Turning Soft

With the exception of a few of the President's most ardent cheerleaders, virtually every serious observer reports on a worsening economy. Neil Irwin of The Washington Post states that “the recovery is losing steam” and then writes:

There's a pattern here, and it's not a good one. Virtually every major economic indicator to come out in the past two months has been disappointing in one way or another. Retail sales. International trade. Weekly jobless claims. The monthly employment report. Housing starts.

In fact, of the major data releases, the only one I can think of that has been decent over the past couple of months was last week's industrial production report.

When the economic data first started turning soft earlier in the summer and it looked as though the recovery could be losing steam, I tried not to leap too far into major conclusions. Data is often uneven at economic turning points, and economic recoveries sometimes move in fits and starts.

But as the third straight month of weaker data comes to a close, the brutal reality is that all the indicators are pointing in one direction. The data are all either coming in in line with diminished expectations, or surprising in a negative direction. It's not an uneven recovery-- it's not much of a recovery at all.

Yesterday housing sales for July hit a fifteen year low, and today, average housing prices have dropped yet again.

In a move that has become tiresome, the Obama administration looks backward and blames George W. Bush for all of these problems. Although there is no question that the seeds of the great recession were planted during Bush’s administration, Barack Obama has been in office for one and a half years. In his first month in office, he promised the public that the enactment of his economic stimulus would keep us away from an unemployment rate of eight percent. He was right. The unemployment rate is now 9.5 percent and shows no signs of recovery.

Why has President Obama been so ineffective in grappling with the difficult problems we face? Is it political inexperience? or lack of private sector experience? Or ideological stubbornness that negates the ability to adapt? I think it’s all of these and more.

John Stossel tries to define the underlying causes for poor job creation:

The problem today is that the economy is not being left alone. Instead, it is haunted by uncertainty on a hundred fronts. When rules are unintelligible and unpredictable, when new workers are potential threats because of Labor Department regulations, businesses have little confidence to hire. President Obama's vaunted legislative record not only left entrepreneurs with the burden of bigger government, it also makes it impossible for them to accurately estimate the new burden.

In at least three big areas -- health insurance, financial regulation and taxes -- no one can know what will happen.

At the same time, respected business people are sounding the alarm. Declan McCullagh reports on a speech by Intel CEO Paul Otellini:

Otellini's remarks during dinner at the Technology Policy Institute's Aspen Forum here amounted to a warning to the administration officials and assorted Capitol Hill aides in the audience: Unless government policies are altered, he predicted, "the next big thing will not be invented here. Jobs will not be created here."

The U.S. legal environment has become so hostile to business, Otellini said, that there is likely to be "an inevitable erosion and shift of wealth, much like we're seeing today in Europe--this is the bitter truth."

Not long ago, Otellini said, "our research centers were without peer. No country was more attractive for start-up capital... We seemed a generation ahead of the rest of the world in information technology. That simply is no longer the case."

The Obama administration’s insistence on big government solutions has done nothing but create uncertainty within the business community. When a business can’t determine the on-going cost of a new employee (due to vague regulatory requirements), it tends not to hire. Worse, when it sees a government environment that is anti-business, it tends not to invest in new manufacturing facilities. The result is stagnation.

President Obama needs help and advice from the private sector, and he needs it now! His economic team has relatively little private sector experience and the President himself has none. He needs to get a Jack Welsh or a Warren Buffet or a T. Boone Pickens (or all three) directly involved, and then he needs to listen and to act. He also needs to work with the hated GOP to enact policies and, if necessary, legislation that reduces the the uncertainty that now burdens business, and as a consequence, allows companies large and small to create private sector jobs. He needs to do this immediately. If he does not, he will preside over a double dip recession and an economy that could be crippled for a generation.