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March 02, 2009



Sadly, a good prediction.


"I predict this will be a bad day, because people were digesting the implications of Obama's budget over the weekend"

So the steep drop in the Nikkei and the subsequent corollaries in other indices as the world turned is more usefully interpreted in light of a delayed reaction to the Obama budget than in terms of dismal economic figures and the AIG woes? I guess it's more empirical than chicken-gut based prognostication, but is seems a little odd to try to relate every bit of stock market news on Obama.

In other news, with Friday's GDP revision for Q4 '08, Bush 43's second term has now overtaken his father's for worst real GDP growth since 1960. But I suppose that's best explained as the economy reacting to Obama's election.

Nathan Smith

Obama's budget puts US fiscal policy on a radically unsustainable course. We're talking trillions of dollars worth of debt more than was anticipated just weeks ago. Yes, that is a bigger event than AIG or the 4th quarter GDP report. Seriously, the stock market is oriented towards the *future*. Yes, economic data may predict the future, a bit. But these other explanations are just not nearly on the scale of Obama's multitrillion-dollar bombshell that calls into question assumptions long held virtually sacred about the financial viability of the United States.

US stocks sunk more steeply, a bit, than other world stockmarkets. But of course, all these stockmarkets are highly interdependent, and Japan in particular depends heavily on US demand to pull its export-oriented economy along.

As for the GDP revision for Q4 '08, no, I wouldn't nail my flag to the claim that that was due to Obama. Please note, however, that there is no call whatsoever to be sarcastically dismissive of the possibility. Candidate Obama supported "card check" union legislation. A surge in union activity could devastate workplace discipline and firms' ability to increase productivity-- as the whole country has watched in the grimly unfolding saga of GM and Chrysler. It would be perfectly reasonable for firms to cut jobs more quickly in anticipation of such legislation. Similarly, any firm that was considering investment plans might adopt a "wait and see" attitude with a new president who ran essentially on nothing but whose voting record was ultra-left, and who was, moreover, probably the most inexperienced person ever to run for this office. The fact that the beginning of the big stockmarket slide last fall coincides almost perfectly with Obama's opening up of a permanent breakaway lead in the polls doesn't prove anything but it's suggestive.

*Maybe* the stockmarket plunge over the past few months has nothing to do with Obama and his anti-growth policies. But I think any honest and shrewd observer of political and market events has to admit that the evidence does not lean in favor of that possibility. If the market turns around tomorrow and starts rising to 9,000, I will still think it's 2-3,000 points lower than it would have been were McCain or Romney president. But at that point I would admit the balance of evidence was not, for the moment, favorable to that judgment. Similarly, Obama supporters should have the decency to admit right now that the markets seem to be giving a negative verdict on Obama.

I suppose Class Warrior Krugman wouldn't mind. What better way to impoverish the well-off and make America a more equal place?

Nathan Smith

One more thing. I don't want to come across as absolving the outgoing Bush administration. Paulson's $700 billion ultimatum did more than anything to throw the US economic constitution into toxic flux. But the effect of Paulson's ultimatum was made much worse by the fact that the newly super-empowered federal government activism that erupted in late 2008 was about to fall into the hands of Leftie Greenhorn. The markets knew, I think, that Bush was at least on the side of capitalism. Obama, for all anybody knows, may be just as happy to tear it down. At any rate, that's what he seems to be doing so far.


If the rest of the world wasn't tanking right along with us, one might have more cause to believe that Obama has some amazing power over the economy, but it is. The PotUS has limited control over US economic performance - especially in the short run - and even more limited impact on the rest of the world. Most economic events are far more easily explained by factors other than the details of Obama's plans. For what it's worth, I think that those details are, on balance, a net negative for the economy, but at a level that would fall well below the noise floor.

If this is not true, then it would seem one would have to make some special pleading to avoid Bush 43 being equally responsible for the results during his tenure:

Oct1 2000:10273
Oct1 2008:10831
0.66% annual growth

Nov3 2000:10817
Nov3 2008:9320
1.84% annual loss

Neither makes for a very flattering result for Bush 43. Is it his fault? Not really, no, but it's strange that Nathan gives Bush credit for the boom in the developing world while the US economy stayed stagnant, then feels it makes the most sense to attribute the recent stumbles of the global financial markets to the guy who just showed up at the scene.

By all means criticize Obama's responses to the various crises, but reading into every swing of the market - in the presence of other obvious proximal causes of those swings - a verdict on Obama's latest statement is bizarre.

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