Paul Krugman, winner of the Nobel Prize in Economics and op-ed writer for the New York Times, which gives him some (Wall)street cred, predicted the Obama stimulus plan that was emerging after his election would be judged a failure. This in a January 6th, 2009 New York Times article, a full 14 days before he was even president.
He wrote a wonkish article with a lot of economic theory and lingo. But a couple excerpts give the outcomes of that wonkishness:
The bottom line is this: we’re probably looking at a plan that will shave less than 2 percentage points off the average unemployment rate for the next two years, and possibly quite a lot less. This raises real concerns about whether the incoming administration is lowballing its plans in an attempt to get bipartisan consensus….
And that gets us to politics. This really does look like a plan that falls well short of what advocates of strong stimulus were hoping for — and it seems as if that was done in order to win Republican votes. Yet even if the plan gets the hoped-for 80 votes in the Senate, which seems doubtful, responsibility for the plan’s perceived failure, if it’s spun that way, will be placed on Democrats.
I see the following scenario: a weak stimulus plan, perhaps even weaker than what we’re talking about now, is crafted to win those extra GOP votes. The plan limits the rise in unemployment, but things are still pretty bad, with the rate peaking at something like 9 percent and coming down only slowly. And then Mitch McConnell says “See, government spending doesn’t work.”
Let’s hope I’ve got this wrong.
To summarize what he was getting at, the Great Recession took out a lot more money, mostly in stock and housing values, than the emerging stimulus was going to put in. Krugman’s model, based on Keynesian economics, suggested this would stop the plunge but do little to bring us back to full employment; and that the Republicans, who turned the budget surplus they inherited from the Clinton administration, into such a major deficit the USA was hemmed in from borrowing the sums it needed to fully stimulate the economy, these same Republicans would blame Obama and Keynesian economics for the failure.
In fact looking back at that old prediction we can see it has come pretty much true with one caveat: Krugman, Obama, and the country were unaware at the time that the recession was much worse than they thought. More recent analysis published here in a July 29th, 2011 Huffington Post article entitled Great Recession Substantially Worse Than Previously Thought: Report says:
The 2007-2009 recession, already in the record books as the worst in the 66 years since the end of World War II, was even worse than previously thought.
From the start of the recession at the end of 2007 to the end in June of 2009, the U.S. economy shrank 5.1 percent. That is 1 percentage point worse than the previous estimate that the recession reduced total output during that period by 4.1 percent.
In short, had Krugman known how bad it really was he’d have suggested an even bigger stimulus was needed. At least in his first six months Obama stopped the collapse into a New Great Depression, and as Krugman predicted, set us on the course for a slow recovery.
I don’t like to identify myself as a Democrat or Republican. I don’t even like to be affiliated with an ideology like conservative or liberal. I like to identify myself as an American Pragmatist, finding what works, not demanding things be “shoulda, coulda, oughta”. The use of the scientific method for policy and politics. Here we have a prediction, based on 70 years of economic theory and practice. It seems to be pretty close to right, even in its political components suggesting the Republicans blaming Obama and the Democrats for the failure of the stimulus package which required support from them that they wouldn’t give.
While Republicans blame, a September 2012 CNN poll shows the public is much more nuanced than saying, “Well Obama is president now so it’s all his fault.” The poll found:
Since President Barack Obama’s first year in office, a majority of Americans have said that former President Bush’s policies were more responsible for current economic problems than Obama’s policies were. That figure is at 57% today, with 35% saying the current president and Democrats are mostly to blame for economic problems.”
It goes without saying this is not the result the Republicans had hoped for. For me the reality is closer to Bill Clinton’s recent DNC speech, the Republican’s argument is: “We left him a total mess. He hasn’t cleaned it up fast enough. So fire him and put us back in.”. The Democrats argument is: “He inherited a deeply damaged economy. He put a floor under the crash. He began the long, hard road to recovery and laid the foundation for a modern, more well- balanced economy that will produce millions of good new jobs, vibrant new businesses and lots of new wealth for innovators.”
I’m not sure how well those foundations for a modern economy have been laid, but I am sure that Republican policy directions for the past 30 years have done more to harm the economy and the middle class than Democratic ones. I understand that Republicans wish to blame the man, George “W”, but it is really their ideas and policies that are bankrupt (I will write more on that later). Perhaps another Obama win can restore this party to its sensibilities to work cooperatively in finding solutions for the country.