In the wake of Barack Obama's historic and decisive victory in 2008, we were reminded that a crisis was a "terrible thing to waste." But recognizing an opportunity—and seizing it—are two different things.
Clearly the new Administration had a big agenda and enormous challenges. Faced with two wars, the worst economic conditions since the Great Depression, and record budget deficits, the tasks for the new President would be far more difficult than dispatching John McCain had been.
Although the economy was spiraling downward, a heavy legislative agenda was laid out on issues ranging from health care to financial reform, to the environment. The weak economy and loss of American jobs were not overlooked by President Obama. But in its first major legislative initiative, his Administration may have underestimated the severity, and the unique nature, of the economic downturn.
The American Recovery and Reinvestment Act of 2009—the $787 billion stimulus package adopted in February 2009—was classic Keynesian "pump-priming." Given the severity of the recession, it was, depending on your political persuasion, either insufficient stimulus or more "pork" than good policy. Whatever the conclusion, it is now clear that the stimulus package did not keep unemployment under 8 percent as Obama's economic team had predicted ahead of the bill's passage.
While a stimulus package of that magnitude would have spurred economic growth in any previous post"“World War II downturn, we were not in a typical recession by any measure. Economic output and employment dropped rapidly following the near-collapse of the U.S. financial system. In retrospect, not even a stimulus package double that size could have sparked a recovery sufficient to create all the jobs necessary to employ the bulk of the American labor force that is now unemployed or underemployed.
Fast-forward 18 months. The "recovery summer" of 2010 touted by President Obama in June is almost over, and we are now approaching the November midterm elections, with many polls suggesting Republicans could regain control of the House and Senate amid voter discontent over the economy and job market.
Since the debate over just what should be done to goose the economy and employment will heat up as Election Day nears, there is no better time to consider what alternatives our political leaders have to address our economic woes. Before suggesting a few policy options, two observations should be readily apparent.
First, since the American consumer drives the U.S. economy, the most important lens through which monetary and fiscal policy should be viewed for the foreseeable future is the extent to which it is likely to produce real growth in gross domestic product—and create private sector jobs. If a legislative initiative destroys jobs or retards growth, whatever the substantive merits of the proposal, it must be put on hold until the economy fully recovers. That may take several years.
Second, given the depth of the economic and financial crisis and the actions taken over the past two years, the government and the Federal Reserve actually have rather limited options available to them to spur economic growth. Clearly they have the capacity to act if the economy deteriorates further, but the available traditional options—more deficit spending and further cuts in interest rates—may not be sufficient to deal with a protracted low growth/no growth economy.
Congress has one last opportunity to address the economic malaise before the voters have their say in November. Here, in no particular order, is a range of policy options that thoughtful members of both parties should consider:
Post a comment about this story in Reader Discussion…
Track and share business topics across the Web.
RSS Feed: Most Read Stories
RSS Feed: Most E-mailed Stories
RSS Feed: Most Discussed Stories
About Advertising EDGE Programs Reprints Terms of Use Disclaimer Privacy Notice Ethics Code Contact Us Site Map
©2010 Bloomberg L.P. All Rights Reserved.
Read Full Article »