With JPMorgan Chase, Wells Fargo and Goldman Sachs reporting profits this past week, and Citigroup showing far less red ink than expected, some long-awaited optimism has been injected into discussions about the state of the economy.
In a speech at Georgetown University, Barack Obama cautiously noted that "we are starting to generate signs of economic progress." That followed Ben Bernanke's declaration that "we have seen tentative signs that the sharp decline in economic activity may be slowing. A leveling out of economic activity is the first step toward economic recovery."
On Sunday's Meet the Press, Larry Summers, Obama's chief economic adviser, sounded the same theme, stressing that there are plenty of tough times ahead but that after "a period when everything was negative, there [is] now some mixture in the indicators."
It should go without saying that these tentative rays of hope may prove to be mirages—and that we have not yet even come close to the bottom and that a turnaround is nowhere in sight.
But, at least for a moment, let's accept that the recession will soon end and a recovery—maybe a long and very slow one, but a recovery nonetheless—will soon commence.
Logically, it would seem to offer Obama a chance to pull off the impossible and to maintain the stratospheric approval ratings he's racked up in his early months in office. After all, voters have made it clear that they view rescuing the economy as Obama's chief responsibility and their chief concern. If, in the wake of his stimulus package and bank rescue plan, a recovery were to begin, it should follow that he'll be showered with praise and affection from a grateful public. Right?
There are several reasons for this, but the biggest is simply that it takes a long time for economists to recognize when a recovery has actually begun, and even longer for the public to feel like the economy has improved. It is entirely possible for a recovery to proceed for more than a year with no one knowing it—and with voters growing more and more fed up with what they perceive as the failure of their leaders to address the situation.
A classic example of this phenomenon played out in the early 1990s, when the U.S. economy plunged into a recession for reasons that are still debated. Some pointed to the savings and loan crisis, some to the market crash of 1987, and others pinned the blame on high oil process caused by the Gulf War.
Whatever the culprit, the National Bureau of Economic Research announced in April 1991 that a recession had begun in July 1990. (Similar lag time was evident in the current crisis; it wasn't until four months ago that the same bureau finally declared that a recession had begun in December 2007.) In April '91, the nation was just returning its attention to domestic matters after the morale-boosting success of Operation Desert Storm. In March '91, even after nearly a year of slow but steady unemployment growth, President George H. W. Bush's approval rating stood near 90 percent.
But those numbers dropped precipitously over the next year, as unemployment continued to climb and Americans grew more and more convinced that their leader was out of touch with their concerns and incapable of mustering an effective response to the economic morass. Bush tried to push a recovery package through the overwhelmingly Democratic Congress, but was rebuffed. By May 1992, unemployment stood at 7.8 percent, and Bush's approval rating had slipped nearly 50 points.
All of this created a golden opportunity for Democrats in the 1992 election. In the wake of Desert Storm, every big-name Democrat, from Mario Cuomo to Al Gore, had taken his name out of the '92 mix, believing Bush to be invulnerable. That made it possible for Bill Clinton to secure the nomination and, as voters slowly became convinced that the economy was close to ruin, to use his sunny charm and "I feel your pain" empathy to connect with dispirited voters.
Clinton promised to "focus on the economy like a laser beam" and effectively turned his fall race against Bush into a referendum on the president's handling of the seemingly endless recession. Given that one poll near the election found that just 14 percent of Americans believed the country was heading in the right direction, Clinton easily won and Bush finished with the lowest share of the popular vote for any incumbent president since William Howard Taft in 1912.
The catch: It turns out the entire 1992 campaign, from Clinton's October '91 announcement of candidacy all the way through his November 3, 1992, triumph, was conducted during an economic recovery. Not that you would have ever known this from the candidates' rhetoric, the media's coverage, just about every public opinion poll, and many of the available economic statistics. But in late December '92, just weeks before Clinton's inaugural, the good old National Bureau of Economic Research announced that the recession had, in fact, ended in March '91—a month before the bureau had originally declared the recession under way.
One reason no one seemed to notice the recovery was that unemployment, a notoriously lagging indicator, continued to rise well into '92, peaking at 7.8 percent late that spring and still hovering at 7.3 percent on Election Day. And it's not like the bureau's declaration changed the public's mood overnight; Americans remained apprehensive about the economy well into 1993, even as unemployment slowly ticked downward.
But the bureau was right: The worst was over, and it had been over for some time. And yet Bush, who was ridiculed throughout the '92 campaign when he tried to argue that the economic tide was turning, still paid with his job for his supposed failure to reverse the recession.
Obama's present situation isn't entirely analogous to Bush's, of course. This downturn is more severe, and its origins more clear. Plus, unlike Bush, Obama has taken highly visible steps to combat the recession; Bush's plans just died in Congress. And most importantly, Obama won't face the voters for more than three years; if a recovery begins later this year, there will be time for it to sink in with voters before the 2012 election.
Still, Bush's example shouldn't be ignored by Obama or his supporters. Even if the president has made all the right moves so far and continues to do so, he'll probably be blamed by voters before he gets the credit he deserves.