President Obama has scored some impressive legislative victories on his policy priorities, but there is a big ‘be careful what you wish for’ caveat that clouds his success. Because much of the Obama agenda is seen as over-reach by a skeptical public, the success in passing his agenda adds anxiety and uncertainty to a fragile confidence in recovery.
The irony in this is that just when fears of a double dip recession were abating the steam seems to be going out of the slow but steady return to growth just when the President needs that growth most going into the Fall 2010 elections.
Wells Fargo Economics released its latest report on GDP performance in the second quarter calling it ‘less strength than meets the eyes’. Despite real GDP growth at 2.4 percent in Q2 the economic data were revised downward for the past three years meaning the recession was deeper with real GDP declining 4.1 percent over the six quarters of recession compared to estimates of a 3.8 percent drop. Real GDP grew 3.2 percent over the past year, but the economy weakened as Q2 progressed. Fed Chairman Ben Bernanke called the economy unexpectedly fragile sending the Dow down. Durable goods orders fell in June and consumer confidence fell in July, despite solid corporate earnings and rising share prices.
The Piling Up of Doubt
The problem facing President Obama is that the sum of our fears including cost of his new programs, the impact of rising deficits, the loss of confidence in global financial markets about America’s financial strength and leadership (we keep spending while the rest of the work steps hard on the spending brakes) and the looming prospect of higher tax rates at the end of 2010 is sapping confidence and raising doubts about the sustainability of the recovery.
This is the ugly market report card on the President’s economic performance going into the mid-term elections. He still has time to turn it around before the final exam in 2012 but not with business as usual.
The problem is just when we need the President to rally consumer and business confidence that a weak start to recovery will pick up steam if we will only get out there and go about our business. The public increasingly sees the President as an impediment to economic growth not a steady hand on the rudder navigating us through the storm.
Living into our Economic Hierarchy of Needs
It does not have to be this way, except politics appears to be trumping economic common sense. To many it feels like we are watching an impending wreck in slow motion. We see the ditch coming but we just can’t see clearly enough to keep the car on the road.
- Hunker down
- Hoard cash
- Defer spending and hiring
- Push revenue into 2010 to avoid taxes in 2011
- Take profits now even at the expense of growth next year
- VOTE like your economic life depends upon it!
These are not the policies or strategies of sustainable long term growth but they are right out of the Maslow’s hierarchy of needs and they reflect the sum of our fears in an uncertain economy.