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An anemic recovery, with high unemployment

The opinions expressed by columnists are their own and do not necessarily represent the views of

WASHINGTON -- There are intermittent signs that the recession may be near an end, though darkened by forecasts that the economy will likely take much longer than expected to achieve a full recovery.

Home sales are slowly climbing; durable-goods orders to U.S. factories, absent the transportation sector, were up 1.1 percent in June; corporate earnings have begun to improve; and banks are making a comeback as a result of a growing savings rate.

But it may be a bit premature to begin cheering that we are coming out of the woods, as a Newsweek cover story suggested last week. Housing prices are still falling, mortgage foreclosures are rising, consumer confidence fell sharply last month, unemployment is nearing 10 percent, consumer spending has flat-lined, and the economy is still contracting, though at a slower rate.

Even so, recoveries have to start somewhere, and the preliminary signs of modest improvement in some sectors suggest we're nearing the bottom of this recession.

Predictably, President Obama was taking credit for any improvements, saying they showed that his administration's policies were working. That's a stretch. There is no evidence that his snail's-pace public-works plan has created many jobs that made a dent in the recession.

Who says so? Dr. Christina Romer, chairman of the President's Council of Economic Advisers. Last month, CNBC's Maria Bartiromo asked the $800 billion stimulus question in a way that few, if any, White House reporters dare to ask at the president's news conferences:

"When the stimulus was first announced, the president said he expected that in the coming years the administration, based on the policies on economic revival, could save or create 3.5 million jobs. At this point, does the administration know how many jobs have been created or saved?"

Romer replied, "You know, it's very hard to say exactly because you don't know what the baseline is. Because you don't know what the economy would have done without it."

We do know that month after month, the number of jobless workers has climbed dramatically since Obama's big spending plan became operable. The Congressional Budget Office, which keeps track of the spending plan, says that only a small fraction of the so-called stimulus-bill money will be spent -- not "obligated," as the White House likes to say -- by the end of the year.

But the claim that the baseline is unknowable is disingenuous at best. Dr. Romer and her colleague Jared Bernstein said earlier this year they had arrived at their jobs figure based on a baseline number they've been using for six months.

In a January report promoting the stimulus bill, Romer and Bernstein projected "the aggregate number of jobs created, relative to the no-stimulus baseline." Indeed, their report was peppered with references to variable tax and spending figures "that were assumed in the baseline."

The improvements in the economy right now are largely the result of the Federal Reserve's earlier easing of monetary policy to pump needed liquidity into the economy's bloodstream, and the additional funds injected into the banking sector to prevent a collapse of the nation's other lending institutions. Obama's stimulus plan (most of which won't be spent until next year) and the minuscule middle-class tax credits have had little, if any, substantive effect on the economy.

Why? Because there were no systemic investment incentives in the form of tax cuts on income and capital gains to unlock capital that has been on strike since the recession began.

This will result in what a growing number of economists say will be a "jobless recovery," where the economy will begin to grow but only weakly -- and where unemployment will remain at historically high levels for some time to come.

The recessions that began in 1973 and 1981 were followed by a sharp increase in hiring, with monthly job figures in the hundreds of thousands in the middle to late 1980s. That's not going to be the case this time, economists say.

A panel of 17 economic forecasters at the Federal Reserve projects that we will have over 10 percent unemployment by year's end and that the economy won't fully recover its health for several years, perhaps even five years. Fed forecasters have put the jobless figure at about 9 percent throughout 2010 -- yet another indication of the Obama spending plan's economic impotence. Several factors will contribute to the economy's slow recovery. One is the $1 trillion-plus healthcare legislation that will impose higher taxes on the economy one way or another -- on the healthcare industry itself and on upper-income Americans who save and invest the most. The other will be the administration's plan to let the Bush income tax cuts expire at the end of next year, adding yet another layer of higher tax rates that could effectively push the top tax rates to 50 percent or more. Right now, the economy is struggling to recover. But the combination of Obama's failed stimulus spending policies and the sharply higher tax burdens he intends to pile on businesses and investors will more than likely result in an anemic recovery and a long, painful period of high unemployment. Copyright 2009, United Feature Syndicate, Inc.

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