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Lack of Bold, Persistent Experimentation Crushing Consumer Sentiment

The consumer confidence report released today was appallingly bad, with sentiment at its lowest level in three decades. With consumer spending 70% of the US economy, this bodes very poorly for future growth and employment. Whether or not this has anything to do with the elongated debate over the debt limit is debatable; but high unemployment and stagnant wages are not, and the general feeling of helplessness, the belief that government won’t provide a solution to these ills, and will in fact exacerbate them, has to be driving a lot of this as well.

The Thomson Reuters/University of Michigan’s preliminary August reading on the overall index on consumer sentiment came in at 54.9, the lowest since May 1980, down from 63.7 in July. It was well below the median forecast of 63.0 among economists polled by Reuters […]

The survey’s gauge of consumer expectations slipped to 45.7, also the lowest since May of 1980, from July’s 56.0, well below a predicted reading of 55.3.

The Obama administration received poor ratings from 61 percent of respondents, the worst showing among all prior heads of state.

“This was more than the simple recognition that traditional monetary and fiscal policy measures were largely spent; it was the realization that the government was unable or unwilling to act,” Curtin added.

More than anything, I think you can attribute the President’s sharper rhetoric on jobs over the past several days to this. If the overriding belief out there is that the government won’t do anything about the economic crisis, the Administration wants to make sure that blame is laid on Congress and not them. The President plans to deliver new job creation ideas every week, and he obviously plans to point the finger at Congress for not acting on them, accusing them of “playing political games.”

The problem will come when patent reform and trade deals are actually passed, as looks likely, in September, and the economy doesn’t move an inch. As Larry Mishel says in this roundtable discussion at The American Prospect, these policies will either actively harm the jobs picture or not help at all in the near term. What’s more, the debt limit deal locks us into a policy box where public investment cannot budget beyond a statutory cap.

As for what the Administration can do about this, most of the participants in the Prospect forum talk about legislative measures, from direct job creation to a national infrastructure bank to increasing the minimum wage to extending unemployment insurance to instituting a national work-sharing program. These ideas have merit but they bump up against the brick wall that is the US Congress. It doesn’t mean they shouldn’t be proposed, but it does mean that the President needs to look at the fertile ground outside of Congress to boost job creation. And he has tools at his disposal on that front. There’s $80 billion in unspent TARP money, including over $40 billion for foreclosure mitigation. Fannie and Freddie can be put to use as a mass loan modifier (or in the bulk sale of foreclosed homes to use as rental units, which they are embarking upon). The Federal Reserve could use its emergency lending programs for the purposes of aid to cash-strapped states and infrastructure. Other monetary easing could be tackled.

Franklin Roosevelt said during the 1932 campaign at Oglethorpe University, “The country needs and, unless I mistake its temper, the country demands bold, persistent experimentation.” We’re actually past that moment right now, where the country has gone from demanding such experimentation to a resignation that the experimentation won’t happen. There’s only one way to renew that determination, to return that faith – through action. If it doesn’t happen, consumer sentiment will continue to fall and the economy will continue to sink. So trying to create jobs isn’t just important on its own terms. It’s a crucial component of avoiding a double-dip recession.

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David Dayen

David Dayen