The predicted Republican tsunami in the midterms has prompted some to wonder whether Barack Obama can do what Bill Clinton did after the 1994 Republican sweep — move back to the center for his own political survival. Larry Kudlow doesn’t sound optimistic, and instead sees the White House moving leftward in panic at the failing economy and falling polls. And Kudlow says there’s good reason for panic:
The bottom line? Panic over this stalled economy may be setting in.
The unemployment rate is hanging stubbornly at 9.5 percent and economic growth looks to be slipping to only 2 to 3 percent. In order to get unemployment down significantly, the economy has to grow by at least 4 percent.
Inside July’s jobs report, small-business household employment dropped by 159,000 jobs — a very bad sign. In the three months to April, this survey produced 417,000 new jobs. In the three months to July, it fell by 151,000.
At the same time, private payrolls in the corporate survey rose by only 71,000 in July, compared with an expected gain of 100,000. In the three months to April, payrolls gained by 154,000. Over the past three months, payrolls have increased only 51,000. They need to grow at a better-than 200,000 monthly pace in order to reduce joblessness.
So just like the overall economy, the jobs recovery is faltering. It isn’t a double-dip recession. But the story is moving in the wrong direction. And if the Democrats in power push for a big-bang summer surprise that seeks even more failed stimulus spending, they will do much more harm than good.
The departure of Christine Romer puts Larry Summers and Tim Geithner in the driver’s seat for economic policy — and Kudlow says that’s bad news indeed. Geithner’s already on record saying that extending the 2001 and 2003 tax cuts for wealthier earners will put the recovery in peril, when the evidence above shows that Obama needs investors to put their cash into the private sector instead of having the government seize it. Kudlow calls it Geithner’s war against investment, and with Romer out of the way, he expects it to escalate.
This explains James Pethokoukis’ warning about the rumored write-off at Fannie for underwater mortgages. That will either drop a bomb on Wall Street or on the national debt, which has already hit the crisis stage. Kudlow hears the same rumors (although it’s not clear whether he heard them from Pethokoukis’ column), and more. The Fed will extend its lax monetary policy even further at its meeting this month and may announce further expansion of the money supply, a move that will further depress an already sinking dollar. It’s a kitchen-sink, flailing approach to command-economy policies that clearly have failed to produce a real recovery and instead have delivered exactly what the same kind of approach delivered the last time it was tried in the 1970s: stagnation.
If this is an example of what the White House will do after losing a midterm election, don’t expect Barack Obama to be the second coming of Bill Clinton. He looks a lot more like the second term of Jimmy Carter, only even more inept.
Update: Poor pronoun reference in the paragraph after the excerpt led some people to believe that I meant that Kudlow opposed extending the 2001-3 tax cuts. I meant Geithner, but it was sloppy writing. I’ve fixed it.