By Paolo von Schirach
September 20, 2012
WASHINGTON – I can certainly understand how president Barack Obama may have the great luck to be re-elected by default this November. Republican challenger Mitt Romney on the whole would appear to have clearer ideas about how to restart the economy, while beginning a reform process aimed at overhauling the tax system and downsizing the enormous and growing public sector.
But Romney is aloof, vague and unconvincing. And now he comes across as ”the enemy” of at least half the nation, having said at a fund raiser that 47% of Americans look at themselves as “victims” and therefore feel entitled to get something from the state in terms of subsidies or benefits. While it is true that there is a culture of entitlement out there, anybody aspiring to become president perhaps should have expressed this concept a little more diplomatically.
Economy doing better?
Still, leaving aside whether or not this and other self-inflicted wounds may have doomed the Romney candidacy, I find it odd that in recent opinion polls Americans have indicated that they are now more optimistic about the economy. Things are really looking better?
Look, if the economy had really turned a corner and America were back on the rise, there would be cause for jubilation. President Obama, as the incumbent steward, should be rewarded with re-election for his effective policies. But, while I would understand a re-election by default, given Romney’s uninspiring performance so far, I wonder where all this optimism about this battered economy is coming from. Certainly not from factual evidence.
Let’s review the picture. Years into a feeble recovery, America still has an abnormally high unemployment rate above 8%. And millions of jobless people are no longer counted because they have given up looking for employment. We have now the lowest percentage of working age people actually having a job. Even higher unemployment among minorities. We have stagnating incomes that in real terms are at the 1995 levels.
Having seen all this, the Federal Reserve, citing historically high unemployment and no prospect for a quick turnaround, embarked in a rather extraordinary open ended operation aimed at mopping up mortgage related securities for an indefinite period of time, with the goal of getting interest rates to go further down. While this may not change much, all observers indicated that the Fed acted almost out of despair, trying to do whatever it can to revive a moribund America economy.
Negative manufacturing forecast
And there is plenty more bad news. Just today, I read an AP story titled “US economy hobbled by weak hiring, manufacturing“. In this piece Sam Bullard, senior economist at Wells Fargo Securities, is quoted saying that “there certainly doesn’t appear to be much improvement in the performance of the economy. Manufacturing continues to soften and decelerate. We shouldn’t expect to see substantial gains in hiring or output from manufacturers any time soon“. Bullard is an expert, and he does not sound that optimistic.
Recent data cited in the same AP story support this rather gloomy forecast. Applications for unemployment benefits fell a little last week; but are still way too high to indicate a future pick up in hiring. A manufacturing index covering Pennsylvania, Delaware and New Jersey is negative, indicating contraction. A separate Conference Board report reveals lower manufacturing orders, negative consumer sentiment, and slippage in hours worked.
Weak business sentiment
To top it all off, corporations with cash do not invest because they cannot read the new business and public policy environment. They are uncertain about taxes, future health care costs, the impact of many burdensome new regulations, and they are also concerned about the broader public spending outlook. Will America avoid the fiscal cliff, or fall into it? Will there be more US sovereign debt downgrades?
New normal: bad is in fact good
As I said, I can understand how the independents who usually decide presidential elections may prefer Barack Obama, “the devil we know”, rather than take a chance with a rather colorless Romney. But if the vote for Obama comes because Americans really believe that there is cause for optimism about the economy, because things are looking good, then I would conclude that we have really embraced “a new normal” in which under performance and mediocrity are deemed to be good or excellent. Sure enough, given this strange euphoria and deep skepticims about Romney, Obama may get re-elected. But if we keep pretending that bad is in fact good, America is not on a good path.