Tuesday, June 7, 2011

2012: Jobs, Jobs, Jobs and Jobs

Amidst the euphoria following the killing of Osama I told a friend that when it comes to 2012 elections this will be a blip in the radar for Obama. My friend, an Obama supporter, grumpily said "oh you are just voicing your wish". Today Washington Post released an opinion poll that has landed with a thud. 59% of Americans disapprove of Obama's handling of economy. Mitt Romney, the lead republican candidate, is in a statistical dead heat with Obama. To rub it in, amongst registered voters, Romney leads Obama. Romney is a candidate with many vulnerabilities.

Team Obama is very well aware that George Bush Sr lost to Clinton after winning a war only because of the economy. James Carville, Clinton's strategist, famously said 'Its the economy, stupid". When asked if he had felt the effect of recession, Bush, floundered and appeared out of touch. Bill Clinton, the master empathic politician gave a warm answer and rode to a landslide victory glossing over his numerous sexual affairs. Only starry eyed ill-informed supporters felt that killing Osama will guarantee a win for Obama. Within a month what changed?

The manufacturing index fell 6.9 points  in May compared to April. At an anemic 53.5 manufacturing while nominally expanding its barely about 50 the point at which it would be 'contracting'. Last month employment figures were a pathetic addition of 54,000 jobs, the lowest in a year. Unemployment is stuck at 9.1%. Underemployment is at a staggering 8.5%. People who have stopped looking for a job and hence NOT counted in the unemployment figures is a whopping 2.2 million. Reading the Bureau of Labor Statistics report its grim.

As if all that did not sound grim enough comes the housing report. US housing is measured by the Case-Shiller-S&P-Index. Robert Shiller one of the developers of that index is reputed economist and author of bestseller "Irrational Exuberance" which foretold the 2001 dot com crash. The housing index delivered a massive blow to the recovery. US home prices have dropped 4.2% in first quarter of 2011 AFTER declining 3.6% in last quarter of 2010. The index report delivers a jaw dropper, "Nationally home prices are back to their mid 2002 levels". I bought my home in 2003. After 8 years its worth is exactly the same as it was 8 years ago, possibly less. Today's WSJ had a lead article citing a major report by Corelogic, leading provider of mortgage data, amongst US households that have a second mortgage on their homes 40% are underwater.New home sales is at record low . Consumer Confidence index is down 5.2%.

Today Obama hosted a joint press conference with visiting German Chancellor. An ominous question was "are you worried about a double dip recession". Obama in his professorial manner opined "I am not worried about a double dip recession" (watch for republicans to recycle that video) and proceeded to give a long winded answer that was anything but an answer.

Barack Obama won the presidency purely by blaming Bush and promising the skies. In 2012 he will have to defend his record. Liberal economists gleefully pointed out that Bush was presiding over the worst job creation since Herbert Hoover. Barack Obama will win that prize handily.

To be sure Obama is only partly responsible for the unemployment situation. Technology and globalization have wiped out many jobs that, as Biden openly said, will never come back. Some parts of this unemployment is "structural". There is no way to see the dotcom era level unemployment. The financial crises that Obama inherited was unprecedented in scope or kind. The usual playbook responses were highly insufficient.

Life is not fair. Obama was not fair to Bush when he conveniently blamed everything on Bush glossing over the fact that the financial crises had seeds sown during Clinton era. Repealing Glass-Steagall act, failure to regulate derivatives, long term easy credit, later democrat controlled congress using Fannie and Freddie to further social engineering etc. Such inconvenient truths were all buried and a trope of Bush, the Texas oilman, is responsible emerged. The presidency is a job that Obama applied for knowing the crises thats engulfing hence he has to take ownership for what has happened under his watch.

Closely allied with economic worries a serious debate is emerging on role of government. US debt is staggering and every economist of every hue is crying for reform. In the backdrop of Euro zone crises Americans are seriously questioning the role of public sector. Federal employees and state employees unions are under a sharp focus for their generous benefits and unsustainable pension guarantees. Obama has presided over expansion of government unlike any before.

A republican candidate's success will depend on how convincingly they can portray the economic quagmire as the 'result' of Obama policies AND what alternatives they can provide. Just blaming Obama is not going to help. The economic uncertainties that are being spun out of Obama's and democrat controlled (until recently) congress to regulate business punitively is doing serious harm. The Dodd-Frank legislation that regulates financial institutions has become a legal nightmare spawning agencies that are sending big banks into a tizzy. Chuck Schumer, ranking Senate democrat, who voted and championed it is now decrying its effect. WSJ ripped into his hypocrisy . Schumer now says that the that new derivatives rules "will inevitably result in significant competitive disadvantages for U.S. firms operating globally."

WSJ had a wonderful article on how complex and Frankenstein like Dodd-Frank has become. The article says that the growing paper trail is 20 times taller than Liberty Statue. Many rules set forth in the legislation are yet to become laws. The federal agencies like SEC are simply crushed by the burden. Its a classic case of a panacea becoming an infection. The uncertainties and complexities have severely affected the profit making of financial institutions with a direct effect on hiring.

Obama, one time community organizer and an instinctive hater of capitalism, ranted against "fat cat bankers" endlessly. The administration and its minions pilloried Wall Street. It was populist in 2008. Obama repeatedly exhorts business to hire and spend their profits. Businesses are balking, not out any malice, but merely out of a hesitation due to uncertainties surrounding hiring costs. The regulations that fly out of capitol hill added to the gargantuan health care bill has created a very uncertain climate for hiring. All of this is justified criticism against Obama. 

The tax battle is looming ahead. Obama, an open socialist, is committed to playing Robin Hood. The Bush tax cuts that Obama extended, much to his supporters' anger, is due to expire in 2012. Obama has made it clear that he will make that issue for the elections. Obama wants to raise taxes on homes making $250,000 and above. In his opinion those making $250,000 (as couple) are rich and should pay their 'fair share'. Of course what he labels as 'fair share' is from his vote-bank angle. In 2008 he could get a pass on that. In 2012 there is voter fury against Unions and benefits finagled by arm-twisting Unions. Obama's class warfare rhetoric will not fly easy in 2012. Unions, taxing the rich deserves a blog of its own.

Mitt Romney, to be sure is not a shoo in. He has to survive primaries and convince republicans of his conservative credentials. I'll reserve discussing the candidates themselves for another time.

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