My Newsweek colleague Daniel Gross asks whether there's any excuse for McCain's gaffe about the economy.
John McCain set off a firestorm yesterday when he said,
"The fundamentals of our economy are strong," while also noting that
these are tough times. McCain, for whom the economy is not comfortable
terrain, was simply repeating a formulation he's used before. In
August, he told
radio host Laura Ingraham: "I still believe the fundamentals of our
economy are strong. We've got terribly big challenges now, whether it
be housing or employment or so many of the other — health care. It's
very, very tough times."
Commenting on the
seaworthiness of the nation's economic ship even as it is being swamped
by gale-driven waves is a staple of the modern presidency. When there's
upheaval in the markets, or a discouraging run of economic news, the
president or the treasury secretary trudges out to tell us to remain
calm...
It's easy to see why leaders
resort to such banal, swaddling language in times of stress. It's a way
of changing the conversation, redirecting attention away from the
debacle du jour and tapping into Americans' basic pride and faith in
their system. Yes, some of the numbers are less than optimal. But this
too shall pass. A few windows may have been blown out, but the
foundation of the building is just fine. One rarely hears protestations
of soundness when the economy is doing well – the numbers and the
markets speak for themselves.
The question remains: Are
the fundamentals sound? Was McCain right, or hopelessly rosy-eyed? It
depends on which fundamentals you want to emphasize. There are times
when all the fundamentals are unsound, as was the case in 1931. And
there are times when all the fundamentals appear to be sound, as was
the case in the mid- to late 1990s. The rest of the time, the
fundamentals reside somewhere between the two poles (the left pole
signifying we're totally screwed and the right pole signifying that
happy days are here again). Today, we're closer to being totally
screwed.
Consider. The U.S. needs to create about 150,000 jobs per month just to keep pace with growing population. When payroll jobs fall for eight straight months and the unemployment rate spikes, and when new weekly unemployment claims remain above 400,000, the economy may not be fundamentally sound.
When inflation
in the past 12 months has run at 5.4 percent, well over the twice the
level with which central bankers are comfortable, the economy may not
be fundamentally sound.
When foreclosures are running at record rates and housing prices fall by nearly 16 percent year over year, the economy may not be fundamentally sound.
When the two largest financial institutions in the nation, which guarantee about half of the mortgages, fail and have to be taken over by the government, when the fourth-largest investment bank files for Chapter 11, and when the Federal Reserve effectively nationalizes a massive insurance firm that is a component of the Dow Jones Industrial Average, the economy may not be fundamentally sound.
In an economy where consumption constitutes 70 percent of activity, retail sales falling two months in a row may indicate that the economy may not be fundamentally sound.
When industrial production decreases, the economy may not be fundamentally sound.
When
the nation's three major automakers, some of the largest remaining
manufacturing entities, report sales declines of over 20 percent and beg the taxpayers for loans, the economy may not be fundamentally sound.
The litany of bad news has to be weighed against good news, of course.
When gross domestic product grows at a 3.3 percent annual rate despite weathering a series of shocks, the economy may be fundamentally sound.
When inflation shows signs of moderating and the prices of important commodities return to more reasonable levels, the economy may be fundamentally sound.
When exports rise 20 percent from year-ago levels, the economy may be fundamentally sound.
When $3.5 trillion is parked in money market mutual funds
and corporations have vast piles of cash sitting on their balance
sheets, it's an indication that money remains available for investment
and consumption, and that the economy may be fundamentally sound.
On
the whole, however, a reasonable observer would have to conclude that,
on balance, the fundamentals of the U.S. economy are less than sound.
And even John McCain has recognized his mistake. After a day of
withering criticism, he abandoned his previous position. Now he's
calling the situation "a total crisis."
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