How to make a bad economy even worse
New GDP numbers should be a warning bell for Obama and Congress. But
they're not listening
By Andrew Leonard
HERE'S HOW MONUMENTALLY screwed up our national priorities are. Just two
hours after the government's Bureau of Economic Analysis released
disastrous new figures indicating that GDP growth has essentially
flat-lined, the president of the United States gave a brief address to
the nation calling for both political parties to come to bipartisan
compromise on "how to cut spending responsibly."
Obama was responding to Thursday night's monumental failure by House
Republicans to pass their own debt ceiling bill, after a revolt by
conservatives who deemed the measure unsatisfactory because it doesn't
cut spending enough. With the default deadline only four days away, and
at the end of a week when stock market indexes have already fallen by
about 4 percent, when short-term credit markets are showing signs of
stress and investors are pulling billions of dollars out of money market
funds, the display of Republican incompetence was the last thing a
nervous economy needs. A little reassurance that the White House was on
top of the situation would have been sorely appreciated.
Because the GDP numbers are the icing on this recessionary cake. The BEA
pegged growth in the second quarter at a paltry 1.3 percent. The first
quarter was revised down to a moribund .4 percent. And perhaps most
noteworthy at all, revisions to even earlier data showed that the depths
of the recession were much worse than anyone realized at the time. In
the fourth quarter of 2008, for example, growth fell by an incredible
With those numbers ringing in our ears, President Obama addressed the
nation and warned us that "on a day when we have been reminded about how
fragile the economy is" both parties need to get together and cut a
deal. And thus he demonstrated once again the amazing disconnect between
the current obsessions dominating our political system and the economic
plight of the nation.
Yes, we need a deal that avoids default. But if the GDP data proves
anything, spending cuts shouldn't be part of it. Shrinking state and
local budgets are already a significant drag on growth. Consumer
spending is weak. And yet everyone seems to agree: Obama, Republicans
and Democrats, that the first order of business should be shrinking
government even further, subtracting even more demand from the economy,
and likely accelerating our economic decline.
Conservatives have been fond of arguing that the weak economy proves
that Obama's stimulus didn't work, and I'm sure they'll be citing
today's GDP numbers as additional evidence. But if there's anything that
should jump out of the GDP data, it's the confirmation that the Obama
stimulus was far too small to deal with the true state of the economy.
Based on the data that we were aware of at the time, administration
economists such as Christy Romer, chair of the Council of Economic
Advisers, were recommending at least $1.2 trillion in stimulus. Instead
we ended up injecting a little under $800 billion -- and half of that
was in the form of tax cuts.
Now we know that the economy was contracting much faster than anyone
imagined. Is it any wonder that the badly designed, cash-poor Recovery
Act only managed to have the mild effect of keeping unemployment from
rising even higher than it would have without stimulus?
The political dysfunction over debt ceiling negotiations has already
hurt an ailing economy. But neither the Reid Plan nor the Boehner plan
offers the right medicine. Neither is even focused on treating the right
disease. Yes, it's clear that there is no political will for any further
efforts to boost demand in the economy. But the first commandment here
is simple: Do no harm.