The Perfect Enemy | Analysis | The view from the White House on whether we’re in a recession
August 11, 2022

Analysis | The view from the White House on whether we’re in a recession

Analysis | The view from the White House on whether we’re in a recession  The Washington Post

Read Time:10 Minute

Good morning, Early Birds. You have three more days to listen to the Decemberists’ “July, July!” before the end of the month. And send us your tips: earlytips@washpost.com. Thanks for waking up with us.

In today’s edition … Democrats race to adopt climate, health deal after Manchin breakthrough … Text messages for Trump’s acting Homeland Security secretary and acting deputy secretary are missing for a key period leading up to the Jan. 6 attack on the Capitol … Poll Watch: Most parents don’t plan to vaccinate their young children and a new poll on the Supreme Court’s abortion ruling … but first …

At the White House

Why the Biden White House isn’t ‘throwing any spitballs’ at the Fed

Seven questions for … Jared Bernstein: Republicans seized on a Bureau of Economic Analysis report on Thursday showing that gross domestic product had fallen for the second quarter in a row to argue that the economy was in recession. We spoke with Bernstein, a member of the White House’s Council of Economic Advisers, about why he doesn’t think the economy is in recession, whether he’s worried about the Fed raising interest rates too high and where he disagrees with former Treasury Secretary Larry Summers.

This interview has been edited and condensed for length and clarity.

The Early: What are your takeaways from Thursday’s report?

Bernstein: It’s a report that shows both some of the real headwinds facing American households right now, but also some of the tailwinds. For example, consumer spending — very important, it’s almost 70 percent of the economy — was up 1 percent in the second quarter, and that’s inflation-adjusted. So how do you get a component that accounts for almost 70 percent of the economy growing 1 percent but you still have negative [GDP growth]? Well, some of that is the weirdness of GDP accounting. Inventories shaved two percentage points off of GDP growth in the second quarter. How did that happen? Did inventories collapse? No — in fact, they grew by over $80 billion. They just grew less quickly than the prior quarter.

The Early: You wrote in Foreign Affairs in 2019 that a recession “is typically defined as two consecutive quarters of declining growth.” Why do you think that’s not the case this time? And what economic indicators would signal to you that the economy is in recession?

Bernstein: Sometimes it is, but occasionally it isn’t. And that’s what I meant there. The variables that the [National Bureau of Economic Research, which officially determines whether the economy is in recession,] scrutinizes often correlate with GDP. It’s just that right now they don’t. Real personal income absent government transfers was up 1 percent in Q2. Consumer spending was up 1 percent in Q2. Industrial production was up in Q2 and payrolls were up pretty gangbusters in Q2. Right now the factors that the NBER uses to date a recession — they’re just not correlating with negative GDP.

The Early: Sen. Elizabeth Warren (D-Mass.) wrote in an op-ed this week that Federal Reserve Chairman Jerome Powell “is on the verge of sacrificing” the economic recovery and that “the Fed risks triggering a devastating recession” if it continues to raise interest rates. Do you agree?

Bernstein: One of the things that distinguishes our White House from our predecessors is that we just don’t get into the Fed’s knitting like that. We very much respect the Fed’s independence, and we’re not going to comment on any granular aspects of their policy.

The Early: Powell has made clear his admiration for former Fed chairman Paul Volcker, calling him “the greatest economic public servant of the era.” Volcker, of course, triggered a painful recession in the early 1980s in his successful drive to break high inflation. How concerned are you that the course the Fed is on now will cause a recession?

Bernstein: The president has done something that, if you actually look at the history of presidents and the Fed, is kind of unusual. When the Federal Reserve is in a rate-hiking cycle, history has many examples of presidents who kinda go to war with them. [Richard] Nixon, of course, famously did so. [Lyndon] Johnson at some points. [Donald] Trump was very critical of the Fed when he said they should be lowering rates. President Biden has endorsed the Fed’s pivot, understanding that they are the first and foremost institution fighting against inflation in the current environment. I think that’s quite telling.

The Early: Is there a point at which the White House would believe that the Fed had raised rates too high?

Bernstein: It’s a hypothetical that I’m not going to get into. What I will say is that when the president says our White House deeply respects Fed independence, you can trust me when I tell you that he really means it. When it comes to the Powell Fed, we’re simply not going to be throwing any spitballs at them while they do what they need to do.

The Early: Larry Summers told The Post on Thursday that he doesn’t believe it’s possible to bring down 9.1 percent inflation “without the economy suffering a recession.” Do you agree?

Bernstein: Well, we should give Larry his due as being extremely prescient in many ways. But that said: No, I don’t think so. There are other paths that incorporate more of a softer landing that could also reduce inflation without a recession. While he believes the car has to shift into reverse, we believe the car can get there just by slowing down.

The Early: Just 13 percent of Americans rate the economy as excellent or good, according to Pew, down from 28 percent in January. How much does it matter whether the country is in a recession or not if Americans feel that the economy isn’t delivering?

Bernstein: What matters to President Biden, and therefore to his economics team, is how are families like the one that he grew up in doing? He grew up in a family where, much like today, the increase in the price of gas was a kitchen table issue. And so our instructions [are] to keep our heads down and do everything we can to help families with the No. 1 pressure they face, which is, of course, highly elevated inflation.

On the Hill

Democrats sprint to adopt climate, health deal after Manchin breakthrough

BFD: “With a long-elusive spending deal newly in hand, Senate Democrats set about finalizing their economic package Thursday, hoping they might be able to deliver on a central piece of President Biden’s agenda as soon as next week,” our colleagues Tony Romm, Mike DeBonis and Marianna Sotomayor write.

