realitybase - Journal

In his State of the Union address to the Congress this week, President Obama compared our economic challenges today to the perils we faced after the defeat of the Union at Bull Run, WWII hanging in the balance as our landings in Normandy faltered, the stock market crash in 1929, and the beatings of civil rights marchers on Bloody Sunday, all times when—

the future was anything but certain. . . . Again, we are tested. And again, we must answer history's call.

He goes on to say—

We can't afford another so-called economic "expansion" like the one from the last decade—what some call the "lost decade"—where jobs grew more slowly than during any prior expansion; where the income of the average American household declined while the cost of health care and tuition reached record highs; where prosperity was build on a housing bubble and financial speculation.

With such language, the President came down on the pessimistic side of the debate whether the Great Recession is just another ordinary business cycle recession that will fix itself if left alone or if there is a "structural problem" that drives a long-term downward trend. Yet every one of his policy proposals is one that has been proposed and/or adopted in response to prior "ordinary" recessions or just as preferred polices in the absence of any economic recession. There is nothing extraordinary, either in type or scale, about his proposed action plan.

In effect, the captain of our ship of state has gotten on the horn and told us we've struck an iceberg and are in danger of sinking, but his call to action is all about deck chairs. And it's really worse than that. Some proposals are inconsistent with each other, e.g., he wants to spend federal money to promote basic research, infrastructure construction, education, and increase tax credits and deductions for various things while freezing for three years discretionary federal spending. And some of his proposals are mere goals that seem unattainable, for example the goal of doubling exports in five years, which trade experts say would require doing things that we have been unable to accomplish for decades—things like getting China to float its exchange rate.

Having proposed such a timid action plan, Obama has to hope—and we have to hope—that our underlying economic problems are not nearly as great as he said. Unfortunately, I think they are that great. Part 2 goes into that.

Update on Monday, February 1, 2010 at 04:03PM by

Skeptic

Paul Krugman has posted the BLS/OMB projections of unemployment through 2013 and a pie chart showing how little of Obama's proposed budget could be affected by his proposed discretionary spending freeze. PK says, "Nobody — not the Fed, not the administration, not Congress, is willing to do anything to create jobs despite dire projections." If the BLS/OMB projection is correct, Obama will be running for re-election in 2012 with the unemployment rate at about 8 percent.