Saturday, February 28

Gasp! The Washington Post headlines an Obama mistake!

Where are my smelling salts? Not stuck back on Page A20 but on the front page, above the fold, under the headline Economy Shrinks At Staggering Rate:
By Annys Shin and Neil Irwin
Washington Post Staff Writers
Saturday, February 28, 2009; Page A01

The prospects for an economic recovery by year's end dimmed yesterday, as government data showed that the economy contracted at the end of 2008 by the fastest pace in a quarter-century. The worse-than-expected data fueled doubts about whether the Obama administration had adequately sized up the challenges it faces in trying to pull the country out of recession. [...]
Of course it was the Saturday edition -- The Washington Post's Siberia. But that the editor okayed a discussion of doubts for the front page -- I repeat, above the fold -- might indicate the shortest honeymoon period ever for a U.S. president.

They could have reported just the hard data on the front page then stuck the discussion about the bad judgment of Obama's administration somewhere else; what passes for a shrieking headline for the paper suggests that the editorial board was a tad upset to learn that President Obama leaped before he looked. Returning to The Post report:
The revised GDP figure helped stoke skepticism among economists who say the White House's projections for the nation's recovery are too rosy.

Based on those projections, Obama said he would slash the deficit in half by the end of his term. In its budget outline, the administration predicted that the economy would shrink 1.2 percent this year and grow 3.2 percent next year. By contrast, the consensus among private forecasters is that the economy will shrink 1.9 percent this year and grow 2.1 percent next year.

"It's just premature to expect the economy to be recovering," said Joshua Shapiro, chief economist at MFR, a forecasting firm. He said he expects the recession to drag into early next year.

"If you looked at the Obama administration's forecast, it's very much at the optimistic end of the spectrum. There's a whole 180 degrees between us and them," Shapiro said. "That doesn't guarantee they're wrong and the pessimists are right. But they are making pretty optimistic assumptions right now to hit even these terrible numbers for deficits."

Christina Romer, chairman of the White House Council of Economic Advisers, told reporters yesterday that the administration's growth projections were made weeks ago, before data showed an even deeper recession, and noted that it is normal for an economy to bounce back fairly sharply after a major downturn.

Speaking at a monetary policy conference in New York yesterday, she said the first quarter "is going to be bad," but the government stimulus package and other efforts would eventually bring healing. [...]
I hate to be the bearer of bad news, Ms Romer, but there is nothing normal about this recession. Economists are famously myopic about predicting recessions and their duration but the situation this time is so extraordinary that most economists are sensibly practicing caution in their predictions. Not so for Mr Obama's economic advisors, who committed him to a projection and stimulus strategy that do not fully take reality into account.

Were the advisors pushed to wear rose-tinted glasses so that Mr Obama's first speech to Congress could be 'sensitive' to complaints from the media that his earlier announcements about the economy sounded apocalyptic? I hope not, although that would be consistent with the political-campaigning style he's carried into the White House.

Worse than misapplied style, however, is blindness to the goal posts. To return to The Post report:
Whether their outlook is bleak or hopeful, analysts agree on one thing: The most serious threat to the economy is the credit crisis. Until banks are healthy enough to begin lending more, the economy is not likely to see sustainable growth, even with the massive stimulus package approved this month by Congress.

"Until you get the banking sector going, all the stimulus can do is provide a brief reprieve," said Bernard Baumohl, chief global economist at the Economic Outlook Group, a forecasting firm in Princeton, N.J. "Otherwise we could be condemned to a period of anemic growth or slip back in to recession in 2010 once the stimulus dissipates."
Yet it's beginning to look as if President Obama sees his agenda for "spreading the wealth around," as he's put it, as having equal importance with battling the credit crisis.

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