Is the recession really over? That’s the question many are asking since Newsweek magazine declared it so in the cover story of its Aug. 3 issue.
Daniel Gross’ article cited home sales increases for June, the stock market’s 44 percent rally since March and improved corporate earnings. Since then, ABC and CBS have asked experts the same question, and one New York Times story found an economist who claimed the “recession is over, economy is recovering.”
There are only two possibilities. If in fact, Newsweek and others are right that the recession is over, why haven’t the media questioned the need for the other 90 percent of that $787 billion stimulus package, or Obama’s claims that a health care bill is essential to “ rebuilding” the economy? Will it also cause the media to reverse support for a second stimulus package?
But what if they’re wrong? If, as left-wing economist Dean Baker and CNBC’s Jim Cramer say, the recession isn’t over, Newsweek and other media shouldn’t be declaring it. And that would mean that the media which declared the economy far worse than it was for years under President Bush were already declaring the economy far better than economists claim – this time under a liberal Democratic president.
On “Good Morning America,” July 28 two guests, Liz Ann Sonders of Charles Schwab and Mike Santoli of Barron’s, supported the claim that the recession is in fact over.
Sonders told Diane Sawyer, “I do think it is real, I think that we have enough cumulative signs now that we’ve come through the worst. And not only are things just less bad, we’re actually starting to see some pockets of improvement.” Sawyer accepted Sonders’ and Santoli’s opinions without rebuttal.
CBS also found an expert to say the recession is over. “Evening News” interviewed Lakshman Achuthan of the Economic Cycle Research Institute July 21 who said the economic indicators “are emphatic that recovery begins this summer.”
Gross’ Newsweek story warned that the end of the recession would not mean instant recovery:
“Irrational exuberance, it’s not,” Gross said. “But when economists proclaim a recession over, they’re celebrating a technicality: they mean economic output has stopped contracting. And while that is good news, you might wait a while before adding Judy Garland’s rendition of ‘Happy Days Are Here Again’ to your iPod.”
Despite that downbeat remark, Gross credited all the Obama administration’s economic remedies – from the $787 billion stimulus package to a huge health care bill that hasn’t even been voted on.
CNBC’s Jim Cramer, BusinessWeek economics editor Peter Coy and even left-wing economist Dean Baker disagreed that the recession is over.
Cramer told MSNBC’s Donnie Deutsch on July 27 that “this is way too premature” and that Newsweek was six months early.
“The rest of the country is going to see an unemployment rate that crosses 10 percent this summer and likely crosses 11.0 percent early next year. They are also going to see a foreclosure rate that runs at a 2 million annual rate through the rest of 2009 and 2010. To anyone other than the tiny group of wonks that monitor economic data closely, the fact that GDP might be growing slowly doesn't mean a damn thing,” Baker wrote. “The rest of the country cares about whether they have a job and whether they can hold onto their home. So the GOP just has to sit back and make fun of any ‘elitist’ Democratic politician who is stupid enough to boast about an economic recovery.”
Which is something White House Chief of Staff Rahm Emanuel had already done. According to CBS News political hotsheet for July 22, Emanuel said the president would use his news conference to talk about “how we rescued the economy from the worst recession.”
President Obama on the other hand made fun of the Newsweek story July 29 saying he found the news “startling.”
Gross Backs Obama
President Obama has recently come under fire for the failure of his stimulus package to halt rising unemployment (9.5 percent in June) and has been losing approval for his handling of the economy.
Gross’ story attacked such critics despite Vice President Joe Biden’s own admission about the ineffectiveness of the stimulus package. When confronted about the issue, Biden said, “ We misread how bad the economy was, but we are now only about 120 days into the recovery package.” Gross also hedged, saying, “it is too soon to judge whether this enormous fiscal and political gamble will work.”
A July 13 CBS poll indicated that the American people have judged the stimulus’ effectiveness and found it wanting. CBS found that 75 percent of Americans think the stimulus had “no impact” or a “worse” effect on the economy. The poll also found only 48 percent of Americans approve of Obama’s handling of the economy.
Still, the Newsweek columnist agreed with the administration’s “philosophy” for recovery and promoted it heavily:
“The Obama administration’s strategy rests on what some might call industrial policy of excessive government intervention – or even creeping socialism. I call it ‘the smart economy.’ It means eschewing the blunt economic instruments we’ve always used and focusing resources and rhetoric on strategic sectors,” Gross wrote.
This should come as no surprise from the magazine that declared “We’re all socialists now.” In February, Gross declared a common recession remedy – tax cuts – obsolete and has promoted government intervention in other Newsweek pieces.
Predicting or declaring the end of a recession is the exact opposite of what the news media did under President George W. Bush. Despite more than three years of job growth and unemployment around 4.7 percent, the three broadcast networks characterized the Bush economy negatively by devoting more air time and more than twice as many stories to the downside of the economy.
Those same networks warned for years (under Bush) that a recession was looming, even referencing the Great Depression in 2006.
Recession Not Over?
Economists, financial experts and even the Obama administration were divided on the question of whether or not the recession is over.
National Review Online reported on July 29 that Obama mentioned Newsweek’s declaration at a
CNBC’s Cramer denounced the Newsweek story and reminded MSNBC viewers that he correctly called the housing bottom for June 30, 2009, saying, “Well, I, uh I don’t like that cover story at all.”
Why? The “Mad Money” host said that in order to declare the end of the recession there would need to be home price appreciation and job creation, which we have yet to see.
Ultimately, Cramer said that Newsweek made a nice cover, but were six months too early.
“DOUBLE DIP: Even if the gross domestic product rises in the current July-September quarter—and it might—output could very well fall again in the fourth as the effects of the stimulus tax cuts begin to fade,” wrote Economics Editor Peter Coy.
David Leonhardt, the Economix columnist for the New York Times, presented both Gross’ and Coy’s views on July 16 to allow readers to decide for themselves. That’s something “Good Morning America” should have done.
Conservative economists were also divided. Business & Media Institute adviser Gary Wolfram, a
Another BMI adviser, Donald Boudreaux took the opposing view. “I have no sense that the recession is over,” he said. “The ultimate thing that people care about it employment and, for all of its flaws, the unemployment rate remains high. Until it falls steadily and significantly, it’s premature (in my view) to talk about the recession being over.”
Boudreaux said a “double dip” recession is possible if a burdensome policy (health care or cap-and-trade) or tax is enacted. That could cause investors to flee and push the economy deeper into recession.
“Recession or not, the Obama administration’s fiscal policies should be those of the Harding administration during the 1920-21 downturn: do nothing. Keep taxes low, keep spending low, and watch the downturn end quickly,” Boudreaux concluded.