Obama Administration Flunking Economics

Obama, Geithner Get Low Grades From Economists

U.S. President Barack Obama and Treasury Secretary Timothy Geithner received failing grades for their efforts to revive the economy from participants in the latest Wall Street Journal forecasting survey.

The economists’ assessment stands in stark contrast with Mr. Obama’s popularity with the public, with a recent Wall Street Journal/NBC poll giving him a 60% approval rating. A majority of the 49 economists polled said they were dissatisfied with the administration’s economic policies.

On average, they gave the president a grade of 59 out of 100, and although there was a broad range of marks, 42% of respondents rated Mr. Obama below 60. Mr. Geithner received an average grade of 51. Federal Reserve Chairman Ben Bernanke scored better, with an average 71.

The economists, many of whom have been continually surprised by the depth of the downturn, also pushed back yet again their forecasts for when a recovery would begin. On average, they expect the downturn to end in October. Last month, they said the bottom would arrive in August. They estimate that U.S. gross domestic product will continue to contract in the first half of this year, with slow growth returning in the third quarter.

Economists were divided over whether the $787 billion economic-stimulus package passed last month is enough. Some 43% said the U.S. will need another stimulus package on the order of nearly $500 billion. Others were skeptical of the need for stimulus at all.

However, economists’ main criticism of the Obama team centered on delays in enacting key parts of plans to rescue banks. “They overpromised and underdelivered,” said Stephen Stanley of RBS Greenwich Capital. “Secretary Geithner scheduled a big speech and came out with just a vague blueprint. The uncertainty is hanging over everyone’s head.”

Mr. Geithner unveiled the Obama administration’s plans Feb. 10, but he offered few details, and stocks sank on the news. The Dow Jones Industrial Average is down almost 20% since the announcement, as multiple issues have weighed on investors’ confidence. The Treasury secretary has since appeared before Congress and offered more specifics but has said action on key parts of the plan still is weeks away.

“We have taken an unprecedented level of action toward economic recovery, accomplishing in weeks what took other countries years to do,” Treasury spokesman Isaac Baker said. “While Wall Street and investors were disappointed when they didn’t get a sweeping bank bailout, we’ve laid out a plan to stabilize the financial system while protecting the taxpayer and ensuring government funds are spent wisely. This crisis was years in the making, and it will take time to solve.”

Treasury has started implementing a housing-recovery plan, moved forward on a joint program with the Fed to boost consumer lending, and has begun stress-testing banks in an effort to determine which institutions will need additional capital from the government. The results of the stress tests won’t be known for a few weeks. Meanwhile, a key part of the plan — a public-private partnership to take toxic assets off bank balance sheets — remains in the planning stages.

The economists’ negative ratings mark a turnaround in opinion. In December, before Mr. Obama took office, three-quarters of respondents said the incoming administration’s economic team was better than the departing Bush team. However, Mr. Geithner’s latest marks are lower than the average grade of 57 that former Treasury Secretary Henry Paulson received in January.

Mr. Geithner, who is relying on a skeleton crew of advisers in the Treasury Department as the administration struggles to make key appointments to his staff, is encountering the same problems as his predecessor in dealing with the complexities of a bailout plan. Richard DeKaser of Woodley Park Research, who gave high marks to Messrs. Obama and Geithner, admitted disappointment in the delay in action but said he appreciated the magnitude of the task. “I don’t know what’s holding it up,” he said. “But I’m assuming it’s not just because they’re hitting the golf course.”

There was widespread initial support for the appointment of Mr. Geithner, who as president of the New York Federal Reserve had been on the front lines of the crisis since it erupted. However, in the ensuing weeks Mr. Geithner has had to deal with tax troubles and criticism from those opposed to any bailouts as well as those who think the government needs to be doing more.

Meanwhile, the economists surveyed this month predict that the economy will shed another 2.8 million jobs over the next 12 months as the unemployment rate climbs to 9.3% by December, up from the 8.1% rate recorded in February. Economists also see nearly a one-in-six chance that the U.S. will fall into a depression, defined as a decline in per-person GDP or consumption by 10% or more.

“We just keep moving the date [when the recession will end] out, hoping at some point in time we will be able to move the date back in,” said Diane Swonk of Mesirow Financial.

The economists didn’t just single out the U.S. for criticism; 70% of participants said the response of governments around the world to the global recession has been inadequate. “The Europeans or Japanese don’t seem to be doing near enough to kickstart their economies,” said Nariman Behravesh of IHS Global Insight. “It could be we’ve done all the right things, but the rest of the world goes down the tubes.”

Despite the growing criticism elsewhere, the respondents were broadly supportive of the Fed. More than 85% of the economists agreed that the central bank’s proliferating lending programs are well-designed, well-executed and helping the economy. And while grades for Mr. Bernanke remain off of their 2007 highs, the average has stabilized after falling as low as 69 in the November survey.

Amid all the gloom, there is a bright spot: Four-fifths of the economists said now is a good time to buy equities, especially if the investor has a long-term view.

