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Optimism in the face of recession

By
February 14, 2008

American presidents do not predict recessions. It’s just not done. Even in their annual budgets that look five years ahead there’s never a forecast of even brief hard times. It’s always slow, steady growth.

Two reasons suggest themselves. Americans want their leaders to be optimists. They don’t much care for pessimists as the dour President Jimmy Carter found out when he ran against the congenitally sunny Ronald Reagan. The other reason is that such is the power of the bully pulpit that the prediction might become self-fulfilling.

President Bush had an opportunity to break from that pattern this week with his annual Economic Report and, coming off the final three months of 2007 in which economic growth basically flat-lined at 0.6 percent and with the first quarter of 2008 looking not so hot, he might have had reason to.

We are not in a recession, the president said. Instead the economy is “undergoing a period of uncertainty.” He stood pat on his administration’s earlier predictions that the economy would grow 2.7 percent in 2008, which is actually a modestly better performance than last year’s 2.5 percent, and return to healthier 3 percent growth in 2009.

Bush is also standing pat on the $168 billion stimulus bill he just signed, resisting calls from congressional Democrats for additional measures like extended unemployment benefits. The additional benefits aren’t needed, the White House said, because unemployment is at a relatively low 4.9 percent.

Bush’s solution to the “uncertainty”? Simply let the markets adjust, urged the report. As for further government action, it would only “create perverse incentives for reckless decisions by borrowers and investors who may come to rely on government intervention.”

If optimism is a solution, we should pull through this period of uncertainty just fine.