The economists’ assessment stands in stark contrast with Mr. Obama’s popularity with the public, with a recent Wall Street Journal/NBC poll giving him a 60% approval rating. A majority of the 49 economists polled said they were dissatisfied with the administration’s economic policies.
On average, they gave the president a grade of 59 out of 100, and although there was a broad range of marks, 42% of respondents rated Mr. Obama below 60. Mr. Geithner received an average grade of 51. Federal Reserve Chairman Ben Bernanke scored better, with an average 71.
The economists, many of whom have been continually surprised by the depth of the downturn, also pushed back yet again their forecasts for when a recovery would begin. On average, they expect the downturn to end in October. Last month, they said the bottom would arrive in August. They estimate that U.S. gross domestic product will continue to contract in the first half of this year, with slow growth returning in the third quarter.
Why so glum? Roger Kimball has the explanation: last Tuesday Roger posted The Idiot’s Guide to Destroying the Economy: a 12-Step Program, a roadmap of the Obama administration’s economic policy:
1. Since investors and the market in general hate uncertainty, have a vast array of conflicting ad hoc policy decisions so as to create uncertainty everywhere.
2. Transfer money from those who create sustainable jobs to those who create unsustainable jobs, e.g., the government
3. Promise to invest money in things that will enhance the country’s infrastructure, such as roads and internet access, but then practice bait and switch on a breathtaking scale, so the effort is swamped with pork for pet projects dear to Democrats
4. A sufficiently generous larding of pork can help ensure the destruction of bi-partisanship, so squandering the initial good will is definitely a very good move. After all, it’s hard to get things done when you’ve alienated people whose help you need.
5. Undermine the ability of those who create jobs by increasing their taxes so there’s less money available for investment.
6. While you’re at it, offer to spread the income around by raising taxes, in the process, making it clear to those who work hard, invest in their educations, take risks, save, and delay gratification that they will see their money go to those who do not do these things.
7. Encourage class warfare. Divide the populace and destroy cooperation, thus encouraging backlash and creating paralyzing polarization.
8. Talk up protectionism, since the beggar-thy-neighbor approach has such a long and vigorous history of encouraging depression.
9. Scare people with talk of economic catastrophe. You can backpedal later, but the initial good work of helping people lose confidence should have a lasting impact.
10. Print money on a scale that will insure inflation in the future. Print it on a scale that will make people not want to hold U.S. debt without staggering interest on that debt, if they’re willing to hold U.S. government debt at all.
11. Instead of allowing hopeless institutions to go bankrupt, pour vast amounts of money into them, prolonging the pain and running up the cost while only delaying the inevitable.
12. Burden future generations with unprecedented amounts of debt so that the eocnomy you ruined today stays ruined tomorrow.
This is only the short menu; in time the bureaucrats will come up with more.
The right thing to do is
1) suspend mark to mark accounting for banks. Instead of deducting mark to market losses against capital, deduct expected losses on a hold-to-maturity basis
2) determine whether a bank has a positive cash flow under present and stressed circumstances (NOT, as Treasury Secretary Geithner proposes, whether the bank has adequate capital coverage against huge mark to market losses)
3) if a bank has positive cash flow and a high degree of probability of maintaining a positive cash flow, use loan guarantees and other low-cost methods to ensure that market confidence continues
4) if a bank has little prospect of maintaining a positive cash flow, turn it over to the FDIC for liquidation.
Instead, the authorities are forcing the financial institutions to absorb most of the mark to market cost of delevering the financial system
— which they cannot now, as they could not have in 1981 or even 1991. Paul Volcker could explain it to them.
If they can find him.
While France, Mexico, the UK, Brazil and others are preparing for the upcoming G20 summit in London, the administration is not prepared at all (h/t Larwyn).