Of Voter’s Regret and Animal Spirits

Against the counsel of his “better angels” (the moderate Democrats in Congress) President Obama this week unveiled yet another blueprint for dealing with a section of the economy, amidst growing concerns that his agenda is getting overly ambitious under these difficult economic times. Here is just a sample of the views from various personalities:

David Brooks, columnist, moderate Republican: “…I fear that in trying to do everything at once, it (the Obama administration) will do nothing well.” (The Big Test, The New York Times, February 24, 2009)

Paul Krugman, Nobel Laureate, economist: “The Obama administration’s economic policy is already falling behind the curve, and there’s a real, growing danger that it will never catch up.” (Behind the Curve in Conscience of a Liberal, New York Times, March 9, 2009)

Warren Buffett, the “Oracle of Omaha”, investment guru: “we’ve had muddled messages (referring to government response to the crisis).” (Interviewed on Squawk Box, CNBC, March 10, 2009)

Andy Grove, Stanford professor, former Intel CEO: “I find myself wringing my hands, not over the goals President Obama has set but over the ineffectual ways the administration has pursued them.” (Mr. President, time to rein in the chaos, The Washington Post, March 11, 2009)

George F Will Op-ed columnist: “The president's confidence in his capacities is undermining confidence in his judgment.” (Paved with Magnificent Intentions, Washington Post, March 12, 2009)

An "Animal Spirits" Revival

With all this talk of a crisis in confidence, the release of Georg Akerlof and Robert Schiller's book, Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism which they commenced writing in 2003, could not be more timely. Akerlof of “The Market for Lemons” fame made the term “asymmetries of information” popular in public economics parlance. Schiller co-developed the Case-Schiller Index, a gauge for the US housing market relied on for setting options and futures prices. In the book, they tackle the role that ideas, trust and sentiment play in the economy. It could be considered a reappraisal of the term made use of by Keynes.

The chief of OMB (the Office of Management and Budget), Peter Orszag, one of Obama's so-called "propeller heads" in the White House is reportedly getting himself engrossed with it.

The Bumpy Ride Has Arrived

This week marked another “defining moment” in Australia as the latest unemployment figures showed a steeper incline than expected. In the forecast made previously here back in November of 2008, we said that unemployment could reach 6 per cent by May of this year. The recently released data saw it jump from 4.8 in January to 5.2 in February (analysts were expecting it to hit just 5). The continuing fall of skilled and general vacancies suggests that we have truly entered into a bleak season.

Should this supply policymakers with a “teachable moment” that enables them to consider differing views on how to proceed from here on out? Again, here is just a pair of quotes from the week:

Tony Makin, Professor of Economics, Griffith University (formerly with the IMF): “Federal fiscal packages unveiled since October last year have aimed to boost consumption in the short term, in keeping with Treasury advice at the outset that the best fiscal response to the global financial crisis was to 'go early, go hard, go households'. However, an arguably sounder fiscal response would have been the exact opposite: go later, go easy, go firms.” (Follow the Kiwi Leader, not Obama, The Australian, March 11, 2009)

Michael Costa, former treasurer, NSW Government: “Confidence building may turn out to be the only effective role for government in directly responding to today's economic conditions.” (Hubris and vaudeville but little sound policy, The Australian, March 13, 2009)