Recession is over
Posted: Tuesday, August 4, 2009 8:01 pm
By DOUGLAS COHN
and ELEANOR CLIFT
WASHINGTON — If you watch cable television, you’ve heard all the bad news. The stimulus bill didn’t work, and the Obama administration misread the economy, failing to recognize the depth of the downturn.
Turn off the TV, or switch the channel to ESPN. The talking heads on the cable-news networks have an agenda, and it isn’t always anchored in the facts.
Gloom and doom boosts ratings. A story that says the economy is recovering is greeted with such skepticism that it rarely merits airtime. But those little green shoots are coming up. The big, name-brand banks are reporting huge profits, and while one sector does not make a recovery, there are other bright spots. Other non-bank companies are also posting stronger than expected earnings and even real estate prices on existing homes have risen for three straight months, indicating the economy has made the turn and is on the upswing.
Federal Reserve Bank Chairman Ben Bernanke testified on Capitol Hill this week, receiving volley after volley of criticism from lawmakers. Pressed on whether a second stimulus is needed to combat rising unemployment, Bernanke pointed out that only a quarter of the money from the first stimulus package has been spent, so it is premature to say a second piece of legislation might be necessary.
Obama’s popularity is slipping, though he still has a healthy 59 percent approval rating according to Gallup. The president will ultimately be judged on how well he governs, and six months into his term is too early to conclude his policies are a success or failure. Based on how Wall Street and the banks are rebounding, however, there’s a good chance we will look back and conclude that the recession ended in the summer of ‘09.
Critics say more of Obama’s stimulus plan should have kicked in by now. The president defends the plan, saying it was designed as a two-year package. Republicans say it cost too much, but that’s how a deep recession is battled, you spend what it takes. And much of the money that went to the banks was loaned. Now, they are paying it back, pumping billions with interest back into the Treasury.
Skeptics should also take note of the stock market. At its peak before the downturn, the Dow hovered around 12,000. It dipped to just above 6,000, taking with it half the wealth that it represents. Now it just pushed over 9,000, another indication that we could be climbing out of the recessionary hole that was dug by a combination of greed, lack of regulation, and the natural business cycle taking hold.
Bernanke resisted calls on Capitol Hill to tighten down on government spending, which would be the worst thing to do while the economy is still in the grip of a recessionary spiral. That’s the main lesson policymakers took from the Great Depression. In 1929, President Hoover and the Republican Congress addressed the declining economy with a determination to balance the budget, precisely the wrong remedy.
Hoover and his fellow Republicans compounded the error by raising tariffs on imports with the Smoot Hawley Act of 1930, further deepening the effects of the Depression.
Hoover was a great humanitarian and a smart and decent man, but he had a philosophy that was out of touch with what the economy needed to rebound, and he has been vilified for that. Just think if Hoover had done the opposite, if he had opened up the federal purse strings to spending and taken down protectionist barriers, the Depression of 1929 would have been one of the periodic “panics” that afflicted the country as they did in 1857, 1873, 1893 and 1907, disruptive but nowhere near the widespread financial and emotional ruin associated with the Great Depression. Obama knows history, which is why he remains confident that now is not the time to let up on the course he is on, and that the course he has chosen will ultimately prove the right one.
Published in The Messenger 8.4.09
DOUGLAS COHN, ELEANOR CLIFT