Write to Phil Izzo at philip.izzo@wsj.com

About the Survey

The Wall Street Journal surveys a group of 54 economists throughout the year. Broad surveys on more than 10 major economic indicators are conducted every month. Once a year, economists are ranked on how well their forecasts have fared. For prior installments of the surveys, see: WSJ.com/Economist.

2 Responses to “Obama Administration Flunking Economics”

  1. Charles M Says:

    The United States stimulus package will come to a total amount of some where around 800 Billion Dollars. There is a simple solution to how this money should be used. And ANY questions you may ask are simple to answer. And no matter what is done there is going to be a small group of people that will loose out, in one way or another. But this solution is the most sold and quickest. The Government has not gone this way. I have to believe in some back room they have talked about it. But it does not benefit all the “Money people” that it seems this payoff is for. This aside, let me explain. Our country is in finical peril because of one major problem. We are 800 Billion Dollars in Credit Debt. For a while we were not only living off our paycheck but the money we borrowed from the Credit Companies. The BANKS. Now we are maxed out. And the only thing we can spend our money on is paying back the over bloated credit debt. As you know no money to spend no economy. THE FIX. Pay off the national credit dept. Period. I am not proposing it be a free ride to the people that got into this mess. As we are all responsible in one way or another. What will it do? Well first the banks get 800 Billion dollars. Banking finance issues taken care of. And, the fear of having to nationalize the banking institution goes away. Every person that takes the deal, every individual will decide if it is for them or not, will have there credit debt wiped out. At this point for it to work, they can not get a credit card for at least 7 year. They can’t, and if some bank gives them one they (the banks) are in violation and they basically gave money away. It would be basically be illegal and unethical. Only credit card you could get within those 7 years would be a secured credit card. (a form of savings, further helping the banking instution) This prevents the bailed out individual from moving their freed up money back into credit debt. Hopefully this will also give the country 7 years to figure out how to prevent people and this country from getting back into this situation. This immediate clearing of debt will immediately cause an up swing to the economy. Let’s say on the average that you now have freed up $1,000 a month that was going to the credit company (the BANK). Now, you might be able to afford a car that you and I have been holding back on buying for a while. Now you can buy one. Just bailed out the auto industry. Car sales will go through the roof. You might take your family out to dinner more often now that you have the free up cash. Or do some shopping that you could not before. These are for the most part cash transactions. Business will now start to boom. Money is freed up. This is an exponential process. And more business means more jobs. Another fix. I will answer one question but understand all have an answer. What about the people that don’t use there credit card.
    Have money in the bank and live a simple life. First, I said some people will loose out. But having nothing to loose because you have stayed so secure is better then loosing your home or job. And speaking of your home, the mortgage you could not afford and possible foreclosure on the horizon. That extra money could hold you together. Keep you out of foreclosure or bankruptcy. And not being able to get a credit card means you either have to inject the cash back into the economy in the form of product purchasing or now you have money freed up to save. Another feather in the banking cap. Every state has their hand out for this money. They need to stop it. Taxes are already in place for road work and such. If the people in every state now have a substantial amount of cash available to them. Hey guess what, taxes will go up. They always do. Now they can afford to pay them. Hopefully in 7 years the banks, the government, and the people, united. Remember, united we stand divided we fall. United we will devise a plan to safeguard us from, being corrupted by easy money. By the banking institution that basically took advantage of us.
    ONE more thing. Not everyone in Debt is going to take this deal. Some people are living within their means. Business needs their credit card to operate. It will probably free up 200 Billion Dollars of the 800 billion. Inject that right into education. Create a secure INTRANET so our children do not have to worry about predators. And since the schools use the internet so much for a teaching too. It will keep the children away from improper web sites. This will allow the money to go directly to our most precious resource. Our children and our future. Another spin off, law enforcement can now re direct funds back into other needs since the children are now on a secure system.

  2. Michael Eden Says:

    I don’t have anything to say by way of faulting you or your attempt at “fixing” the system to restore it to health.

    I think, though, that your effort illustrates just what a huge mess we’re in, even as we frantically dig ourselves even deeper and deeper into an even bigger mess down the road.

    There comes a point when the proverbial wisdom of Solomon isn’t enough to fix what is desperately broken. And I would argue that that is where we are now. Even if people wanted to actually FIX the problem, rather than just put it on the backs of their children, we’re screwed. There’s just no way: the debt is so great it would crush us if we tried. And, of course, Americans DON’T want to fix our problems; they just want to put them off and hope the coming collapse doesn’t happen in their lifetime, but their children’s.

    Our biggest problem is moral. Because it took decades of spiritual apathy and the consumerism and greed and abandonment of wisdom and virtue that created the climate for this staggering debt.

    Debt is evil; it makes both the borrower and the lender tainted by that evil. It is the modern replacement for slavery.

    I agree with you what an enemy it is, and do applaud your effort to create a system to at least begin to deal with it.

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