Faith in US economy evaporates ahead of 2012 vote

Occupy Wall Street protesters pitch tents
and sleep in downtown Los Angeles
© AFP Frederic J. Brown

WASHINGTON (AFP) – It is easy to imagine the gasps of horror rising from the White House.

Sometime in the not too distant future — perhaps just weeks before the November 2012 presidential election — the semi-official National Bureau of Economic Research declares the US economy is back in recession.

It is a scenario that a growing number of economists believe is probable and which could hand President Barack Obama the single biggest challenge of his reelection campaign.

“The US economy is indeed tipping into a new recession. And there’s nothing that policymakers can do to head it off,” said the Economic Cycle Research Institute, a respected body which for the last year has resisted predicting a double-dip recession.

“It’s important to understand that recession doesn’t mean a bad economy — we’ve had that for years now,” the ECRI added to remind everyone concerned of the stakes.

“It means an economy that keeps worsening, because it’s locked into a vicious cycle. It means that the jobless rate, already above nine percent, will go much higher, and the federal budget deficit, already above a trillion dollars, will soar.”

A recession is far from a foregone conclusion. But with the Federal reserve predicting high unemployment and slow growth for years to come, even optimists are tweaking the chances of a renewed downturn.

Leading Goldman Sachs economist Andrew Tilton predicted this week that the chances of a recession are now around 40 percent. Bookies at Intrade now put the odds at 48 percent.

“It would be a real blow to Obama,” said Republican Matt McDonald, who worked on George W. Bush’s 2004 reelection campaign and was a senior advisor to John McCain’s campaign in 2008.

“An official recession makes it very difficult to convince people that things are getting better, that despite problems the ship is pointed in the right direction.”

According to McDonald — now with the consultancy Hamilton Place Strategies — a recession would all but shatter Obama’s hopes of making the election a choice between two candidates rather than the Republicans’ preferred framing: a referendum on Obama’s policies.

Like administrations before them, Obama’s team has largely dodged handicapping the chances of another recession.

“We’re not in a double-dip recession, but we’re not at a point of the kind of robust recovery we should be at to bring employment to the levels that the American people expect,” White House budget director Jack Lew said last month.

Obama himself has touted his $447 billion jobs bill — currently stuck somewhere between the White House and Congress — as “insurance against a double-dip recession.”

Like George H. W. Bush in 1992 and his son George W. Bush in 2004, a cratering economy could ultimately force Obama to pivot from the economic to social and security issues, but for now the president appears content to push his jobs plan.

On Twitter and in a speech on Tuesday Obama called on supporters to press to get it through Congress.

The plan, according to Mark Zandi of Moody’s Analytics, would add two percentage points to GDP, add 1.9 million jobs and cut the unemployment rate by a percentage point.

That would make a dent in the estimated eight to nine million jobs lost since the latest recession began, but would do little if anything to stem contagion from Europe’s debt crisis or Congressional brinkmanship which economists say now pose the greatest recession risks.

Even absent an “official recession” as judged by NBER, any temporary slide back to negative growth or a single month of severe job cuts could spell trouble for the incumbent president, tipping voters from gloom to outright anger.

According to pollsters at Gallup six in ten Americans already fear that the economy will not get better in the next year.

This is no longer the America of the 1980s or 1990s — a brash and confident hyper-power standing over the world and oblivious to the possibility of failure.

“It feels like the die has been cast, and that has left the White House to think about how to frame the election and make it a choice rather than taking steps to implement,” said McDonald. “It is an odd place for us to be as a country.”