I’m no cheerleader for President Obama. Since he first became our Disappointer-In-Chief, I have vigorously voiced my complaints about his decisions. At the end of President Obama’s first month in office, I expressed concern that his following the advice of “Turbo” Tim Geithner and Larry Summers was putting the welfare (pun intended) of the Wall Street banks ahead of the livelihoods of those who voted for him. I lamented that this path would lead us to a ten-year, Japanese-style recession. By September of 2010, it was obvious that those early decisions by the new President would prove disastrous for the Democrats at the mid-term elections. At that point, I repeated my belief that Obama had been listening to the wrong people when he decided to limit spending on the economic stimulus package to approximately half of what was necessary to end the economic crisis:
Even before the stimulus bill was signed into law, the administration had been warned, by way of an article in Bloomberg News, that a survey of fifty economists revealed that the proposed $787 billion stimulus package would be inadequate.
Last week, I was about to write a piece, describing that decision as “Obama’s Tora Bora moment”. When I sat down at my computer just after 11 p.m. on Sunday, I realized that the timing wouldn’t have been appropriate for such a metaphor. The President was about to make his historic speech, announcing that Osama Bin Laden had been killed. Just as many have criticized the Obama administration’s handling of the disaster in the Gulf of Corexit as “Obama’s Katrina Moment”, I believe that the President’s decision to “punt” on the stimulus – by holding it at $862 billion and relying on the Federal Reserve to “play defense” with quantitative easing programs – was a mistake, similar in magnitude to that of allowing Bin Laden to escape at Tora Bora. The consequences have been enormously expensive (simply adding the $600 billion cost of QE 2 alone to a better-planned stimulus program would have reduced our current unemployment level to approximately 5%). Beyond that, the advocates of “Austerian” economics have scared everyone in Washington into the belief that the British approach is somehow the right idea – despite the fact that their economy is tanking. Never mind the fact Australia’s stimulus program was successful and ended the recession in that country.
The Fox Ministry of Truth has brainwashed a good number of people into believing that Obama’s stimulus program (a/k/a the American Recovery and Reinvestment Act of 2009) was a complete failure. You will never hear the Fox Ministry of Truth admit that prominent Republican economist Keith Hennessey, the former director of the National Economic Council under President George W. Bush, pointed out that the 2009 stimulus “increased economic growth above what it otherwise would have been”. The Truth Ministry is not likely to concede that John Makin of the conservative think-tank, the American Enterprise Institute, published this statement at the AEI website:
Absent temporary fiscal stimulus and inventory rebuilding, which taken together added about 4 percentage points to U.S. growth, the economy would have contracted at about a 1 percent annual rate during the second half of 2009.
On the other hand, count me among those who are skeptical that the Federal Reserve’s monetary policy can have any impact on our current unemployment crisis (it hasn’t yet).
Many of Obama’s critics have complained that the Presidential appearance at Ground Zero was an inappropriate “victory lap” – despite the fact that George W. Bush was invited to the event (although he declined). Not only was that victory lap appropriate – Obama is actually entitled to run another. As E.J. Dionne pointed out, the controversial “nationalization” of the American auto industry (what should have been done to the Wall Street banks) has become a huge success:
The actual headlines make the point. “Demand for fuel-efficient cars helps GM to $3.2 billion profit,” declared The Washington Post. “GM Reports Earnings Tripled in First Quarter, as Revenue Jumped 15 Percent,” reported The New York Times.
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“Having the federal government involved in every aspect of the private sector is very dangerous,” Rep. Dan Burton, R-Ind., told Fox News in December 2008. “In the long term it could cause us to become a quasi-socialist country.” I don’t see any evidence that we have become a “quasi-socialist country,” just big profits.
Rep. Lamar Smith, R-Texas, called the bailout “the leading edge of the Obama administration’s war on capitalism,” while other members of Congress derided the president’s auto industry task force. “Of course we know that nobody on the task force has any experience in the auto business, and we heard at the hearing many of them don’t even own cars,” declared Rep. Louie Gohmert, R-Texas, after a hearing on the bailout in May 2009. “And they’re dictating the auto industry for our future? What’s wrong with this picture?”
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In the case of the car industry, allowing the market to operate without any intervention by government would have wiped out a large part of the business that is based in Midwestern states. This irreversible decision would have damaged the economy, many communities and tens of thousands of families.
And contrary to the predictions of the critics, government officials were quite capable of working with the market in restructuring the industry. Government didn’t overturn capitalism. It tempered the market at a moment when its “natural” forces were pushing toward catastrophe. Government had the resources to buy the industry time.
In fairness, President Obama has finally earned some bragging rights, after punting on health care, the stimulus and financial “reform”. He knows his Republican opponents will never criticize him for his own “Tora Bora moment” – because to do so would require an admission that a more expensive economic stimulus was necessary in 2009. As a result, it will be up to an Independent candidate or a Democratic challenger to Obama (less likely these days) to explain that the persistent economic crisis – our own “lost decade” – lingers on as a result of Obama’s “Tora Bora moment”.