We’re guessing that President Obama is having a bad day. The Labor Department released the latest job report this morning and it was pathetic: The U.S. added a measly 69,000 jobs in May. The unemployment rate swelled from 8.1 to 8.2 percent. And stocks fell more than two percent by the day’s close.
The news somewhat deflates the president’s campaign trail message of a steady American recovery. But it provides great ammunition for Mitt Romney’s consistent battle cry: that the president is a clueless politician unable to create jobs.
But where these jobs numbers may really cause damage is outside the campaign trail. In The New Republic today, Schwartz Fellow Noam Scheiber writes about perilous self-fulfilling prophecy of the stats – and how that tenuous psychology fueled the president’s original recovery strategy:
“…This is a sufficiently grim set of numbers—and has inspired enough hand-wringing in the media—that it will clearly penetrate the consciousness of the average consumer and employer, who was already wavering on whether this recovery had legs,” Scheiber writes. “The danger is that the perception becomes self-fulfilling—that anxious consumers stop spending, anxious employers slow their hiring even more, and that the two reinforce one another in a vicious cycle of austerity.”
Sounds disastrous. But it was this very concept that underpinned the president’s 2009 stimulus package. Scheiber calls it the administration’s “original sin.”
“…the administration’s top economists knew the amount of stimulus they were proposing was much too small to solve the unemployment problem within a few years. One reason they felt okay about this relates to a concept called “escape velocity,” which held that you didn’t need the full amount of stimulus your math suggested (something approaching $2 trillion). If you just provided an initial boost, the economy could take care of the rest on its own: Consumers would start spending, which would raise GDP, lower unemployment, and lead to further spending. And the whole process would accelerate as people gained confidence, leading to a self-sustaining recovery.
It was, in effect, a bet that you could get away with spending much less than necessary by manipulating mass psychology. And for a while it worked: The economy grew pretty rapidly in late 2009 and early 2010. But, as several administration economists have subsequently conceded to me, we never quite hit escape velocity, which is why we’ve been in stall speed more or less ever since."
Now, Scheiber says, we may see “escape velocity” in reverse. A slow imprisonment in a struggling economy.
For more good news to kick off your weekend, read Scheiber’s full post here.
President Obama image via Shutterstock.