POLITICS MARCH 4, 2011
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Most economists believe that while the recovery remains fragile, it is likely to accelerate over the next year. As recently as a month ago, the American people agreed. But they don’t anymore. And there is a threat that these suddenly gloomy expectations could turn out to be perversely self-fulfilling—causing Americans to stop spending and investing, and thus hobbling the pace of economic growth to slow the already subpar job rebound.
Two recent surveys highlight the shift in popular sentiment. Drawing on data collected between February 24 and February 28, the latest NBC/Wall Street Journal poll documents a startling collapse of economic confidence. As recently as last month, 40 percent of American thought the economy would get better during the next year—the highest level of optimism since the spring of 2010—while only 17 percent expected it to get worse. Now, only 29 percent expect improvement; an equal share—29 percent—fear deterioration. And Gallup measures economic confidence on a weekly basis, using an index that combines perceptions of current conditions with assessments of economic trends. Two weeks ago, it had reached its highest level since January of 2008. Since then, the index has fallen by twelve percentage points, and nearly all the change comes from a plunge in expectations. Two weeks ago, 43 percent saw the economy as getting better; by last week, only 33 percent did.
There is a danger that, if households hunker down in response, the economy and job market would shift into lower gear. President Obama has a huge stake in avoiding this, from the perspectives of both policy and politics. It would be uncomfortable enough for Obama to run for reelection with unemployment around 8 percent, down from its peak but still higher than when he took office. But it would be much worse—possibly fatal—for him to wage that battle with unemployment anywhere near today’s level.
Only recent events could account for such an abrupt shift, which Gallup attributes to rapidly increasing gas prices and growing public concern about government finances at every level. If Gallup is right, Obama should try to reach an ironclad agreement with major oil-producing countries to increase production and compensate for any fallout from the Libyan civil war, so that market psychology might shift in a favorable direction and push crude oil prices down. Whether the Saudis, who are still seething at what they see as his abandonment of Hosni Mubarak, would be willing to help out, is another question altogether.
On the fiscal front, Obama has a growing incentive to strike a multi-year deal that shifts the focus away from short-term budget cuts and instead brings long-term deficits down to a sustainable level. Here again, public opinion is flashing warning signs: According to the NBC/Wall Street Journal survey, 62 percent of people are concerned that the president won’t go far enough in cutting programs and reducing spending to deal with the budget deficit; only 26 percent fear that he’ll go too far. Unless he gets more involved, the public predisposition to see him as fiscally fainted-hearted could harden into the judgment that he’s part of the problem, not the solution.
This approach would be more popular than the Republican alternative. The American people favor cuts in programs such as energy subsidies and unnecessary weapons systems as well as an outright five-year freeze in domestic spending. They strongly support imposing an income surtax on millionaires and phasing out the Bush tax cuts for families earning more than $250,000 a year. They even profess themselves willing to reduce Medicare and Social Security benefits for wealthier retirees and to gradually raise the retirement age. But more drastic changes, such as turning Medicare into a voucher system, which House Budget Committee Chair Paul Ryan proposed last year, would run into a buzz-saw of public opposition.
It’s hard to say how all this will sort itself out. But one thing seems clear: The longer the uncertainty persists about the course of gas prices, state and local finances, and the federal budget, the harder it will become for the economy to get up a head of steam. If a president who prides himself on his ability to take the long view actually does so now, he will get himself off the ropes and into the center of the ring.
William Galston is a former policy advisor to Bill Clinton and current senior fellow at the Brookings Institution.
