took aim at Republican criticism of President Obama’s economic recovery policies on Monday, delivering a sharply worded letter to lawmakers that credited the administration with pulling the nation back from an “abyss” and faulted the record of recent GOP presidents on the economy….
Summers saved some of his toughest rhetoric for Obama’s predecessor.
“The bipartisan commitment to fiscal discipline that existed during the 1990s evaporated during the 2000s. Every major policy enacted during this period violated the principle of paying for new proposals,” Summers wrote. “As a result of these decisions and a weak economy, when President Obama took office in January 2009, he inherited a deficit well in excess of $1 trillion.”
Um, last I checked, the proximate cause of our economic train wreck was not public sector debt, but a massive balloon of private sector debt that started ramping up in the mid 1990 and started going parabolic in 1999. That in turn was in large measure the result the deregulation of the financial services industry, which started under Reagan but got a real head of steam under Clinton thanks to the tender ministrations of Robert Rubin and Larry Summers.