(no subject)
I ran into a pretty telling article in the BusinessWeek: Why the Obama Plan Is Working. Here are a few parts that I thought were especially symbolic:
A Bloomberg national poll in March found that Americans, by an almost 2-to-1 margin, believe the economy has gotten worse rather than better during the past year. The Market begs to differ. While President Obama's overall job approval rating has fallen to a new low of 44%, according to a CBS News Poll, down five points from late March, the judgment of the financial indexes has turned resoundingly positive. The Standard & Poor's 500-stock index is up more than 74% from its recessionary low in March 2009. Corporate bonds have been rallying for a year. Commodity prices have surged. International currency markets have been bullish on the dollar for months, raising it by almost 10% since Nov. 25 against a basket of six major currencies. Housing prices have stabilized. Mortgage rates are low. "We've had a phenomenal run in asset classes across the board," says Dan Greenhaus, chief economic strategist for Miller Tabak + Co., an institutional trading firm in New York. "If Obama was a Republican, we would hear a never-ending drumbeat of news stories about markets voting in favor of the President."
While the Administration's call for a consumer financial protection agency has aroused opposition from banks, Obama's regulatory reform plan largely leaves the financial industry's structure intact and ignores proposals to break up large financial institutions, unlike the reforms pursued after the Crash of 1929. Amid an uproar over bonuses at government-assisted banks, Obama for the most part chose to respect private employment contracts.
In short, Obama's instincts during the crisis were exceedingly Rubin-esque. Even the $787 billion stimulus package, while large by historical standards, didn't reach the scale called for by many liberal economists, including the chairman of his own Council of Economic Advisers, Christina Romer, who initially advocated spending more than $1 trillion. Today, Romer doesn't shy away from comparisons to the last Democratic Administration, but she also makes no grand claims about a new economic philosophy. What unites Rubinomics and Obamanomics, she says, "is the focus on results, the pragmatism of what's right for the economy. We each took the policy that was appropriate at the time."
The similarities go deeper. Like Clinton, Obama has tried to reduce income inequality. Clinton's 1993 deficit-reduction plan raised income tax rates for high-income families to 39.6%; Obama plans to return the top rate to the Clinton-era level. He also raised Medicare taxes for individuals earning over $200,000 to finance his health plan. Clinton aided the working poor with the Earned Income Tax Credit; Obama is doing the same with insurance subsidies in his health plan. A national health plan was an aspiration of both Presidents. Baily argues that the Obama approach is "at least in principle closer to Rubinomics than was the Clinton plan. [Obama's team] is trying to use market incentives to raise the quality and lower the cost, and that looks like Rubinomics."
Any comparison must take into account the vastly different circumstances each Administration confronted. Clinton entered office as the end of the Cold War generated a peace dividend, then rode the tech boom-and the tax-revenue-generating stock options that came with the runup in tech stock prices- to a balanced budget. Obama inherited two wars and the scariest financial crisis since the Great Depression. Clinton's deference to the bond market was necessary because long-term interest rates were high-above 7% on 30-year Treasury bonds-when he took office. Interest rates have been the least of Obama's concerns, with yields below 3% when he took office and the Fed effectively keeping short-term rates at zero.
"When you take it all together, the response was massive, unprecedented, and ultimately successful," says Mark Zandi, chief economist at Moody's Economy.com (MCO). Even Obama critics like Phil Swagel, assistant Treasury secretary for economic policy under George W. Bush, acknowledge that White House policies have been successful. "They could have done a better job" by spending more of the stimulus on corporate tax cuts to boost hiring and investment, says Swagel, now an economics professor at Georgetown University's McDonough School of Business. "But their economic policies, including the stimulus, have helped move the economy in the right direction."
While jobs have been slow to return, the country has experienced "an incredible productivity boom" that strengthens the economy for an expansion, says Greenhaus of Miller Tabak. Labor productivity, or worker output per hour, grew at a 6.9% annual pace in the fourth quarter, capping the biggest one-year gain since 2002. Over the long run, productivity growth is what raises living standards. Corporate profits also have been rising, up 8% in the fourth quarter, putting businesses on a sounder financial foundation to invest and hire as customers return.
The public, alas, does not see the signs of life that economists do, as the downbeat views in the Bloomberg poll demonstrate. And as long as job security remains a concern, it's easy to understand why psychology may trump data. Among those who own stocks, bonds, or mutual funds, only 3 out of 10 say the value of their portfolio has risen since a year ago, according to the poll-a near-impossibility given the size and breadth of the market gains.