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12 comments
I've got to think that Americans are worried about the surreal political scene. Attacks on women's rights - defunding Planned Parenthood - believe me this is a topic of discussion and it's making people uneasy. Ditto, the anti-union actions in several states - people feel even more uncomfortable - this is an attack on working people and it's also an attack in many cases on people we are taught to venerate: teachers, police, firefighters - the deficit hunters are hunting us - the workers and people who form a backbone of our society. Obviously, the Middle East is in flux, and attendant sharp increases in oil prices make people nervous especially since this is bound to increase prices across the board, including basics like food. But the bizarre and even frightening behavior of many right wing leaders has got to be making ordinary Americans uncomfortable. The majority of us are not stupid and we are long past worrying whether our president has dark skin but we're being told that he grew up in Kenya or isn't a real American - well then who is? This is code for white supremacy and it SHOULD make people nervous. Nobody wants to live in a hall of mirrors or a science fiction movie or a world in which a "news" broadcaster can present Jews as puppetmasters - we don't want to go back to the 1930's! But we have absolutely no control over powerful industrial and commercial interests that can say and do what they want, including making a mess of the environment and spewing bilge over the air. People know that Huckabee is lying. We see the rich being rewarded simply for being rich and the poor getting ever more poor. Housing - that situation creates deep unease because housing - real estate - is supposedly everyman's ticket to security and it's built on quicksand. Combine that with vitriol, with an environment increasingly hostile, hateful, malicious and outright dishonest - and people have to start wondering if America itself is at risk and asking, what is happening to our country? and the answers aren't comforting or pretty. Consumers lack confidence, imo, because Americans lack confidence that their leaders can be trusted with basic facts, let alone with the responsibility of fighting for and caring for the people. And - I seriously believe that very few Americans welcome the imposition of radical right wing religious values in the 21st century - this alone will put the country back into a dark age at the same time we're supposedly supporting progressive ideals in foreign lands. By the same token aggressively attacking women, workers and teachers at a time when it's clear we need more than ever a competitive intellectual edge - when income levels are skewing past banana republic territory - it's pretty obvious that we're going in the wrong direction. So why shouldn't people be worried?
- Sophia
March 4, 2011 at 3:38am
So it's "uncertainty" that has slowed the recovery. Did someone from the Republican propaganda committee write this post? I will give Galston credit for riding the same pony: "On the fiscal front, Obama has a growing incentive to strike a multi-year deal that shifts the focus away from short-term budget cuts and instead brings long-term deficits down to a sustainable level." But explain to me how one day TNR has a post telling us that polling data shows that Americans oppose means testing government programs (implying that many are racists for doing so) and then the next day TNR has a post that polling data shows that Americans are "willing" to cut social security and Medicare benefits for "wealthier retirees". Different pollsters? Or different contributors with different agendas?
- rayward
March 4, 2011 at 7:17am
I can't believe we only get one of these wisdom-chocked blog posts a week.
- subterran
March 4, 2011 at 8:16am
Wait -- we're IN this decline of the economy BECAUSE Obama was PREVENTED from issuing further stimulus, meanwhile all the Republican Governors are trying to cut thousands of jobs in every state, while the House is IGNORING employment so they can justify cutting 100 billion dollars and a million jobs out of the economy THIS YEAR. And you say Obama MUST pay attention to the 62% that are "concerned he won't go far enough in cutting..."? Seems to me that anti-Keynesian point of view IS the problem, not the solution. Unless, by "going far enough", you mean we're concerned he won't let the Bush Tax Cuts lapse -- but that's not "cutting", that's "revenue enhancement".
- AllanL5
March 4, 2011 at 8:31am
Typical Galston. Republican economics disguised as Democratic politics. Completely predictable.
- timteeter
March 4, 2011 at 8:45am
The problem is that like Galston, too many Dems (including BHO and most of his advisors), advocate or enable Republican flat-earth economic ideological beliefs (many of which are internally contradictory). Economics is now a science with testable theories--- and Keynesian economics is the only theory that explains the data. At present we need more well-targeted spending with a high multiplier effect.
- drofnats1
March 4, 2011 at 9:36am
Galston needs to look at today's job's report. He talks about revenues only because he knows they are off the table for two years. Sure oil and gas prices are a big issue right now but they won't shut the recovery off unless a full fledged supply crisis ensues. There are all kinds of positive indicators of growth throughout the economy. The continued rise in the stock market will cause a nice wealth effect. The main drags on the economy are state and local government contractions and the still lack luster real estate market. As real estate picks up over the next yr or so the president's re-election prospections should rise substantially. I would say at about that time Galston will be on Fox news telling us that Obama needs to cut spending further so that he may be re elected .
