Double-Dippin'...and where do we go from what feels like "nowhere"?

This morning we have a banquet of bad news, triggered by a dive in the markets, days after the end of a debt ceiling hostage drama was expected to restore "confidence."

Floyd Norris at the New York Times says what no one wants to hear:

It has been three decades since the United States suffered a recession that followed on the heels of the previous one. But it could be happening again. The unrelenting negative economic news of the past two weeks has painted a picture of a United States economy that fell further and recovered less than we had thought.

On the heels of the Obama White House's former Council of Economic Advisors' head Larry Summers giving us a one-in-three chance of a double dip into another full recession, Business Week offers this bit of gloom from President Reagan's old CEA chief, along with worries of our current Fed chairman:

“This economy is really balanced on the edge,” Harvard University economist Martin Feldstein said in a Bloomberg TV interview on Aug. 2. “There’s now a 50 percent chance that we could slide into a new recession.” Even Federal Reserve Chairman Ben Bernanke has referred in speeches to the risk of an economic stall...

Ezra Klein looks behind the Dow Jones drop, at the much more alarming weaknesses not just in our economy but in our politics - and an inability to conduct an even minimally informed public conversation on the problems we face:

... the Dow Jones isn’t diving because spending has risen, deficits have grown or stimulus policy has changed. It’s diving because of forces Washington can’t control, and in many cases, doesn’t understand very well. How many members of Congress do you think could give a coherent account of what has happened to oil or steel prices over the last three years? Or what’s happening in the Eurozone? Or to the yuan?

A dramatic gap has opened between the economy as Washington sees it -- and wants to intervene in it -- and the economy that actually exists.
Whatever weak recovery we might have hoped for is being hindered by global commodity prices, consumer deleveraging, fears of flagging demand in emerging markets, earthquakes in Asia, and much more. Globally, it’s been an almost uninterrupted run of crises and bad luck. Meanwhile, Washington just spent two months arguing over whether it would pay its bills or spark an unnecessary financial crisis.

Last week, Congress resolved that question. This week, the markets are tanking. Which suggests that Washington is asking itself the wrong question.

The right question is simple enough to pose: Where will the recovery come from? The problem is that no one has an answer. And as one hopeful hypothesis after another is dashed, the markets are beginning to panic.

It won’t come from the United States. Our recovery has slowed, and updates to the Commerce Department’s growth figures have shown that the hole we’re in is significantly deeper than we realized. Thursday’s news only underscored that conclusion, as the early signs suggest that Friday’s job numbers report will be disappointing…

The impoverished and reckless economic policy conversation in Washington isn’t helping to cope with these trends, but even if we got our act together, the reality is that we have limited influence over what happens in China or in the Eurozone and Japan. And it’s not even clear how much an ideal policy response would do to speed America’s recovery.

As bad as the daily data was two years ago, it was easier to tell a story of recovery. The full scope and stickiness of the financial crisis wasn’t yet visible, and the disappointments of the aftermath hadn’t yet sunk in.

Today there's more stability, but we seem to have stabilized into an era of high unemployment, low growth and endless risk. Rather than recovering from the crisis, it is almost as if we have settled into it.  And no one quite knows how we’re going to escape.

And, ironically given that he's the professional economist, I'll leave proposing a political path out of this to Paul Krugman, who - after recycling a bit of his predictable Obama-bashing, which I'll mostly skip over -  suggests that the White House needs to go into campaign mode, not simply to re-elect the President, but to - at least in my view - make his re-election campaign matter. To gain any traction in an increasingly difficult economic recovery it's time to move beyond vaguely hopeful slogans and feel good appeals about "rising above partisanship" or "coming together" that have lost credibility beyond the most naive enthusiasts:

To turn this disaster around, a lot of people are going to have to admit, to themselves at least, that they’ve been wrong and need to change their priorities, right away.

Of course, some players won’t change. Republicans won’t stop screaming about the deficit because they weren’t sincere in the first place: Their deficit hawkery was a club with which to beat their political opponents, nothing more — as became obvious whenever any rise in taxes on the rich was suggested. And they’re not going to give up that club.

But the policy disaster of the past two years wasn’t just the result of G.O.P. obstructionism, which wouldn’t have been so effective if the policy elite — including at least some senior figures in the Obama administration — hadn’t agreed that deficit reduction, not job creation, should be our main priority. Nor should we let Ben Bernanke and his colleagues off the hook: The Fed has by no means done all it could, partly because it was more concerned with hypothetical inflation than with real unemployment, partly because it let itself be intimidated by the Ron Paul types.

Well, it’s time for all that to stop...

The point is that it’s now time — long past time — to get serious about the real crisis the economy faces. The Fed needs to stop making excuses, while the president needs to come up with real job-creation proposals. And if Republicans block those proposals, he needs to make a Harry Truman-style campaign against the do-nothing G.O.P.

Although I've been skeptical and disappointed by the preponderance of "deficit rhetoric" coming from the White house, I am still a great admirer of the President's political skills. I believe Krugman's suggestion is on the right track. It's time for President Obama to bring an economic message directly to the people that can inspire real confidence rather than vague hope. Time to get "fired up and ready to go" - to take the gloves off in the face of recalcitrant opposition and offer Americans a pragmatic but principled agenda of change we can believe in - a change from stagnation and unemployment to jobs, growth and "rebuilding the American Dream."  A path for change drawn clearly against an increasingly discredited ideology of the GOP.

I'm convinced the President can do it, but he won't find the political will simply by relying on the usual campaign and re-election consultants.  It's time for the President to look deeper inside of himself and to give the coalition that elected him the first time around some substantive issues and a program on which to build a real "organizing for America" campaign for 2012.