Ignore polls, watch the markets: Economy is perking up
"If Obama was a Republican, we would hear a never-ending drumbeat of news stories about markets voting in favor of the President," says one economic strategist.
By Mike Dorning
Its never easy to separate politics from policy, and the past 18 months have only increased the degree of difficulty. The U.S. has been through a historic financial crisis followed by a historic election and a series of historic federal gambles from bailing out AIG and GM to passing a $787 billion stimulus and a $940 billion health-care reform bill. All that risk has made policy more complicated and politics more fraught (You lie, Baby killer).
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 Obamas overall job approval rating has fallen to a new low of 44 percent, according to a CBS News Poll, down five points from late March, the judgment of the financial indexes has turned resoundingly positive. The Standard & Poors 500-stock index is up more than 74 percent 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 percent since Nov. 25 against a basket of six major currencies. Housing prices have stabilized. Mortgage rates are low. Weve 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.
Little more than a year ago, financial markets were in turmoil, major auto companies were on the verge of collapse and economists such as Paul Krugman were worried about the U.S. slumbering through a Japan-like Lost Decade. While no one would claim that all the pain is past or the danger gone, the economy is growing again, jumping to a 5.6 percent annualized growth rate in the fourth quarter of 2009 as businesses finally restocked their inventories. The consensus view now calls for 3 percent growth this year, significantly higher than the 2.1 percent estimate for 2010 that economists surveyed by Bloomberg News saw coming when Obama first moved into the Oval Office.
The U.S. manufacturing sector has expanded for eight straight months, the Business Roundtables measure of CEO optimism reached its highest level since early 2006, and in March the economy added 162,000 jobs more than it had during any month in the past three years. There is more business confidence out there, says Boeing CEO Jim McNerney. This Administration deserves significant credit.
It is worth stepping back to consider, in cool-headed policy terms, how all of this came to be and whether the Obama teams approach amounts to a set of successful emergency measures or a new economic philosophy: Obamanomics.
For most of the past two decades, the reigning economic approach in Democratic circles has been Rubinomics, a set of priorities fashioned in the 1990s by Bill Clintons Treasury Secretary, Robert E. Rubin, the former co-chairman of Goldman Sachs. Broadly, Rubinomics was a three-legged stool consisting of restrained government spending, lower budget deficits, and open trade, which were meant in combination to reassure financial markets, keep capital flowing, and thus put the country on a path to prosperity.
On the surface, Obamanomics couldnt be more different. The Administration racked up record deficits as it pursued a $787 billion fiscal stimulus on top of the $700 billion bailout fund for banks and carmakers. Obama has done close to nothing to expand free trade. And while Clinton pleased the markets with a moderate, probusiness image, Obama has riled Wall Street with occasional bursts of populist rhetoric, such as his slamming of fat cat bankers on 60 Minutes last December.
The rallying markets havent been bothered by these differences, largely because of their context. Martin Baily, who was a chairman of the Council of Economic Advisers during the Clinton Administration, says he suspects Rubin and the rest of the Clinton economic team would have made similar decisions on bailouts, fiscal stimulus, and deficit spending had they faced a crisis of similar magnitude. I think we would have gone the same way, he says. The Obama team, he continues, navigated the financial crisis while never losing sight of the importance of private enterprise and private markets (a point Obama stressed in his Feb. 9 interview with Bloomberg BusinessWeek). A lot of people on the left were urging them to nationalize banks. Instead they injected capital, and now theyre pulling capital out. That looks more like Rubinomics than a set of socialist or left-wing economic policies. The Obama economic team looks a lot like Rubins, too; three of its most prominent members Treasury Secretary Tim Geithner, National Economic Council Chairman Larry Summers, and White House budget director Peter Orszag are Rubin protégés.
While the Administrations call for a consumer financial protection agency has aroused opposition from banks, Obamas regulatory reform plan largely leaves the financial industrys 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, Obamas instincts during the crisis were exceedingly Rubin-esque. Even the $787 billion stimulus package, while large by historical standards, didnt 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 doesnt 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 whats right for the economy. We each took the policy that was appropriate at the time.
http://www.veteranstoday.com/2010/04/09/obamanomics-working-watch-the-markets-as-they-perk-up/
