Achuthan: “It’s Too Late” for Obama on Jobs

Economic Cycle Research Institute co-founder Lakshman Achuthan was on Tech Ticker yesterday discussing the outlook for the economy. Business Insider does a good write-up of his commentary, highlighting the fact that the ECRI has yet to signal a double dip. However, I wanted to add a few comments as well. ECRI’s underlying message is this: we are in a decade-long post-credit crisis struggle which will mean high unemployment even if policy makers focused on jobs (which they have not, I would add).

I agree with this forecast. When I began this blog in March 2008, I wrote:

I am cautious about the long-term outlook for the global economy and the U.S. economy in particular. The likely outcome for the next decade is one of sub-par global growth with short business cycles punctuated by fits of recession.

Achuthan explains that this too is the root cause of why he thinks the jobs picture is going to difficult for the US. In essence, Achuthan is saying he expects a series of what I have been calling Shiller Double Dip Recessions. This dovetails with my view of an austerity-induced initial dip followed by the recession-punctuated lost decade thereafter.

Achuthan also explains well that in the short-term the jobs picture has already been set by previous policy decisions. He expects the monthly jobs numbers to continue to be weaker than earlier in the year. If we get a double dip recession, “by definition, the unemployment will be spiking” he says.

Separately, Dean Baker argued yesterday that the President needed to have focused on jobs in a laser-like fashion much, much earlier in his presidency. I would agree with that.

Obama’s failure to understand where we are in the economic cycle and the relationship to historical precedent has been catastrophic to the conduct of economic policy and critical in his missteps. There is more to Obama’s misfortune than a bad economy.

I would add that anything the US President and Congress do now will only be relevant in the medium-term as the election of 2012 nears. I have repeatedly indicated Republicans will be unlikely to support these current job initiatives. Instead they will focus on trimming government expenditure.

The key here is that it does no good for the Republicans politically to compromise with President Obama. His policies are rightfully seen as failed. The right thing to do politically (but not morally) is to try and strike as much contrast to the President as you can, especially if it makes him look more failed. So that means favouring gridlock and pushing deficit reduction, looking for spending cuts and so on – even if it leads to a government shutdown stare-down as it did under Clinton. Is this the right thing to do? I don’t think so, if only because it reduces the number of potential positive economic outcomes. But I am speaking now more from a forecasting perspective than one of advocacy.

A few comments about Tuesday’s election’s impact on the economy, Nov 2010

If you listen to the Republican voices in Congress and the Republican contenders for US President, this is what you will hear – and will continue to hear. I believe this will mean recession – and recessions cause tax receipts to plunge and outlays to increase, making the deficit larger. Does focusing on deficit reduction reduce deficits? No, an expansionary fiscal contraction will prove illusive. Focusing on deficit reduction will increase the deficit.

This is looking more like Hoover every day. So, the President will have to hang his re-election hat on being able to claim that he prevented an even worse economic environment, hoping the economy doesn’t double dip.

  1. john haskell says

    Running a re-election campaign on “the stimulus was worse than the alternative” would make for one of the most hapless re-election campaigns in American history. Far better to keep his fingers crossed that Perry gets the nomination, and then he can run a strongly negative campaign, much as Carter did with Reagan… not the best strategy, but what can you do with this record?

    1. Edward Harrison says

      You’re right I believe. A negative campaign would be a far cry from the hope and change of 2008, though. And so I think the president is caught in a conundrum about what to focus on in his re-election bid. It will be interesting to see what he does focus on.

    2. Thurston Howell III says

      So preventing the collapse of the world economic system was a non-achievment?

      1. Edward Harrison says

        Thurston, I think telling people it could be worse doesn’t appeal emotionally to a population suffering economically. You need something that people know and FEEL is true as an accomplishment. When the economy is mired in stagnation, you are always hard-pressed to run on economic achievements. That’s the problem for the President.

      2. wagdog says

        If this is what preventing the collapse looks like:

        Then worrying who gets the Republican nomination is the least of Obama’s problems.

  2. jeff says

    Not sure if their was ever much he could do about employment, but he really should have taken a pitchfork to the bankers whom had a hand in things as they are now. I realize this is conflicted since he was supported by them in his campaign contributions, it just looks bad. However, I would tolerate obama over perry and would be genuinely happy about someone like ron paul, not that I am sure he could do much. Perry strikes me as a dangerous person whom would be willing to detonate a nuclear bomb, not someone I want with that type of power.

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