So What Exactly Does Bipartisan Mean?

The Sort of Bipartisan Compromise
Finally some movement on a compromise bill in the Senate Friday, as Senators Collins (R-Maine), Specter (R-Pennsylvania), Lieberman (I-Connecticut) and Nelson (D-Nebraska) announced they had struck a compromise that cut the Senate package, which had ballooned to over $900 billion under a string of amendments which broadened both tax cuts and spending over the past week, down to approximately $780 billion (although the final number was somewhat in dispute in the floor debate.) The deal cut out spending which was not considered economically stimulating, but maintained most of the core spend and tax credits in the bill.

The Senate is continuing the debate today and taking Sunday off, but a cloture vote is planned for Monday afternoon (it is scheduled for 5:30 PM, but history tells us it will probably occur later in the day than that.)

It appears that only 3 Republicans support the compromise measure: Senators Collins and Spector and Sen. Snowe (Maine). There appear to be no breaks in the rank at this point from the Democratic side and both independents (Lieberman of Connecticut and Sanders of Vermont) are both also on board. With the Minnesota seat still vacant (thanks to the ongoing Coleman/Franken legal battle), this would appear to yield approximately 61 votes for passage, just over the 60 needed to invoke cloture and end debate. It is possible that one or two other Republicans will either vote for the package or not vote (Gregg of New Hampshire perhaps, who has just been tapped for Commerce Secretary), but it appears either way that the Democrats have the votes.

So is this a bipartisan bill? Well, not really. Getting 7% of the Republican Senators to join 100% of the Democrats to vote for a bill makes it a Democratic bill with some moderate Republican support. Obama clearly won't get the 80 votes he originally envisioned.

But he will get the most important thing he wants -- a bill that can pass that he can sign.

So, what happens now? After the cloture vote Monday, if the vote is successful, there will be a vote on passage. After passage, a House/Senate Conference Committee will meet to work out the differences in the bills that the two chambers passed and a final Conference Report will be presented for both houses to pass.

President Obama continues to hold to his President's Day deadline for signing a bill and that still appears possible. The deadline is somewhat artifical, but congress is scheduled to adjourn for a week starting President's day, so if the bill is not on the President's desk by that time, it will likely have to wait until they reconvene.

How Bad Is the Economy?
In my opinion, there are two critical metrics that determine the health of an economy -- GDP growth and unemployment.

To review the Gross Domestic Product is the value of all products and services produced within US borders. When it grows, it means the country is producing more goods and services and therefore has more total wealth. When it shrinks, it means our economy is getting smaller and wealth is declining. A stable economy grows in the 2 to 3% range, to keep up with population growth. A healthy economy grows in the 3-5% range. A stagnant economy grows in the 0-2% range, meaning the economy is growing, but not as fast as the population and average wealth is declining. When the GDP DECLINES in absolute terms, it is a recession (technically it has to contract for two straight quarters to be a recession), if it declines for 2 years (8 consecutive quarters), it is a depression.

Unemployment is pretty self explanatory, but I'll define it officially. The unemployment rate is the percentage of people who are actively seeking work who are unemployed. If people have given up trying to find a job, they are not longer counted in the unemployment rate. Because of this, the unemployment rate tends to understate true unemployment by 2 to 3%, depending on which expert you ask.

So, what has happened?
i. GDP Growth:
On an annualized basis the GDP contracted by 3.8% in the 4th quarter of 2008, following a 0.5% contraction rate in the 3rd quarter of 2008. This means that from mid-year of last year until the end of last year, the economy has contacted by 1.1%. Doesn't sound so bad right? It is bad, although the Great Depression hyperbole may be a little overrated.
This is the worst contraction of output since 1990-1991 when the GDP contracted by 1.3%. And it is almost certain to surpass the 1990-1991 recession as all indications are that the economy has continued to retract at a stunning pace in the first quarter of 2009. Here are the worst recessions in GDP growth terms:
(1) The Great Depression -- 1929-1933 -- 26.6% contraction
(2) The Post-WW2 Bust -- 1945-1947 -- 12.9% contraction
(3) The 1957-1958 Recession -- 3.8% contraction
(4) The Great Depression 2 -- 1938 -- 3.4% contraction
(5) The 1981-1982 "Double Dip" -- 2.9% contraction
(6) The 1953-1954 Recession -- 2.7% contraction
(7) The 1974-1975 Recession -- 2.5% contraction
(8) The 1980 Recession -- 2.2% contraction
(9) The Post-WW2 "Double Dip" -- 1949 -- 1.8% contraction
(10) The 1960 Recession -- 1.3% contraction
(11) The 1990-1991 Recession -- 1.3% contraction
(12) The 2008-2009 Recession -- 1.1% contraction

So, in GDP terms, this is the 12th worst recession in American history. If the first quarter continues at the same pace of contraction as the 4th quarter of 2008, it will jump to number 9. The pace of deterioration has been scary and the economy is more global in the past. But this historical context shows, this is not the Great Depression yet.

ii. Unemployment
The unemployment rate now stands at 7.6% as of January 2009. It has been rising since February of 2008, when it stood at 4.8% and the rate of increase has accelerated, with 0.4% increases each month for the past 2 months as 600,000 jobs have been shed each month.

For historical context, in 1992 (in the aftermath of the 1990-1991 recession), unemployment peaked at 7.8%. The 1981-1982 recession was particularly miserable, with unemployment peaking at 10.8%. 1981-1982 was the only recession post World War II where unemployment reached double digits. The Great Depression saw unemployment rates in excess of 25%.

Now, unemployment tends to lag economic growth, which means that even if the economy starts to recover this year, it is likely that unemployment will go higher. It will almost certainly surpass the 1992 level (probably this month) and may well reach the 1981-1982 levels.

So, what can we conclude from all of this?
Things are bad, but not unprecedentedly so. There is good cause for concern and for government action. We are at a tipping point where this will either be a normal recession or something far more severe. But the far more severe is not assured -- there is still enough underlying strength in the economy that a recovery later this year is possible.

Let's hope we get a stimulus package soon and one that works. A jumpstart is just what the economy needs.

I know economic material can be dry, but I hope this was educational. Going to go back to watching 100 Senators that don't understand economics (except for a select handful on both sides) debate the stimulus bill.

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