Free Markets, Free People
Did Obama save us from a second “Great Depression”?
That’s the spin from the White House and its supporters, or has been for quite some time. The story goes, “if we hadn’t passed the stimulus bill, we’d have seen even worse economic performance than we have and we’d have worse unemployment to boot”.
Investor’s Business Daily (IBD) took a look at the claim and found it … wanting.
White House economists forecast in January 2009 that, even without a stimulus, unemployment would top out at just 8.8% — well below the 10.8% peak during the 1981-82 recession, and nowhere near Depression-era unemployment levels.
The same month, the Congressional Budget Office predicted that, absent any stimulus, the recession would end in "the second half of 2009." The recession officially ended in June 2009, suggesting that the stimulus did not have anything to do with it.
Now we can argue the unemployment numbers and whether or not the real number of unemployed is approaching the Depression-era level (it’s not), but what can’t be argued are the forecasts from that time. Obviously, the supporters of the stimulus knew of these forecasts and believed that with the stimulus we could come in well under those numbers.
As it turns out, unemployment shot past 8.8% and the recession ended exactly as forecasts said it would without any stimulus. That makes it a bit difficult to argue the stimulus had a positive effect. In fact, it can be argued that it may have had a negative effect. But, there are also those who claim it would have been “a lot worse” without it, not to mention those who claim it was too small to begin with.
But that’s unsupportable in the face of the economic forecasts.
The argument is often made that the recession turned out to be far worse than anyone knew at the time. But various indicators show that the economy had pretty much hit bottom at the end of 2008 — a month before President Obama took office.
Monthly GDP, for example, stopped free-falling in December 2008, long before the stimulus kicked in, according to the National Bureau of Economic Research. (See nearby chart.) Monthly job losses bottomed out in early 2009 while the Index of Leading Economic Indicators started to rise in April.
So looking back we see all the indicators of an economy trying to begin a recovery. Yet here we are still struggling and we spent a trillion dollars of borrowed money in the meantime on goodness knows what.
One other thing to keep in mind – the establishment of the most hostile climate toward business I’ve ever seen from government in my lifetime began about this time as well.
No, per IBD, it appears if there’s any credit at all for saving the country from depression, it should go to the other guy:
Also often overlooked is that a tremendous amount of stimulus already was in the economy when Obama took office, including President Bush’s $150 billion stimulus, two unemployment benefit extensions and $250 billion spent on "automatic stabilizers."
More importantly, the Bush administration pushed through the controversial $700 billion TARP program (which Obama sustained), while the Fed pursued an aggressive anti-recession campaign by, among other things, effectively lowering its target interest rate to zero.
Now agree with it or not (not – I’m still not convinced it was necessary), and buy into the “saved us from depression” or not (not – we’d have gotten over the pain much more quickly and wouldn’t be at the beginning of a “lost decade”), it appears that economic history is being revised here. The Obama stimulus was a latecomer to the party. Most of the action had already taken place. What Obama and his administration did was create a hostile business climate. The business community reacted by sitting on its hands and its money waiting for a clear signal (one they’ve yet to receive) that they’re not going to be taxed and regulated to death.
But Obama save us from a depression?
Just for the record, It doesn’t appear to be the case.