Back in December, the Onion headlined a story, “U.S. Economy Continues Campaigning For Barack Obama.” This popped into my head as I read through the morning’s GDP announcement, wondering whether Republican representatives were anxious to get back home and tout their stimulus “victory.” I’d suggest that maybe, deep down inside, some of those legislators are feeling nervous, and perhaps chastened, but more likely they’re waiting for the first round of such statistical releases in the wake of the stimulus, when they’ll do their best to label any negative reading a failure of the president’s stimulus plan.
The economy contracted at a 3.8% annual rate in the last three months of 2008. That figure is both better and worse than it sounds. It’s worse, because it would have been closer to the expected 5.5% contraction in the absence of inventory accumulation (which basically means that producers couldn’t cut their production levels fast enough to keep up with cratering sales). It’s better, on the other hand, because that’s an annual rate. The economy will only be 3.8% smaller if it continues to shrink at the current pace for the next nine months (which is possible, but not likely).
I have to say, I’ve been more pessimistic about the outlook for the economy. We are, for the most part, avoiding past policy mistakes. Monetary policy remains close to as easy as it can be, and Democrats are pressing ahead with a stimulus plan that will be large enough to have an effect. Credit markets continue to thaw. The crucial task of shaping up the banking system remains, and remains difficult, but Obama has convened an extremely talented group of economists to address the problem. Things can still go wrong, but we could be doing far worse.
The important thing to remember is that conditions will continue to look bad, even as we make progress. Many of us have never seen a recession like this, and we will watch in (understandable) dismay as unemployment rates continue to rise through (in all likelihood) all of 2009. That is unavoidable. We have sustained a massive financial shock, and a massive, subsequent shock to global demand. Try as we might, things will get worse before they get better.
But so long as we remain calm and avoid doing anything stupid — like starting trade wars, or deciding we need to balance the budget right this moment — we’ll make it through this. But as I think about the House vote on stimulus, I have to breathe a sigh of relief that November went as it did. This is a serious time, and there’s only one serious party in Washington.