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Analysis: Obama Recovery Plans Sowing Some Unease

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  • Analysis: Obama Recovery Plans Sowing Some Unease

    http://www.msnbc.msn.com/id/29567629/

    Analysis: Obama recovery plans sowing some unease
    By TOM RAUM

    updated 1 hour, 44 minutes ago

    WASHINGTON - President Barack Obama offered his domestic-policy proposals as a "break from a troubled past." But the economic outlook now is more troubled than it was even in January, despite Obama's bold rhetoric and commitment of more trillions of dollars.

    And while his personal popularity remains high, some economists and lawmakers are beginning to question whether Obama's agenda of increased government activism is helping, or hurting, by sowing uncertainty among businesses, investors and consumers that could prolong the recession.

    Although the administration likes to say it "inherited" the recession and trillion-dollar deficits, the economic wreckage has worsened on Obama's still-young watch.

    Every day, the economy is becoming more and more an Obama economy.

    More than 4 million jobs have been lost since the recession began in December 2007 — roughly half in the past three months.

    Stocks have tumbled to levels not seen since 1997. They are down more than 50 percent from their 2007 highs and 20 percent since Obama's inauguration.

    The president's suggestion that it was a good time for investors with "a long-term perspective" to buy stocks may have been intended to help lift battered markets. But a big sell-off followed.

    Presidents usually don't talk about the stock market. But the dynamics are different now.

    A higher percentage of people have more direct exposure to stocks — including through tax-deferred retirement plans — than ever.

    So a tumbling stock market is adding to the national angst as households see the value of their investments and homes plunge as job losses keep rising.

    Some once mighty companies such as General Motors and Citigroup are little more than penny stocks.

    Many health care stocks are down because of fears of new government restrictions and mandates as part of a health care overhaul. Private student loan providers were pounded because of the increased government lending role proposed by Obama. Industries that use oil and other carbon-based fuels are being shunned, apparently in part because of Obama's proposal for fees on greenhouse-gas polluters.

    Makers of heavy road-building and other construction equipment have taken a hit, partly because of expectations of fewer public works jobs here and globally than first anticipated.

    "We've got a lot of scared investors and business people. I think the uncertainty is a real killer here," said Chris Edwards, director of fiscal policy for the libertarian Cato Institute.

    Some Democrats, worried over where Obama is headed, are suggesting he has yet to match his call for "bold action and big ideas" with deeds.

    In particular, they point to bumpy efforts to fix the financial system under Treasury Secretary Timothy Geithner.

    Obama may have contributed to the national anxiety by first warning of "catastrophe" if his stimulus plan was not passed and in setting high expectations for Geithner. Instead, Geithner's public performance has been halting and he's been challenged by lawmakers of both parties.

    Republicans and even some top Democrats, including Rep. Charles Rangel of New York, chairman of the House Ways and Means Committee, have questioned the wisdom of Obama's proposal to limit tax deductions for higher-income people on mortgage interest and charitable contributions.

    Charities have strongly protested, saying times already are tough enough for them. The administration suggests it might back off that one.

    Even White House claims that its policies will "create" or "save" 3.5 million jobs have been questioned by Democratic supporters.

    "You created a situation where you cannot be wrong," the chairman of the Senate Finance Committee, Montana Democrat Max Baucus, told Geithner last week.

    "If the economy loses 2 million jobs over the next few years, you can say yes, but it would've lost 5.5 million jobs. If we create a million jobs, you can say, well, it would have lost 2.5 million jobs," Baucus said. "You've given yourself complete leverage where you cannot be wrong, because you can take any scenario and make yourself look correct."

    Republicans assert that Obama's proposals, including the "cap and trade" fees on polluters to combat global warming, would raise taxes during a recession that could touch everyone. "Herbert Hoover tried it, and we all know where that led," says House Republican leader John Boehner of Ohio, referring to the U.S. president who held office during the 1929 stock market crash and ensuing Great Depression .

    The administration argues its tax increases for the households earning over $250,000 a year and fees on carbon polluters contained in its budget won't kick in until 2011-2012, when it forecasts the economy will have fully recovered.

    But even those assumptions are challenged as too rosy by many private forecasters and some Democratic lawmakers.

    Many deficit hawks also worry that the trillions of federal dollars being doled out by the administration, Congress and the Federal Reserve could sow the seeds of inflation down the road, whether the measures succeed in taming the recession or not. The money includes Obama's $3.6 trillion budget and the $837 billion stimulus package he signed last month.

    Polls show that Obama's personal approval ratings, generally holding in the high 60s, remain greater than support for his specific policies.

    "He still has a fair amount of political capital, so the public is willing to cut him some slack and go along with him for a while," said pollster Andrew Kohut, director of the Pew Research Center. "But the public will have to get some sense that the kinds of things he's proposing are going to work, or are showing some signs that they are working."

    Allan Sinai, chief global economist for Decision Economics, a Boston-area consulting firm, said the complexity and enormity of the crisis make it hard to solve.

    "There's no way to get it all right, regardless of which president is making policy," Sinai said. "The problem is the sickness got too far. The actions taken, medicine applied, were mainly the wrong actions. So it's just worse, and it gets harder to deal with. At this stage, there is no easy answer, no easy way out. It's a question of how we fumble through."

    ___

    EDITOR'S NOTE — Tom Raum has covered Washington for The Associated Press since 1973, frequently reporting on the economy.
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