A Bloomberg national poll in March found that Americans, by an almost 2-to-1 margin, believe the economy has gotten worse rather than better during the past year. The Market begs to differ. While President Obama's overall job approval rating has fallen to a new low of 44%, according to a CBS News Poll, down five points from late March, the judgment of the financial indexes has turned resoundingly positive. The Standard & Poor's 500-stock index is up more than 74% from its recessionary low in March 2009. Corporate bonds have been rallying for a year. Commodity prices have surged. International currency markets have been bullish on the dollar for months, raising it by almost 10% since Nov. 25 against a basket of six major currencies. Housing prices have stabilized. Mortgage rates are low. "We've had a phenomenal run in asset classes across the board," says Dan Greenhaus, chief economic strategist for Miller Tabak + Co., an institutional trading firm in New York. "If Obama was a Republican, we would hear a never-ending drumbeat of news stories about markets voting in favor of the President."
While the Administration's call for a consumer financial protection agency has aroused opposition from banks, Obama's regulatory reform plan largely leaves the financial industry's structure intact and ignores proposals to break up large financial institutions, unlike the reforms pursued after the Crash of 1929. Amid an uproar over bonuses at government-assisted banks, Obama for the most part chose to respect private employment contracts.
In short, Obama's instincts during the crisis were exceedingly Rubin-esque. Even the $787 billion stimulus package, while large by historical standards, didn't reach the scale called for by many liberal economists, including the chairman of his own Council of Economic Advisers, Christina Romer, who initially advocated spending more than $1 trillion. Today, Romer doesn't shy away from comparisons to the last Democratic Administration, but she also makes no grand claims about a new economic philosophy. What unites Rubinomics and Obamanomics, she says, "is the focus on results, the pragmatism of what's right for the economy. We each took the policy that was appropriate at the time."
The similarities go deeper. Like Clinton, Obama has tried to reduce income inequality. Clinton's 1993 deficit-reduction plan raised income tax rates for high-income families to 39.6%; Obama plans to return the top rate to the Clinton-era level. He also raised Medicare taxes for individuals earning over $200,000 to finance his health plan. Clinton aided the working poor with the Earned Income Tax Credit; Obama is doing the same with insurance subsidies in his health plan. A national health plan was an aspiration of both Presidents. Baily argues that the Obama approach is "at least in principle closer to Rubinomics than was the Clinton plan. [Obama's team] is trying to use market incentives to raise the quality and lower the cost, and that looks like Rubinomics."
Any comparison must take into account the vastly different circumstances each Administration confronted. Clinton entered office as the end of the Cold War generated a peace dividend, then rode the tech boom-and the tax-revenue-generating stock options that came with the runup in tech stock prices- to a balanced budget. Obama inherited two wars and the scariest financial crisis since the Great Depression. Clinton's deference to the bond market was necessary because long-term interest rates were high-above 7% on 30-year Treasury bonds-when he took office. Interest rates have been the least of Obama's concerns, with yields below 3% when he took office and the Fed effectively keeping short-term rates at zero.
"When you take it all together, the response was massive, unprecedented, and ultimately successful," says Mark Zandi, chief economist at Moody's Economy.com (MCO). Even Obama critics like Phil Swagel, assistant Treasury secretary for economic policy under George W. Bush, acknowledge that White House policies have been successful. "They could have done a better job" by spending more of the stimulus on corporate tax cuts to boost hiring and investment, says Swagel, now an economics professor at Georgetown University's McDonough School of Business. "But their economic policies, including the stimulus, have helped move the economy in the right direction."
While jobs have been slow to return, the country has experienced "an incredible productivity boom" that strengthens the economy for an expansion, says Greenhaus of Miller Tabak. Labor productivity, or worker output per hour, grew at a 6.9% annual pace in the fourth quarter, capping the biggest one-year gain since 2002. Over the long run, productivity growth is what raises living standards. Corporate profits also have been rising, up 8% in the fourth quarter, putting businesses on a sounder financial foundation to invest and hire as customers return.
The public, alas, does not see the signs of life that economists do, as the downbeat views in the Bloomberg poll demonstrate. And as long as job security remains a concern, it's easy to understand why psychology may trump data. Among those who own stocks, bonds, or mutual funds, only 3 out of 10 say the value of their portfolio has risen since a year ago, according to the poll-a near-impossibility given the size and breadth of the market gains.