Despite President Obama’s undying belief that we can “spend our way out of this recession,” the economy faces a year of painfully weak growth and brutal unemployment that will be a political killer for Democrats in the midterm elections.
Economists from Fed Chairman Ben Bernanke to soak-the-rich liberals like New York Times columnist Paul Krugman are forecasting slow, anemic growth at best, with the jobless rate frozen in the mid-to-high 9 percent range for the rest of the 2010 election cycle.
Even Obama supporters like Washington Post economics columnist Steven Pearlstein acknowledge that “we’re probably stuck with several more years of slow growth in jobs and income.”
Last month’s Fed’s forecast painted a bleak picture of what’s in store for the Democrats as they prepare to face voters in the fall: A jobless rate still hovering between 9.3 percent and 9.7 percent in the fourth quarter. Other forecasts are even gloomier. Economists at Moody’s Economy expect the jobless numbers to remain above 10 percent for the rest of the year.
“We have a recovery, but it is going to be a slow one,” said veteran chief economist David Wyss at Standard & Poors in New York.
The economy (85 percent) and jobs (82 percent) trump all other election issues, reports the Gallup Poll, spawning what political analysts say will be the perfect political storm that is expected to shrink the Democrats’ majority in Congress.
Senior analysts at the Cook Political Report are predicting GOP gains of between 20 to 30 seats in the House. In the Senate, Republicans are leading in contests for at least seven Democratic-held seats, many in deep blue states like Connecticut, Ohio, Pennsylvania and Delaware.
“The national political landscape continues to change to the GOP’s advantage, with voters showing dissatisfaction with the economy and the direction of the country,” election forecaster Stu Rothenberg said at year’s end.
“Substantial [House] Republican gains now look almost inevitable,” he said.
With unemployment in the 10 percent range — 17 percent if you count the millions of jobless Americans who have given up looking for work — it has become painfully clear that Obama’s pork-stuffed $800 billion stimulus spending bill has been a colossal failure.
When Obama unveiled his government-wide spending binge last year, he and his top economic advisers said it would bring unemployment down to 7.8 percent. But job layoffs continued to soar across the country and near year’s end, close to four million more Americans were looking for work.
By year’s end, Democrats in key electoral states were being pounded by Republicans for record high unemployment: 12.3 percent in California, 10.9 percent in Illinois, 14.7 percent in Michigan, 12.3 percent in Nevada where Senate Majority Leader Harry Reid is considered a goner, and 11.1 percent in Oregon
Many economists, including some of Obama’s advisers, argued that big spending stimulus programs do not work, in part because of the long lead time it takes the government bureaucracy to get the money out into the nation’s economic blood stream. And that’s been the case this time as well, creating or saving relatively few jobs at a very high cost and exerting very little economic stimulus in a $14 trillion economy.
Economist Kevin Hassett at the American Enterprise Institute figures the 640,000-plus jobs the administration claimed its stimulus created last year cost taxpayers $1.2 million per job. “If they had just taken the stimulus money and hired people at the average U.S. wage, they would have created 21 million jobs. And so, where is the multiplier? It’s gone,” he said.
A steady stream of job auditing reports last year showed the number of jobs created were often exaggerated or in a number of cases claimed that jobs had been created in nonexistent congressional districts.
There have been tentative signs that a weak recovery is underway, but most economists say the economic activity has more to do with business decision-making and financing in the private sector than with the stimulus.
Manufacturing activity turned up last month, but that was the result of new orders to rebuild depleted business inventories during the recession. The Commerce Department said the economy grew by 3.5 percent in the third quarter, but revised those estimates to a virtually moribund 2.2 percent in subsequent revisions to that report.
“Though job losses were trimmed, the footprint of the $789 billion stimulus package was not to be found,” said economist Peter Morici at the University of Maryland School of Business. “American workers face a jobless recovery and more stimulus spending won’t fix what’s broke.”
Yet as public dissatisfaction with the economy grows, pressure mounts on the Democrats to do something. Obama’s warmed-over answer is more spending, at least another $150 billion, and Democrats in Congress are urging even higher spending for what is being called “Son of Stimulus One.”
But more spending isn’t the answer for a jobless recovery desperately in need of new, venture capital, lower tax rates, and a sharp reduction in capital gains taxes to boost business investment, economic expansion and job growth.
Sadly, capital formation, wealth creation and capitalism are not in Obama’s economic vocabulary. He still believes, against all evidence to the contrary, that we can tax, borrow and spend our way to prosperity. And that’s why we are likely in for a long, slow, jobless recovery in the months and years to come, followed by higher tax rates in 2011 and beyond that will be a job killer.
A justifiably angry electorate, including millions of unemployed voters, will get to have their say about all this on November 2.