Five Things You Need to Know: President Obama's Economic Team Faces the Limits of Fiscal Policy
There's only so much government can do to "fix" an economy... and policymakers know it.
1. President Obama's Economic Team Faces the Limits of Fiscal Policy
Austan Goolsbee looks like an economist. In fact, if you were to find yourself walking around Washington D.C. and by chance were to meet Goolsbee in the street, you'd think to yourself as a matter of course, "Ah, that guy must be an economist." And you'd be right. Goolsbee, President Barack Obama's soon-to-be-departing top economics adviser, has a Ph.D. in economics from the Massachusetts Institute of Technology. Which is not to say there's anything wrong with that, it's just that these days economists are pretty easy to pick out of a crowd. Like Goolsbee, they tend to gesture with their hands a lot when they talk, sometimes pressing their fingers into each side of their forehead as if competing against a migraine or struggling to make sense of something that is utterly without explanation. This behavior is completely normal. It happens to anyone who is forced by trade or by chance to make predictions about things that fall outside of experience.
Yesterday, only hours after word got out that he would be leaving his post in the administration to return to the University of Chicago where he has been on a temporary, three-year leave, Goolsbee sat in a room in the Eisenhower Executive Office Building in Washington and attempted to explain to a small group of online business and finance journalists, including Minyanville, that had been assembled by the White House Office of Digital Strategy, things that defy explanation; among them, the recent jobs report showing the economy added a paltry 54,000 jobs last month.
"Don't make too much out of any one jobs report," Goolsbee told us with his hands, adding that the past three jobs reports had been "excellent," which is debatable but really beside the point. The jobs situation in the U.S. is driven by secular shifts that are impervious to monetary and fiscal policy. The Obama administration is clearly frustrated by this, but there's only so much fiscal policy can do for a devastated economy in transition. Real estate is not coming back. Construction jobs lost during the housing collapse will likely never return to 2006 levels in our lifetimes, nor should they.
The administration is not interested in stoking the dying embers of the prior economic boom. The focus is not on trying recreate the drivers of the last expansion, Goolsbee said. The jobs will come from elsewhere. The problem is no one is quite sure where that "elsewhere" is.
In the meantime, we wait. And the waiting is a grueling, job-starved, wageless endurance test. A CNN Poll yesterday showed that nearly half the country believes the economy will fall into a new depression within the next year-and-a-half; not recession, depression. Indeed, when asked about what many see as Washington's tepid response to the crisis, Goolsbee insisted "we do have a sense of crisis, but we're not panicking."
2. Is the Sense of Crisis Real?
I have no doubt the sense of crisis inside the administration is real. That probably explains why the President took time out yesterday to have an unscheduled 20-minute discussion with our group. But the issue of Washington's response to the economic crisis runs much deeper than merely having a "sense of crisis" and strikes at the very core of the emerging disconnect between Main Street, Wall Street and Washington.
The perception of Washington on Main Street is that there has never been, at any point, even going back as far as 2007, frank talk from Washington about how serious the economic crisis really is and the challenges that lie ahead. Policymakers have struggled mightily to explain to Americans what is happening, where we are in terms of the long process of exiting this crisis. Some of this struggle is related to the vague notion of confidence -- the fear that, "Well, we can't say that because it will undermine confidence."
The great irony is that the American people are searching desperately for someone to simply tell them the truth, painful though it may be, and the longer policymakers from the Federal Reserve, for example, continue to overstate the recovery in an effort to "build up and restore confidence," the more they will, over the longer-run, undermine it.
CNN Poll, June 3-7, 2011: Do you think it is very likely, somewhat likely, not very likely, or not likely at all that another depression like that will occur in the U.S. within the next 12 months?