- alanwilkov
March 4, 2011 at 9:41am
Is it just me, or has Galston been drifting rightward pretty steadily? I don't remember him always being like this.
- Curran1
March 4, 2011 at 1:52pm
While consumer confidence is obviously important. There are much bigger and more fundamental problems out there. Case in point is the much heralded rebirth of GE, which has built its sales figures on interest free credit. Credit piled on credit. One wonders how much longer this can continue without the adrenalin of the QE injection. The global economy is now dangerously pivoting on the QE liquidity: China's seriously over heated; the ME is on fire; oil's new norms are shifting upward everyweek; the Eurozone banks are effectively insolvent (Ireland, Italy, Portugal, Spain...consider that just an Irish default could bring the UK, German and French banks down and you get a sense of the house of cards. Hence the insistence on the "bailout" being applied by the new Irish government from Trichet/Merkel/Osbourne et al); soverign debt, everywhere, is unsustainable; the equity bull market is based on anemic volume; Morgage Backed Securities are again being traded in huge quantities (Yes, incredibly only 2 years after the crash), etc, etc. The list is endless. I just can't understand the Bulls out there. Unless you appreciate that the growth in practically every asset class strongly correlates to the Fed balance sheet. This looks convincing to me: http://www.zerohedge.com/sites/default/files/images/user5/imageroot/von%20havenstein/corrigan%20update.jpg What happens when the QE musical chairs stops?
- IggyPop
March 4, 2011 at 4:44pm
AllanL5 writes: "Wait -- we're IN this decline of the economy BECAUSE Obama was PREVENTED from issuing further stimulus, meanwhile all the Republican Governors are trying to cut thousands of jobs in every state, while the House is IGNORING employment so they can justify cutting 100 billion dollars and a million jobs out of the economy THIS YEAR." 2/3 of the stimulus was tax cuts and benefits. The other 1/3 of the stimulus was contracts, grants and loans. That is about 2/3 of the way spent spent. So, if you believe that the stimulus should have been heavier on cuts and benefits, then a bigger stimulus could have been easily done. but if you believe the stimulus should have been more roads, green programs, jobs doing xyz, etc, then the data indicates that even if it were doubled, or tripled there is no way going bigger would have resulted in us being in a different place today. turns out the stuff that was "shovel ready" was never really shovel ready. So, are you arguing that the tax cuts should have been much much bigger??? See the gov website recover dot gov for more info
- seattleeng
March 5, 2011 at 6:18pm
the article writes: " They even profess themselves willing to reduce Medicare and Social Security benefits for wealthier retirees and to gradually raise the retirement age. But more drastic changes, such as turning Medicare into a voucher system, which House Budget Committee Chair Paul Ryan proposed last year, would run into a buzz-saw of public opposition." there is a notion that cuts can always be surgically done, and that the smart stuff will be cut, and the important stuff will be left. Additionally, while people overwhelmingly favor cuts, when asked what areas to cut their opinions there don't match their overarching goal of shrinking government. the only way out of this, imo, is to come out and say we go 1 for 1 on tax increases and government cuts. If we all REALLY want to fix this, then we'd pick a number X....Say X=10, so a 10% tax increase across the board and a 10% spending cut across the board. That means everyone pays 10% more in taxes (so, a $50K earner would pay an extra $500, and a $250K earner would pay an extra $6000. And the government would take every single budget item, including SS and Medicare and the military, and whack it 10%. Mechanically. Right across the board. And collectively, the people need only decide what X is. Let them write it down on their next vote for president. And we average them all together.
- seattleeng
March 5, 2011 at 6:25pm
This is just idiotic. The formula for sustaining the recovery, and reducing unemployment, is deficit reduction? Of course this is bad economics, but the justification given is that it will boost the confidence of those who believe it to be good economics. Well. That at least is an interesting theory. Let's do something harmful that everyone thinks will help. Maybe their boost in confidence will be big enough to overcome the known harmful effects of the policy.... Galston is selling us nonsense, but it just might be crazy enough to work, if you can hold your nose while you do it. Neil
- purcellneil
March 22, 2011 at 4:19pm