Remember the grief Dick Cheney received in late 2000, and then President Bush in early 2001, when they were accused of “talking down the economy”? We already know from history that the economy had already slipped into negative growth during the third quarter of 2000; so it's fair to say in hindsight that Cheney and Bush were actually observing reality.
Specifically, Cheney's 2000 statement was that "we may well be on the front edge of a recession here," while Bush's 2001 claim was a milder "You know better than me that our economy is slowing down."
So what will be the reaction be to the Sunday assertion by Democratic presidential candidate Barack Obama that there's "little doubt" the country is in a recession, when no negative growth has occurred?
Here's an excerpt (HT to Matt at Weapons of Mass Discussion) from the coverage of Associated Press reporter Glen Johnson:
Barack Obama said Saturday there is "little doubt we've moved into recession," underscoring the country's need for a second economic stimulus package, swift steps to shore up the housing market and a long-term energy policy to reduce reliance on foreign oil imports.
..... (Obama) delivered perhaps his most definitive judgment to date on the health of the U.S. economy, according to aides.
"I have little doubt that we've moved into recession at this point, and the sooner we can get money into people's pockets, the sooner that we can stabilize the housing market, and the sooner that we can send a message to the markets that we're serious about creating an energy policy that will create greater energy efficiency over the next decade or so, I think the sooner we're going to get our fundamentals right," he said.
Johnson conveniently "forgot" to tell us that $92 billion has already been put "into people's pockets" in the form of economic stimulus payments during April, May, and June.
Anyway, concerning Obama's remarks, we can expect a chorus of criticism from the politicians and the press that he is talking the economy down ..... right?
Of course, we're not in a recession yet, because there hasn't even been one official quarter of negative growth, let alone two. Additionally, Alexander Paris at Barron's expresses the current rough consensus that "second-quarter growth will be no worse than the first quarter," which came in at an annualized 1%.
But the Illinois senator may be "right," in the sense that a downturn may have indeed begun. If so, he's one of the major reasons why.
I believe there's a good chance that the economy began heading into a downturn about 30 days ago. While the Institute for Supply Management's (ISM's) Manufacturing Index went into expansion territory in June after four months of contraction, real (not seasonally adjusted) job growth was disappointing, leading to reported seasonally adjusted job losses for the sixth straight month.
But the real kick in the teeth came from ISM's Non Manufacturing Index, which in June unexpectedly went from expansion to contraction in a serious way.
To me, the combined results just noted indicate that the three people who seem most determined to drive the economy into a downturn, and even a real recession, are finally achieving some "success." Those three people would be Nancy Pelosi, Barack Obama, and Harry Reid. Their actions, and their apparent control over our current destiny, are why on July 3 I began calling our economy the POR (Pelosi-Obama-Reid) Economy.
Pelosi and Reid are bound and determined to prevent any additional drilling for oil. This means that they're not only perfectly comfortable with gas prices at their current $4-plus level; they're okey-dokey if, as appears likely, prices go even higher. Obama clearly has no problem with Pelosi's and Reid's positions.
But Obama is going even further to tank the economy by staying with his proposals to enact massive tax increases in the neighborhood of $200 billion a year when he takes office. His proposals will negatively affect investor expectations as long as he is seen as having a reasonable chance of winning.
With static assumptions, inflicting the Clinton-Era tax rates on high-earners, closing so-called "loopholes" in partnerships and Sub-S corporations, and increasing capital-gains taxes would siphon about $160 billion out of the pockets of those who are, for the most part, the economy's biggest contributors. Meanwhile Obama's proposal to apply the 12.4% Social Security tax to all wage and self-employment income above $250,000 would, in theory, raise another $40 billion a year.
Of course, it's highly unlikely that all of this revenue will be raised, because those confronted with these increases will attempt to adjust their compensation packages away from salaries and towards perks and stock options. Some will sell their businesses out to larger firms; others may vote with their feet and leave the country altogether. It doesn't take a lot of behavior change to create a significant shortfall in collections.
Given what those who are inflicting the POR Economy on us are already doing, Obama's latest "little doubt" statement is best seen as insurance -- just in case the potentially ruinous items just noted aren't sufficiently effective. Paris's opinion expressed at Barron's is that "there is good reason to expect a milder and shallower economic downturn." I hope that growth is somehow able to stay positive, but we're fighting seriously threatening headwinds fanned by Pelosi, Obama, and Reid.
Surely there are some in the business press who recognize what is at work here. When will anyone call the POR Economy's perpetrators out for what they are doing, and saying?
Cross-posted at BizzyBlog.com.