Very likely 19%
Somewhat likely 29%
Not very likely 32%
Not likely at all 19%
No opinion 1%
3. Never Buying Stocks Again?
Meanwhile, the perception of Wall Street on Main Street continues to plumb new depths. A Prudential survey shows that a majority of individual investors say they've "lost faith in the stock market" with a staggering 44% saying they are unlikely to ever put more money into the market. Eric Schurenberg, Editor-in-Chief of BNET.com and Editorial Director of CBSMoneyWatch.com, mentioned this poll to me yesterday and I snickered at it as a contrary indicator, a reaction I regret. The issue is quite serious and threatens to morph into a generational error of underinvestment by individual investors.
The public's loss of faith in Wall Street is understandable. After all, it was less than a month ago that underwriters of the LinkedIn (LNKD) IPO, Bank of America (BAC), Morgan Stanley (MS) and JP Morgan Chase (JPM), dumped a $45 stock onto Main Street at $92 a share. Some suckers took shares at $122.
But lost in the ongoing and, apparently, unpunishable misbehavior of large banks is that for individual investors the stock market is not really about trading against computers or big bank prop desks or quants at Goldman Sachs (GS). Investing in the stock market is about providing capital to legitimate business and companies in exchange for potential growth of capital or a reasonable income stream in the form of dividend payments. This investment capital provides the foundation for economic growth. Not all companies are Bear Stearns, or Lehman Brothers or AIG.
4. The Economic Divide
The policy advisers I met with yesterday in some respects mirror the current economy. Those who were directly involved in figuring out the trajectory of the current economy, energy policy or fiscal policy seemed a bit beaten up and worn down. Anyone involved in technology, however, appeared on the opposite end of the spectrum, excited about opportunities out there and what I and other Minyanville professors, such as Conor Sen, see as a coming boom in innovation, and data-driven startups.
United States Chief Technology Officer Aneesh Chopra is in the optimistic camp. One of Chopra's tasks is overseeing the President's strategy for innovation, Startup America, which isn't a program with a capital P but a "call to action," thus avoiding the irony of government-mandated entrepreneurship. When talking about it, Chopra sounded more Wall Street than Washington, "Entrepreneurs will look at healthcare, energy and education not out of social concern but because there is money to be made," he said.
Nevertheless, because of where we are with respect to social mood, the administration's strategy for innovation initiative, which was first rolled out in 2009, is relatively easy to unfairly and cynically dismiss as a "Hail Mary, cross our fingers and hope for the best" platform. But Socionomics informs us of this perception and the value in that is it allows us to step outside of our herding behavior instincts to try to examine things from a more balanced, critical perspective. For example, a version of this initiative released in 1998, when social mood was trending positive, would have been greeted with far more enthusiasm. It only the White House had a Socionomics Adviser.
5. American Workers Increasingly Dragged Down by Pointlessness
Finally, while we all endure our current economy and wait for a recovery, take a look at these Seven Problems a Recovery Won't Fix identified by Umair Haque, Director of the Havas Media Lab and author of The New Capitalist Manifesto: Building a Disruptively Better Business. The most striking among them, and in perfect sync with our present social mood, is what he calls Pointlessness.
"Here's a statistic that ought to set your hair on fire: somewhere between 50 and 75% of "employees" are "disengaged" (depending on whose numbers you want to buy): they don't care much, if at all, about the work they do. But can you blame them? Perhaps they don't care not just because the work they do feels pointless, but because, in human terms, it mostly is. Designing new bottles for deodorants or energy drinks or finding a new loophole in the law isn't exactly helping design, craft, build, or maintain the Sistine Chapel. Yet it's what roughly about 75% of us do every weary day of our drab working lives. Forget the numbers and just ask yourself: if you were to walk into any corporation, would you find faces brimming over with deep fulfillment and authentic delight--or stonily asking themselves, "If it wasn't for the accursed paycheck, would I really let imprison myself in this dungeon of the human soul?"
This is part of what I call the increase in the valuation of intangibles over materials objects, possessions and material-directed work. Increasingly, we can expect social mood to direct us toward activities that emphasize a sense of purpose over pointlessness. Sure, our deodorant packaging may suffer, but I think that's something we can all leave with peaceably.
Follow Kevin Depew on Twitter @kevindepew
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