Rosy Scenario back in town
For all Obama’s intelligence, he’s never shown a real grasp of macroeconomics
SHE FIRST MADE a formal appearance in the United States in the early years of President Ronald Reagan’s terms of office in the Eighties. Economic reality then frequently didn’t meet expectations. However, Washington insiders insist Rosy Scenario had been around a long time before that – and that she’s still very much in evidence today.
Truth is that all presidents lean strongly towards Rosy. If they happen to have a natural gift for charming voters and the media – as Reagan did and President Barack Obama has – they might even mostly avoid, for a long time, questions about differences between economic reality and earlier scenarios.
Obama is certainly winning over large sections of the world to his side – temporarily at least. But ultimately he risks losing the US if his largely thumb-suck economic projections end up badly off line. Obama has made clear he holds a dismissive – or, at most, modestly supportive – view of virtually all his predecessors of any party in the White House.
But he’d be well advised to remember some key words of the last US head-of-state from the Democratic Party, Bill Clinton. It was Clinton who famously noted in his win over George Bush (senior) and in the 1992 presidential contest: “It’s the economy, stupid.”
Obama can certainly talk most eloquently on the economy – as indeed he can on almost anything else. However, he’s a career politician who stopped off briefly to follow a politically linked legal/social activist career before becoming a state senator for Illinois in 1996. Then in 2004 he won one of the two Illinois seats in the US Senate.
As a national Senator he recorded the most politically partisan record of any member of that body. He’s largely continued that one-track approach since taking control of the White House at the beginning of this year.
For all his enormous undoubted intelligence, he has never shown a real grasp of all the complexities of macroeconomics. That’s presumably not because he doesn’t have the ability: it’s because in the crunch he doesn’t, at this stage at least, have the inclination.
He’s strongly encouraged in that view by the “Obama can do no wrong” sentiments that dominate the US’s mainstream media – for the moment.
For many years I’ve regarded Robert Samuelson, economics columnist at The Washington Post and Newsweek, as a particularly striking exception to this party-beforecountry journalism.
His column in the Post of 18 May – headlined “Obama’s risky debt” – especially bore out that view.
Samuelson asked: “Just how much debt does a president have to endorse before he’s labelled irresponsible?” He continued: “Apparently, much more than the amounts envisioned by President Obama. The final version of his 2010 budget is a case study in political expediency and economic gambling.”
Samuelson noted: “From 2010 to 2019 Obama projects annual deficits totalling US$7,3 trillion on top of the $1,8 trillion for 2009.
“By 2019 the ratio of publicly held Federal debt to gross domestic product would reach 70%, from 41% in 2008. The Congressional budget office, using less optimistic economic forecasts, raises these estimates. It has the debt/GDP ratio at 82% in 2019.”
So what distinguishes the varying levels of optimism/pessimism? There are various features but, crucially, they relate to the ludicrously over-the-top assumptions about US economic growth that Obama has made. He’s predicted the US economy will shrink 1,2% in real terms this year.
No problem there. But Obama adds that US GDP will rise by 3,2% next year, going on to a bumper 4% in 2011 and an average 4,4% for 2012/2013.
If those forecasts prove accurate – or even somewhere nearly so – that will mean within 12 months the US and global economies will be back in great condition.
But now there’s a problem. There isn’t one leading American or international economics organisation that thinks this particular version of Obama and the Rosy Scenario has any hope of being realised.
Perhaps the most useful US economic forecast unit is Blue Chip. It provides the average economic predictions of all the top American analysts. Blue Chip reckons that after negative growth this year, US GDP will indeed recover. But Blue Chip doesn’t see that GDP going above 3%/year in any year between 2010 and 2013.
If that view is correct – and remember, it’s not any individual forecast but the summation of leading predictions – the current Teflon position of Obama could look a whole lot different a couple of years and more down the line.
Obama might also then have to tear up many of his most cherished domestic activist ambitions – including those super-Green ideas that threaten to leave the US with a chronic shortage of industrial power generation a few years ahead.