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Is it 1930?

Lawrence Mishel of the Economic Policy Institute reports:

Goldman Sachs’ latest forecast (and they’ve been pretty accurate so far) is that unemployment will rise to 9.9% by early 2011 and trend down to 9.7% for the last quarter of 2011. Obviously, this is a simply awful scenario but it seems one that is being accepted. That is, we seem to be in the process of accepting the unacceptable. Note that this scenario probably assumes the passage of the limited efforts now being considered in Congress.

One might be surprised that Obama and congressional Democrats are not doing more to try to bring unemployment down. On the other hand, just to speak in generalities (not knowing any of the people involved), I would think that Obama would be much much more worried about the economy doing well in 2010 and then crashing in 2012. A crappy economy through 2011 and then improvement in 2012–that would be his ideal, no? Not that he would have the ability to time this sort of thing.

But perhaps Mishel is saying that the Democrats are reading from the wrong script. Here’s what I wrote a few months ago:

A major storyline of the 2008 election was that it was the Great Depression all over again: George W. Bush was the hapless Herbert Hoover and Barack Obama was the FDR figure, coming in on a wave of popular resentment to clean things up. The stock market crash made the parallels pretty direct. One could continue the analogy, with Bill Clinton playing the Calvin Coolidge role, mindlessly stoking the paper economy and complicit in the rise of the stock market as a national sport. Public fascination with various richies seemed very 1920s-ish, and we had lots of candidates for the “Andrew Mellon” of the 2000s. Obama’s decisive victory echoed Roosevelt’s in 1932.

But history doesn’t really repeat itself–or if it does, it’s not always quite the repetition that was expected. With his latest plan of a spending freeze (on the 17% of the federal budget that is not committed to the military, veterans, homeland security and international affairs, Social Security, or Medicare), Obama is being labeled by many liberals as the second coming of Herbert Hoover–another well-meaning technocrat who can’t put together a political coalition to do anything to stop the slide. Conservatives, too, may have switched from thinking of Obama as a scary realigning Roosevelt to viewing him as a Hoover from their own perspective–as a well-meaning fellow who took a stock market crash and made it worse through a series of ill-timed government interventions.

I can see the future debates already: was Obama a Hoover who dithered while the economy burned, too little and too late (the Krugman version) or a Hoover who hindered the ability of the economy to recover on his own by pushing every button he could find on the national console (the Chicago-school version)?

In either storyline, it’s 1930, not 1932: rather than being three years into a depression, we’re still just getting started and we’re still in the Hoover-era position of seeing things fall apart but not quite being ready to take the next step.

Anyway, I’m not claiming to offer any serious political or economic analysis here, just pointing out that the 1932 election was a full three years after the 1929 stock market crash, so Obama’s stepping into the story at a different point than when Roosevelt stepped in to his.

Or maybe we’re still on track for Obama to “do a Reagan,’ ride out the recession in the off-year election and sit tight as the economy returns in years 3 and 4.

One Comment

  1. Ted says:

    Frankly, if Democrats cared about the economy and unemployment, they would be dragging in every member of the Federal Open Market Committee and asking them why they are screwing up (an independent central bank is only useful when they are conducting good policy!). Monetary policy is currently way too tight at the moment, starting around April-May. Just look at the exchange rate appreciation, asset prices, commodity prices, TIPS spreads all of them say the Federal Reserve's monetary policy is too tight.

    Frankly, if the Federal Reserve would commit to a 3% inflation target this whole nonsense could be done with an we could move on, rather than trying to push up inflation expectations by ballooning the debt. I also guarantee that Congress has no idea that that's the channel through which fiscal stimulus is suppose to work since the Federal Reserve could simply push up inflation expectations by committing to a higher target.

    My assumption is that Congressman and Obama might just be dumb and he doesn't realize that the Federal Reserve could do this. But then again, Christina Romer almost surely knows this so maybe Obama just doesn't want to get into a fight with the FOMC. Weird he'd be willing to possibly give up an election win only to avoid the controversy of getting into a fight with a committee that most of the public doesn't even know what it does.

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