Many people ask: What could the government have done better to cushion the blow from the recession? Of course a sizable group would say that the government should have done nothing in the first place, but that is a different article for a different day.
One side of the political aisle argues that pouring billions of dollars into various stimulus schemes was an appropriate response. The other side argues that it was a fruitless waste of taxpayer money.
However, both sides seem to unanimously agree that it’s not so much that the Obama administration dealt poorly with the recession, it’s that they didn’t understand what they were dealing with at all.
The Washington Post has been carrying an interesting story by Ezra Klein that drives this point home. In his article, Klein provides a graph from the president’s Council of Economic Advisers that sought to predict the impact ARRA would have on jobs. There are three elements included in the graph:
- The incoming Obama Administration’s projections for what the unemployment rate would be if no stimulus were enacted in the depths of the financial crisis.
- The Obama Administration’s projections for what the unemployment rate would be with the President’s stimulus plan.
- The actual unemployment rate.
When this report was initially released by Obama’s economic team, it was praised by the left for being thorough and transparent.
“It will be a joy to argue policy with an administration that provides comprehensible, honest reports,” gushed economist Paul Krugman in the New York Times.
However, as the chart makes very clear, the Obama administration really, really underestimated how bad the economy was and overestimated its ability to repair it.
As a result of this, writes Henry Blodget of Business Insider, “President Obama over-promised and under-delivered on the single most important challenge of his Presidency (so far).”
Despite their gross miscalculation, there are still members of the team that crafted the 2009 report that defend the administration’s decision to pump stimulus money into the economy.
“The thing that people who want to argue that the stimulus failed have to deal with,” said Jared Bernstein, a labor economist who was tasked with calculating how many jobs the stimulus would create, “is that if you look at the trajectory of job losses, you will find that right on the heels of the Recovery Act, the rate of job losses began to diminish and then the jobs numbers turned positive. The Recovery Act worked. The problem is we didn’t keep our foot on the accelerator.”
That’s not the sort of success the president had promised, though. He said the stimulus would “jolt our economy back to life.” In Denver, the site of the 2008 Democratic National Convention, he said that although “this was not the end of our economic problems,” it was “the beginning of the end.”
True, the economy was in bad shape when President Obama took office. But by establishing unrealistic expectations regarding his ability to pull America out of the recession, Obama not only failed to deliver on his promises but also revealed just how wrong (and even uninformed) he and his team were about the state of the economy.
(H/T Business Insider)