"Obama's Stimulus Package Was an Epic Failure
That Haunted His Presidency."
That Haunted His Presidency."
No. U.S. President Barack Obama's $787 billion stimulus bill was certainly a political failure. Obama signed it during his first month in office, cutting taxes for more than 95 percent of American workers, while pouring cash into health care, education, energy, infrastructure, and aid to victims of the Great Recession. It was textbook Keynesian economics, using public dollars to revive private demand, but within a year, the percentage of those who thought it had created jobs was lower than the percentage of Americans who believe Elvis is alive.
Republicans mocked it as "Porkulus," a bloated encapsulation of everything wrong with the Obama regime, and it helped launch their Tea Party-fueled political revival. The media breathlessly chronicled its silly expenditures, like costumes for water-safety mascots; silly-sounding legitimate expenditures, like a brain-chemistry study of cocaine-addicted monkeys; and fictitious expenditures, like levitating trains to Disneyland. Democrats got so weary of the nonstop ridicule that they stopped using the word "stimulus."
Nearly four years later, Obama's economic recovery bill -- and the tepid economic recovery that followed it -- is at the heart of the debate over his campaign for a second term. To his Republican challenger, Mitt Romney, the stimulus was a big-government boondoggle that blew up the national debt without putting Americans back to work, a profligate exercise in tax-and-spend liberalism, crony capitalism, and airy-fairy green utopianism. Obama doesn't use the s-word today, but he does argue that the bill, formally the American Recovery and Reinvestment Act, saved the country from a second Great Depression, ending an economic nightmare in the short term (the Recovery part) while laying the groundwork for a more competitive and sustainable economy in the long term (the Reinvestment part). Meanwhile, disgruntled liberals complain that the stimulus was far too small, because Obama was far too timid, and that jobless Americans are still paying the price for the president's spinelessness.
When it comes to the Recovery Act, the facts are on Obama's side.
For starters, there is voluminous evidence that the stimulus did provide real stimulus, helping to stop a terrifying free-fall, avert a second Depression, and end a brutal recession. America's top economic forecasters -- Macroeconomic Advisers, Moody's Economy.com, IHS Global Insight, JPMorgan Chase, Goldman Sachs, and the Congressional Budget Office -- agree that it increased GDP at least 2 percentage points, the difference between contraction and growth, and saved or created about 2.5 million jobs. The concept of "saved or created" has inspired a lot of sarcasm -- Obama joked after his 2009 Thanksgiving pardon that he had just saved or created four turkeys -- but it simply means 2.5 million more people would have been jobless without the Recovery Act. The unemployment rate might still be in the double digits.
Of course, as Obama's critics on the left and right correctly point out, the 8 percent U.S. jobless rate is still terribly high. And there's no way to run a double-blind study of an alternative U.S. economy without the stimulus, so there's no smoking gun to prove the stimulus launched a recovery. But the ballistics certainly match. The economy shrank at a Depression-level rate in the fourth quarter of 2008, and job losses peaked in January 2009. After the stimulus bill passed in February, however, output had its second-biggest quarterly improvement in 25 years, and employment had its biggest quarterly improvement in 30 years. The recession officially ended that June. A Washington Post review of Recovery Act studies found six that showed a positive economic effect versus one useful study (by prominent Republican economist John B. Taylor) that concluded the stimulus failed -- and critics noted that Taylor's data just as easily support the conclusion that the stimulus was too small.
Keynesian stimulus has since become a political football, but before Obama took office, just about everyone agreed that when the economy slumps, government can boost growth and create jobs by injecting money into the economy, whether by taxing less or spending more. In early 2008, every Republican and Democratic presidential candidate proposed a stimulus plan -- in fact, Romney's was the largest. And Republicans still use Keynesian pump-priming arguments to push tax cuts, military spending, and other stimulus they happen to support. Of course, the most powerful argument for aggressive stimulus has been the experience of European countries like Britain and Spain that have turned back toward austerity and stumbled back into recession.
Republicans have ripped the Recovery Act's food stamps, unemployment benefits, and other aid to the less fortunate for fostering a culture of dependency, but with a few exceptions (more generous tuition grants for low-income students and tax credits for low-income workers), the handouts were temporary. And there's no doubt that they made an extraordinarily painful time less painful, lifting at least 7 million Americans above the poverty line while making 32 million poor Americans less poor. As a result, the poverty rate increased only slightly during the worst downturn since the 1930s. Homelessness actually declined slightly, largely because an innovative Recovery Act experiment in "homelessness prevention" helped house 1.2 million Americans in crisis. If half of them had ended up on the streets instead, the country's homeless population would have doubled.
Politically, it's awkward for the president to argue that without the stimulus, the bad economy would have been much worse. It sounds lame to point out that recessions caused by financial meltdowns tend to be unusually long and nasty. But it's true.
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