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Why the economy is not rebounding

Obama art
Obama art
Photo by Feng Li/Getty Images

The New York Post has it on their front page that president Obama is seen as the worst president in 70 years according to a poll which means Roosevelt might have been worse. If not then we have to kick that number up a bit to meet Hoover. I write this because I hate Obama for no good reason other than he's a Democrat a Liberal and also probably a thief and wife beater.

To be fair to the poor guy he does get a lot of bad press which gives his detractors something to pester him about. But there is one defining moment in his presidency that could, and should, give generations a reason to rethink any candidate-Democrat and Republicans alike-when it comes to economics.
Forget the scandals real or imagined. Obama's economic stimulus ought to be looked at as a watershed moment in economics since it demonstrated once and for all that policy prescription's based on propping up demand does not work.

Here's two numbers that tell it all: $850 billion was the price of the stimulus, the largest such experiment of its kind. It was advertised as a jobs bill that would put people back to work immediately. At the beginning of this experiment there was roughly 60 million people out of the job market, now there is 93 million and it's a record number. There is no way to nuance this to show in any way that demand-side economics works.

That's not to say that some people aren't still trying. From The Week Ryan Cooper writes that Obama's "greatest failure" is the falling deficit which just happened to be one of George W Bush's failures for the opposite reason. In the case of Obama, a falling deficit means less government spending ($50 billion a month isn't enough) and that translates into less demand and so less jobs:

Ever since 2009, when the recession and the stimulus package pushed the annual budget deficit to a peak of nearly $1.5 trillion, it has been falling steadily. Last year it came in at $680 billion; this year it is projected to total $492 billion.

This is an absolute disaster. It is President Obama's single greatest failure, representing the fact that he, and the rest of the American government, did not adequately respond to the Great Recession. It means that millions of Americans were kept out of work, that trillions in potential output was flushed down the toilet, and that the American economy was very seriously damaged, probably permanently, for no reason at all.

Cooper writes this under the full assumption that government spending is a plus for the economy. But what about the two stimulus plans of George Bush? Come to think of it didn't he "squander" Clinton's surplus? And what about the Clinton surplus? Shouldn't he have had worse economic conditions? Why is it that deficits are now a good thing when, since the 80s, budget deficits were seen as a bad occurrence that could sink any presidential candidate running for re-election?
Now deficits are a good thing and since Obama is not able to spend as much as he would like, the economy stinks and it's the reason why it stink. But it doesn't explain why the $850 billion stimulus did not work, even just for a little bit. The conventional excuse is that it wasn't big enough but that didn't stop those people from blaming congress for not passing his encore plan of his $350 billion "jobs bill". Why would a proponent say on the one hand $850 billion was not enough and then go ahead and call the $350 billion spending bill a "jobs bill". There is no logic in any of this.

Republicans are not off the hook here either. From Nixon on there have been various demand-side schemes by all of the Republican presidents. The point here is these spending schemes "stimulus packages" do not work. They are immediate responses that show government is doing something and they make for the news of the day. Results of these plans are rarely ever tracked, new ones are devised every few years without regard to previous failures.
Government sponsored demand falls apart by its own rationale. If we accept government spending into the economy is a plus, then we must also assume that taking money out of the economy is a minus. Ultimately government is spending our money and they have to take it in order to do give it. Where is the wealth creation? I'll take your money and give it back to you, this will create more money? No. Not $5 or $1000 or a trillion. The economy has not grown in any quarter or year past 2%.

It can be argued (and it is) that we are still feeling the affects of the financial meltdown of 2007. That may or may not be the case. Demand-side stimulus has had no affect to counter the meltdown, not because of the reasons for the meltdown but because it doesn't nor should it work. Stimulus plans pop up during economic downturns and this happens to be one of them. That it hasn't had any affect on the economy has nothing to do with how the economy got this way in the first place, why should it?

The big mistake here is not looking at the policy before the president. Obama's plan has been the economics of Democrats for decades. With Obama we finally experience its affects on a large scale. It ought to be, in Obama parlance, a teachable moment.

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