The 725-paged Inflation Reduction Act of 2022 “includes the largest investment in fighting climate change in U.S. history, aiming to boost clean-energy technology even as it delivers some of the support Manchin sought for fossil fuels. It also aims to lower health-care costs, particularly through changes to Medicare that could reduce some prescription drug prices for seniors.”

  • Climate: “The nonpartisan Committee for a Responsible Federal Budget estimates that the bill would put about $385 billion into combating climate change and bolstering U.S. energy production through changes that would encourage nearly the whole economy to cut carbon emissions,” our colleagues Jeff Stein, Maxine Joselow and Rachel Roubein report. This “could put the United States on track to slash its greenhouse gas emissions by 40 percent below 2005 levels by 2030,” our colleague Anna Phillips writes.
  • Healthcare: This deal fulfills two major campaign pledges, Stein, Joselow and Roubein write: “Allowing Medicare to negotiate the price of prescription drugs, and making health care more affordable for millions of Americans.” It also puts the pharmaceutical industry – which poured $187 million into a lobbying campaign against price negotiation –  “on the cusp of a rare political loss,” per our colleague Christopher Rowland.

As Senate Democrats move forward with their climate, prescription drug and deficit reduction plan, Senate Republicans are mounting a political campaign against it. Here’s a preview in this video, by the Senate Republican Conference led by Sen. John Barrasso (D-Wyo.), where they show media clips contrasting Biden saying the country is not in a recession with media commentators, mostly on Fox News, saying the Democrats’ bill will contribute to a recession.

Another busy day on the Hill: Meanwhile …

  • The House voted to pass the $280 billion Chips and Science Act “in a bid to strengthen the United States’ competitiveness and self-reliance in what is seen as a keystone industry for economic and national security,” our colleagues Amy B. Wang and Marianna report.
  • And Sen. Jon Tester (D-Mont.), chairman of the Senate Veterans’ Affairs Committee, House Speaker Nancy Pelosi (D-Calif.), other lawmakers and comedian Jon Stewart joined veterans outside the Capitol Thursday morning to assail the GOP after they blocked a bill that would help veterans exposed to toxic burn pits, our colleagues Eugene Scott and Mike DeBonis report.
Jon Stewart joined Democratic lawmakers in the District on July 28 after Senate Republicans blocked a new plan to help millions of veterans. (Video: The Washington Post)

In the agencies

Jan. 6 texts missing for Trump Homeland Security’s secretary and acting deputy secretary

👀: “Text messages for former President Donald Trump’s acting Homeland Security Secretary Chad Wolf and acting deputy secretary Ken Cuccinelli are missing for a key period leading up to the Jan. 6 attack on the Capitol,” four people briefed on the matter and internal emails told our colleagues Carol D. Leonnig and Maria Sacchetti. “This discovery of missing records for the senior-most homeland security officials, which has not been previously reported, increases the volume of potential evidence that has vanished regarding the time around the Capitol attack.”

Poll Watch

The latest pandemic policy dilemma: Most parents don’t plan to vaccinate their young children against covid.

From Post polling analyst Emily Guskin: Last month, the FDA authorized emergency use of the Moderna and Pfizer covid-19 vaccines for children six months old to four years old. While some parents had long anticipated that announcement, this month’s KFF Vaccine Monitor poll found the vast majority of parents are holding off.

About 1 in 6 (17 percent) said they will get their child vaccinated or already have, while 27 percent said they will wait and see how it’s working. Most said they will “definitely not” vaccinate their child (43 percent) or only do so if required (13 percent).

Vaccine hesitancy among parents of the youngest group of eligible children is higher now than it was for older children when they first could get vaccinated. KFF found 29 percent of parents of children ages 5-11 saying they would “definitely not” get their child vaccinated after it was approved last November. Opposition stood at 20 percent for parents of children ages 12-17 shortly after that group became eligible in May 2021.

Why are parents of the youngest swath of children less willing to vaccinate them? 

The KFF poll found 81 percent of parents with unvaccinated children under five said they were worried their child might have serious side effects from the vaccine, another 70 percent were concerned that the vaccine would not protect their child from getting sick. Most parents said information from federal health agencies about vaccines for children under age five was “confusing,” and 70 percent said they had not talked about the vaccine with a pediatrician or other health care provider.

Partisanship persists, with Republicans and Republican-leaning parents of children under five far more likely to say they will definitely not vaccinate their children (64 percent) than Democratic parents (21 percent). Yet even among Democratic parents, fewer than 4 in 10 (38 percent) plan to get their children under five vaccinated right away or have already done so.

The data show that even with initial reluctance, child vaccination rates increased steadily over time, as they did with adults. Today, a 57 percent majority of parents of children ages 12-17 say their children are vaccinated, compared with 42 percent who were planning to do so one month after they became eligible.

More from our polling team

Emily along with Hannah Knowles and Scott Clement give you the latest on the fall out from the Supreme Court’s abortion ruling: “Nearly two-thirds of Americans say the end of Roe v. Wade represents a ‘major loss of rights’ for women, a Washington Post-Schar School poll finds, but those who support abortion access are less certain they will vote this fall — a sign of the challenges facing Democrats who hope the issue will turn out their base in the midterms.”

Coffee Break(s)

Read this: As a parent who is probably overly conscious of food waste, this story from The Post’s LaVonne Roberts in On Parenting about reducing food waste caught the eye of one of us. The story, of course, recommends composting, which we do, in part, because the trash no longer smells with food waste, but has lots of other tips too.

Weekend reeeads: 

Flipping the Byrd

Thanks for reading. You can also follow us on Twitter: @theodoricmeyer and @LACaldwellDC.