Potus and Team Flunk Economics

The Wall Street Journal’s Phil Izzo reports that a majority of economists participating in its forecasting survey believe the Obama economics team is failing to make the grade.  The ratings for Obama and Geithner trail the grade for Bernanke who is chair of the Fed and show a lack of confidence in current economic policy.  You may remember that Martin Wolf assigned Obama an “English B” or “D” in an interview with Zakaria posted earlier.  It appears Wolf’s peers agree.

A majority of the 49 economists polled said they were dissatisfied with the administration’s economic policies.  On average, they gave the president a grade of 59 out of 100, and although there was a broad range of marks, 42% of respondents rated Mr. Obama below 60. Mr. Geithner received an average grade of 51. Federal Reserve Chairman Ben Bernanke scored better, with an average 71.

They are completely unimpressed with the stimulus package and most are now forecasting the recession to be both deeper and longer than previously anticipated.  Previous forecasts predicted the trough to come in August.  The consensus has now shifted the bottoming to occur sometime in October.  Many believe a second stimulus package will be required, however, this was not a majority opinion.  The worst grades were assigned to the handling of the banking crisis.

Economists were divided over whether the $787 billion economic-stimulus package passed last month is enough. Some 43% said the U.S. will need another stimulus package on the order of nearly $500 billion. Others were skeptical of the need for stimulus at all.

However, economists’ main criticism of the Obama team centered on delays in enacting key parts of plans to rescue banks. “They overpromised and underdelivered,” said Stephen Stanley of RBS Greenwich Capital. “Secretary Geithner scheduled a big speech and came out with just a vague blueprint. The uncertainty is hanging over everyone’s head.”

The primary professional association is the AEA (American Economic Association) which frequently surveys its members for both political affiliations as well as opinion on economic outlook.   Surveys have consistently shown that the majority of members lean democratic.  In the cited study of its surveys, the author McEachern (2006) finds that the ratio of contributions of AEA economists that contribute to democrats v. republicans is about 5.1 to 1.   A survey by the Economists in the fall (not a scientific poll so results are subject to question) found overwhelming support for Obama over McCain in the general election.  Given that, this pattern appeared responsible for this interesting finding from the WSJ’s December Survey.

The economists’ negative ratings mark a turnaround in opinion. In December, before Mr. Obama took office, three-quarters of respondents said the incoming administration’s economic team was better than the departing Bush team. However, Mr. Geithner’s latest marks are lower than the average grade of 57 that former Treasury Secretary Henry Paulson received in January.

Clearly, economists are not amused if their ratings and outlook have changed so quickly.  The surveyed economists are now expecting worse numbers in the employment sector. They have also upped the probability of having a depression in the US.

Meanwhile, the economists surveyed this month predict that the economy will shed another 2.8 million jobs over the next 12 months as the unemployment rate climbs to 9.3% by December, up from the 8.1% rate recorded in February. Economists also see nearly a one-in-six chance that the U.S. will fall into a depression, defined as a decline in per-person GDP or consumption by 10% or more.

“We just keep moving the date [when the recession will end] out, hoping at some point in time we will be able to move the date back in,” said Diane Swonk of Mesirow Financial.

The economists were also glum about the international response.  There were two more positive findings.  Again, Bernanke achieved the highest approval and most felt the Fed was performing its functions well.  There was also some consensus around the idea of putting money in the stock market for the long run.

Despite the growing criticism elsewhere, the respondents were broadly supportive of the Fed. More than 85% of the economists agreed that the central bank’s proliferating lending programs are well-designed, well-executed and helping the economy. And while grades for Mr. Bernanke remain off of their 2007 highs, the average has stabilized after falling as low as 69 in the November survey.

Amid all the gloom, there is a bright spot: Four-fifths of the economists said now is a good time to buy equities, especially if the investor has a long-term view.

Given most economists are registered democrats. these ratings suggest a rather large vote of  no confidence.