Obama’s Recession

It seems to me that explanations for the continuing recession are such that it’s no longer appropriate to blame the causes of the initial downturn, much less the U.S. administration in power at the time:

Companies learned during the recession to do more with less, and with uncertainties about consumer spending, the broader economy and government policies, many businesses are holding the line on employment, even as they pour hefty sums into new machinery, equipment and software. …
Bill Cheney, chief economist at John Hancock Financial in Boston, says that he is still hopeful that hiring will pick up as sales increase and existing workers are pushed to the hilt. But if they don’t, he says, companies’ reluctance to hire could end up hurting them and undermining the recovery.
“Profits are great, but all that could change if the job engine continues to sputter,” he said. “Business capital spending helps, but consumer spending matters more.” And without jobs, he said, people will pull back.

Apart from the politics, it’s reasonable to suggest that individuals and organizations have come to the conclusion that they’d gotten in the habit of overextending themselves and are correcting that behavior, and it’s a precarious prescription to suggest that they oughtn’t be more fiscally responsible. But a case could be made that in propping up the economy with money borrowed from the future — that is, creating demand without the corresponding increase in wealth among consumers — the current government has given companies the wherewithal to step back and invest in productivity improvements that don’t create jobs, but rather ensure that they will return less rapidly.

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11 years ago

Let us not forget that no small businessman in his right mind is going to be hiring until the impact of Obamacare is known and until Congress and the President make a decision about the Bush tax cuts.
Too damned much uncertainty for aggressive action in a market that has so many unknowns ahead.

Robert Balliot
11 years ago

Excellent article by David Stockman:
Four Deformations of the Apocalypse
And, Justin, you are wrong yet again. The previous administration can be blamed for the current fiscal situation.

Tommy Cranston
Tommy Cranston
11 years ago

“And, Justin, you are wrong yet again. The previous administration can be blamed for the current fiscal situation.”
The people (outside of this sh***y little progressive backwater) are not so easily fooled.
The people of some of the bluest parts of the country have already shown us what fate awaits the Party Of Yes (to bankruptcy) on November 2.
New Jersey
Arlington County
Suffolk and a bunch of other suburban NYC counties.

Warrington Faust
Warrington Faust
11 years ago

There is always some delight in searching history for some “root cause” of a disaster. What has to be remembered is that the “root cause” is not necessarily the “efficient cause”. Sometimes the root cause is just too remote.
Did you prefer it when Clinton raised the estate tax on people who were already dead? Talk about kicking someone when they are down!
Would you like to see the death tax go back to $200,000? Everyone whose parents owned a house would pay it. That is certainly “fair”.

11 years ago

“The previous administration can be blamed for the current fiscal situation.”
Yes. The Clinton administration and his Congress. Together, they put the Community Reinvestment Act on steroids – “Everyone has the right to own a house!” – and simultaneously held the banks harmless from lending to unqualified buyers by ordering Fannie and Freddie to buy all of that bad paper.
Then the housing bubble that they created collapsed along with the bad paper, followed swiftly by the economy.
These actions then created a secondary level of guilty parties, including bond rating agencies (there should have been criminal charges) and end-borrowers who took out mortgages without completely informing themselves as to the obligation that they had undertaken.

Justin Katz
Justin Katz
11 years ago

My point is that the “root causes” are largely irrelevant, at this point, unless you can argue that the root causes are what’s making businesses and consumers skittish. I don’t think so, and at the very least, I think a different slate of policies from Obama and the Democrat Congress could have us on a much healthier road to recovery.
In other words, I’ll give the initial bust to whomever bears the blame, pre-Obama, but the nature of the recession seems to me to have changed in ways that weren’t embedded in that fall. (Recall, for one thing, that consumer spending stayed surprisingly healthy during the initial period.)

Warrington Faust
Warrington Faust
11 years ago

When searching back for a beginning, or “root cause”, a few thoughts have to be kept in mind. Just because someone opens a door does not require you to enter it. Each further step was a conscious decision by someone who most likely had other alternatives. To simplify, the “root cause” of a bank robbery may be the failure to lock a door. But, the “efficient cause” is the decision to enter the bank and steal what was available. The same person, or another, could just as easily have called the police about the unlocked bank.
Another lesson of history is that if events did not happen the way the did, does not mean that they would not have happened at all. If Ben Franklin had not flown his kite in a storm, that does not preclude the possibility that someone else might have. Would the failure to sign the Magna Carta have precluded the development of democracy? If Pontious Pilate had not condemned Jesus, would there be no Christianity?
Some decisions may have irreversible consequences, but every chain of events has an almost infinite number of “but fors”. Harvard Business School used to diagram these strings of decisions as “Decision Trees”. Errors were described as a failure to “draw your tree out far enough”.

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