Wednesday, September 22, 2010

The Bounce of Summers

It’s official: the summertime bounce in the U.S. economy that everyone observed between June and September 2009 was large enough and lasted long enough to count as an economic expansion. The previous contraction ended and an economic expansion began in June 2009. I prefer to look at it as a combination of two summertime bounces joined by a mistaken build-up in inventories, but even a mistake can count as an expansion if it lasts long enough.

The report of the end of the recession was followed by the report of economic adviser Larry Summers’ pending departure from the White House. I am certain this simultaneous news is not a coincidence, and it may be even better news for the economy. Summers is reputed to be the White House insider who has been giving President Obama such bad advice on the economy, helping to form policies based on propping up the financial system and housing market while leaving the broader economy and the job market to fend for itself.

Summers is not leaving immediately, but the announcement allows Obama to start to chart a course for the economy if he chooses. In other words, it is a chance for Obama to transform himself from the Hoover of our time to a kind of Roosevelt — from a tinkerer to an economic leader. It would be a mistake, though, to wait and see what Obama decides. The federal government is not as influential now as it was in 1933, and it more likely that the U.S. economy can rescue the federal government next year than the reverse.

In the meantime, summer is over and fall is here. The burst of summertime activity is fading, and so are most of the government’s various initiatives to support the economy. Spending from last year’s economic recovery package is fading. The mortgage-modification and other housing market programs are foundering and all but forgotten. The FDIC is again one extra-large bank failure away from needing emergency funding. General Motors is preparing for its public stock offering in November or December, which may well prove to be its last hurrah.

But at the grass roots level, the news is better. I do not know anyone who is simply staying home feeling sorry for themselves. One friend, unemployed for two years, is on the verge of earning a master’s degree. Others have successfully changed jobs, some of them multiple times. And others, fearing layoffs, are diligently using their spare moments to advance themselves in various ways that they think will help them if they should lose their jobs or their health coverage.

People are paying down their debts, losing weight, giving away excess possessions. All these things put individuals in a stronger position. At the same time, this kind of individual action puts the economy in a position where it is more able to respond to whatever surprise comes next.

People’s fears of layoffs are hardly frivolous. Especially in the large corporate sector, large layoffs will continue for years after the rest of the economy recovers. The corporate layoffs of the 1980s helped pave the way for the economic expansion of the 1990s, and similarly, today’s layoffs are helping to make room for the more dynamic areas of the economy that will lead us forward over the next 15 years or so.