President Obama began his speech about the economy at the Brookings Institution yesterday by discussing how dismal the economic outlook was a year ago when he was president-elect:
Almost exactly one year ago, on a frigid winter’s day, I met with my new economic team at the headquarters of my presidential transition offices in Chicago. And over the course of four hours, my advisors presented an analysis of where the economy at that time stood, accompanied by a chilling set of charts and graphs, predicting where we might end up. It was an unforgettable series of presentations.
Obama went on to recount how Christy Romer and Larry Summers “described an imminent downturn comparable in its severity to almost nothing since the 1930s.” Tim Geithner was no more upbeat. He “reported that the financial system, shaken by the subprime crisis, had halted almost all lending, which in turn threatened to pull the broader economy in a downward spiral.” Peter Orszag then closed the proceedings with an equally gloomy summation.
It was entirely fair for Obama to rehearse this sort of history as background to his discussion of what has followed. Indeed, I believe an objective observer would conclude that, of the array of economic outcomes that were plausible one year ago, what has transpired since is probably near the midpoint in terms of desirability, given where we stood at the time.
I doubt that Obama’s actions have had much to do with this. By November 2008, the die was probably mostly cast in terms of the depth of the recession — we just didn’t know how deep that was. Moreover, there’s a good case that Obama’s response to the recession will cause considerable undue pain down the road. Still, as a matter of accepted political practice, it is legitimate for Obama to attempt to take credit for the fact that there has been no depression and that the economy may be on the way back.
The problem I have with Obama’s speech centers on the administration’s predictions early in 2009 as to what the unemployment would be with and without the stimulus package. Most readers will probably recall that the administration issued a report in January 2009 projecting that without the stimulus, unemployment would hit 8.5 percent in 2009 and then continue rising to a peak of about 9 percent in 2010. With the stimulus, the administration predicted that the unemployment rate would peak at just under 8 percent in 2009.
Some conservatives repeatedly throw these numbers in Obama’s face as evidence that the stimulus hasn’t worked or even that the administration has broken a promise. This is not my view. Economic forecasting is an inexact science, if it’s a science at all, and a bad economic prediction is not the same thing as a bad economic policy, much less a broken promise.
For me the issue, after yesterday’s speech, is Obama’s honesty. To see why, consider some of the defenses of the bad prediction on the unemployment rate offered by the administration. Talkin’ Joe Biden claims “the truth is, there was a misreading of just how bad an economy we inherited.” Christy Romer says “none of us had a crystal ball back in December and January. . .it was worse than we anticipated.”
Fair enough, I would have thought. But Obama has now told us that his advisors, including Romer herself, were saying that the impending downturn was “comparable in its severity to almost nothing since the 1930s.” Yet an unemployment rate of 8.5 to 9 percent is not the rate associated with a downturn that severe. To meet the gloom and doom predictions Obama says he was showered with by his advisers, the unemployment rate would, at a minimum, have to exceed 10 percent, as it has.
In sum, I can’t square the forecasts Obama says he was hearing from his top advisors in December 2008 with the prediction the administration made in January 2009.
This doesn’t necessarily mean the administration’s prediction was dishonest — indeed, I’m not sure what the White House would have thought it might gain by understating the non-stimulus unemployment rate. More likely, Obama is misstating the extent of the gloom and doom he was hearing from his people.
In any event, there seems to be a disturbing lack of candor on the administration’s part somewhere in this picture.