Economy Stalls as Obama's Economic 'Dream Team' Hits the Skids

Friday, 06 Aug 2010 01:59 PM

By David A. Patten

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Signs are growing that the administration's inner circle of economic advisers — once hailed as the "dream team" — appears to be cracking under the pressure of yet another dismal jobs report and reports of dissention within the White House ranks over what to do about the stagnant economy.

The news that Christina Romer, who chairs the White House Council of Economic Advisers, is resigning because of "family commitments" came on the same day the Labor Department announced that the economy had shed another 131,000 jobs in July. It also restated the number of jobs lost in June, which was 100,000 worse than initially reported.

Some economists saw the report as further evidence that the U.S. economy may be flirting with a double-dip recession.

Robert Reich, Labor secretary under the Clinton administration, told CNBC's Larry Kudlow that the numbers may not signal a double-dip recession, but it is perilously close.

"I don't think it has double-dip yet," Reich said, "but it certainly has one and three-quarters dip. This is a disappointing report by almost anybody's definition of disappointment.

"The thing that worries me is that 125,000 new jobs are needed every month just to keep up with population growth. And 71,000 private sector jobs means we are going deeper and deeper into the hole," the Democratic insider said.

President Obama tried to put the best possible spin on the labor report. After taking a tour of a sign-making company in Washington, D.C., the president said the July report indicated that private-sector jobs had increased for seven months in a row.

"That's the most robust seven months of manufacturing growth in over a decade," he said.

But there was no getting around the fact that economists were disappointed with the report, and unemployment remained stuck at 9.5 percent. The Dow Jones Industrial Average voted with its dollars, dropping 138 points by noon.

Ironically, the report showing another downturn in job creation, which was far worse than most economists were predicting, came just three days after Treasury Secretary Timothy Geithner wrote an Op-Ed titled "Welcome to the Recovery" in The New York Times.

Romer felt crowded out of the president's inner circle by the president's chief economic adviser, Larry Summers, according to the National Journal's Hotline On Call. Summers is the director of the National Economic Council.

"She has been frustrated," said the source, who Hotline described as having "insight into the White House economics team."

"She doesn't feel that she has a direct line to the president," the Hotline source said. "She would be giving different advice than Larry Summers, who does have a direct line to the president."

The Washington Post also is reporting that Romer was "frustrated by life in Washington." Romer, however, has denied any friction with Summers, insisting that her resignation "was purely for family reasons."

Romer's resignation marks the second time in two months the administration has lost a key member of its erstwhile economic "dream team."

In June, White House budget director Peter Orszag announced he'd be leaving, which he did at the end of July. Orszag, as chief of the Office of Management and Budget, played a key role in the passage the two presidential initiatives most often mentioned in discussions of the economy: The $862 billion stimulus and healthcare reform, which Republicans blame for contributing to an uncertain business environment they say has left companies reluctant to invest in new employees.

Romer's departure is drawing special attention, however, because she co-authored the controversial paper that predicted that passage of the stimulus would hold unemployment below 8 percent. That projection has made Romer and the Obama administration a target for Republicans and conservative economists.

Wall Street Journal senior economics writer Steven Moore, for example, co-author of "The End of Prosperity," stated in an e-mail to Newsmax on Friday: "Christina Romer has been the wrongest economist in the history of Washington. The Obama-Romer $1 trillion stimulus has not created jobs or growth. Just debt."

With the midterm elections fast approaching, Republicans wasted no time lambasting the administration for its handling of the economy.

"How many more times do families and small businesses have to ask 'where are the jobs?' before President Obama changes course?" House Republican Leader Rep. John Boehner said. "Let's work together to ease the uncertainty employers are up against and stop the Obama administration's job-killing tax hike on families and small businesses."

Minority Whip Eric Cantor, R-Va., called the July jobs report "disappointing" and called on the administration to renew the 2001 and 2003 Bush tax cuts, which are set to expire at year's end.

If those taxes are reimposed, they would be the largest single tax increase in history, Republicans say. Cantor charged "this administration's failed policies have caused the size and reach of the government to explode."

RNC Chairman Michael Steele criticized the administration for trying to encourage Americans about the economy's direction. "For the millions of Americans who are unable to find work, this White House's empty cheerleading rings hollow. President Obama has been more focused on growing government than growing jobs, and it shows."

Even media generally friendly to the president's policies have begun joining the chorus of criticism over how the economy has been managed. The Washington Post on Friday editorialized that the $26 billion state aid bill to states passed by the Senate Thursday "always struck us as more of an election-year favor for teachers unions than an optimal use of public resources."

Former DNC Chairman Howard Dean told CNBC: "We're getting better, but more slowly than we'd like to." He conceded the economy is "pretty much past the point" where any could help salvage Democratic prospects at the polls in November.

As the president pointed out in his remarks, not all of the economic news was bad. The report showed the private sector gained 71,000 jobs, although that was far fewer than needed to offset the loss of 143,000 temporary census jobs. Also, the manufacturing sector added 36,000 jobs in July, but much of that was attributed to the cyclical replenishment of business inventories.

Economists' reaction to the July jobs report suggests the realization is beginning to settle in that the nation is in for an extended period of economic doldrums.

Joshua Shapiro, the chief U.S. economist at MFR Inc., told The New York Times: "Our own view is that this is going to be a really protracted, drawn out recovery here. You sometimes have to take a magnifying glass to see it. There are others who are more optimistic and they just keep saying just wait, just wait and they've been saying just wait for quite some time."

Romer's departure may leave the president's inner circle of economic advisers less diverse. She was actually one of the few economists in the administration who had defended the ability of tax cuts to bring about meaningful job creation. Most of the other members of the president's economic team, which Republicans complain is devoid of officials with real-world business experience, appear to view tax cuts as providing merely short term stimulus without long-term economic benefits.

Bert Ely, a banking consultant, told Hotline that the forecast that unemployment wouldn't break the 8 percent barrier if the $862 stimulus was passed had proved "horribly inaccurate."

"You have to wonder why Summers isn't the one that should be taking the fall," Ely said. "But Larry is a pretty good bureaucratic infighter."

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