It is time to give right-wing propagandists some credit. Remember back in early March, when every new stock market low was blamed on Obama? Remember how silent the right immediately became when the stock market reversed course and embarked on a nine-month rally? It's taken a little while, but thanks to the hard work of Donald Luskin, a man whose record on getting things wrong in recent years almost matches Larry Kudlow's, we finally have an ingeniously brilliant new set of talking points for the right. Now Obama's failures can be blamed for both the market lows and market highs.
In an op-ed piece published Tuesday in the Wall Street Journal, (in which Luskin provides the Manichean service of representing the absolute antithesis of Elizabeth Warren's simultaneously published opinion piece,) the investment adviser first blames March's "horrific bottom" on the passage of the stimulus bill. Never mind that the U.S economy lost 2.1 million jobs in the first quarter of this year while GDP was declining at a six percent annual rate. In Luskin's world, investors only pay attention to politics, not the actual economy.
The haste with which the stimulus bill was enacted made it seem certain that the cap-and-trade energy tax, unionization "card check," mortgage "cramdown," and health-insurance nationalization would become law as soon as votes could be taken. It wasn't only the antigrowth implications of these initiatives that had investors terrified in March. It was the sheer recklessness with which they were being stuffed through the legislative pipeline under the Rahm Emanuel doctrine of never letting a good crisis go to waste. The crippling uncertainty of it all was making that crisis worse.
Since then the market rally has tracked the demise, one by one, of all these initiatives, because investors could see that a political environment that had been far out of equilibrium was quickly finding its balance. Republicans stayed unified in their opposition, while in every case key Democrats lost their nerve.
Readers may now understand why economist Brad DeLong likes to call Donald Luskin "the stupidest man alive." Because in the universe most of us are living in, the stock market's nine-month rise came during a period in which health care reform steadily came closer and closer to passage. The high for the year came at almost exactly the same time the Senate was voting on its version of the bill! It was only after Scott Brown won election in Massachusetts and the Democrats lost their 60 vote majority that the stock market started to plunge. In other words, once the super-majority vanished, throwing the passage of all of Obama's initiatives into doubt, only then did Wall Street get nervous.
Luskin's argument is that Brown's victory presages a turn to anti-Wall Street populism by both Democrats and Republicans that the investor class finds distressing. But there's a much much simpler explanation than politics to explain the stock market rally. Since March, the economy has stabilized. The monthly rate of job losses has declined dramatically. GDP is growing again. The prospect that Wall Street's biggest banks would be forced to declare bankruptcy has receded. All these things, whether you like them or not, were in part the result of Obama's policies. Most non-ideological economy observers -- the kind of outfits that sell their analysis to discerning customers rather than try to get quoted on Fox News -- peg the stimulus as responsible for at least one to two points of GDP growth and for keeping unemployment from surging even higher than it already has. And as anyone one degree to the left of Luskin appreciates, Obama's policies towards the financial sector have been highly reassuring to the investor class -- which explains both the stock market rally and widespread bipartisan political anger.