TARP, Wall Street, big banks, investment banks, car companies, Stimulus, housing bubbles, Fannies & Freddie, deficits, exploding deficits, extended unemployment benefits, lions, tigers, and bears…oh my! I really don’t blame folks for screaming; “What the heck is going on!” In answer to all of this complexity, some news outlets and politicians have “simplified” the situation for us common folk. In their words, the bailout and stimulus, TARP and other measures are all the same deal. And, in the common refrain of our time, they are all President Obama’s fault.
Of course, some of this is the responsibility of our current president, while some of the “blame” goes to the previous president. It is my contention that most of this activity was necessary and effective, if not always executed with the greatest efficiency. Our economy is in a bad way now, but it would have been much, much worse. I think it is critical that we explore these issues, because the policies that made them necessary are threatening to make a second pass. The story of the Great Recession is a story of Americans spending a great deal of money without getting much of substance in return.
The story begins with a mountain of cheap money safeguarded by a flimsy picket fence of regulations. Four Presidents, beginning with Reagan and moving through H.W. Bush, Clinton, and W. Bush, worked through executive authority and with Congress to steadily erode the safeguards in place since the Great Depression. With all of the hyperbole about the recent finance reform law, this systematic deregulation friends, is the greatest revolution in regulation since the Depression. Serenaded by the sage Alan Greenspan and his muse, Ayn Rand, we started to believe that the market could regulate itself. Remember that phrase friends, we took down our regulations because the market could regulate itself.
Greenspan and his successor Bernanke, kept interest rates low, while our foreign competitors made sure our dollar stayed artificially high. This sparked off a credit-fueled consumption binge that racked up heavy private sector debt, and helped to drive the trade deficit into orbit. The trade deficit is, by definition, the reality of more cash leaving the country than entering. Far more worrisome than foreign ownership of national debt, this situation means that foreign governments were the ones profiting from all of our trickle down economics. The top of the cake, was the national debt itself.
George W. Bush took the helm of a nation, in January of 2001, that had recorded three straight budget surpluses and paid its debt down to about $5 trillion. In two terms, that debt doubled to more than $10 trillion. During that time, our nation failed to address the growing problems with our infrastructure, which are now $2.2 trillion behind the curve (American Society for Civil Engineers). During that time, we failed to improve the lot of our nation’s veterans; over 107,000 are homeless on a given night (VA), and the military’s stateside medical facilities had fallen into a state of disrepair (see Walter Reed). Our nation, while doubling the debt, failed to take any steps towards a 21st century energy or transportation grid. So what the heck did we do?
What we did, between 2001 and 2008, was cut taxes to “help the economy”; further deregulate financial, industrial, and energy interests to “help the economy”; and ignore and/or under-enforce those regulations that stayed on the books to “help the economy”. We ran the conservative supply-side playbook during the two terms that President George W. Bush was in office. And that was OK, because the majority that voted for him twice (sort of) wanted those policies. The same majority that elected the Republican House and Senate during those years wanted those policies. We live in a majority rule nation.
The question is whether those policies helped the economy. The question could also be, did those policies hurt more individuals then they helped. We know what those policies cost us in terms of debt. Or at least most of know; the folks marching in the streets seem to think that Barack Obama is the cause of their angst: this debt and deficit, these industrial problems, this unemployment. All of this is, apparently, the work of this president whose first budget year won’t expire for another two months. The graph at left shows, very clearly, the drivers of debt and deficit.
The elements on this chart are familiar to all, but some explanation won’t hurt. This recession (economic downturn) began in 2007 and hit its peak in October of 2009, which was the month following the beginning of Barack Obama’s first fiscal year. TARP was George W. Bush’s very necessary program to stabilize the free-falling financial sector. The $700 billion plan definitely spawned some bad behavior among the greedy idiots on the Street, but it also definitely saved our nation’s financial bacon. The stimulus package is President Obama’s responsibility. The war in Afghanistan is our nation’s responsibility, as there is little doubt that we should have gone there. The much more expensive war in Iraq is George W. Bush’s boondoggle, no American should ever forget that his administration lied to we the people and our Congress to get us into that war. The Bush tax cuts, which have already cost $1.8 trillion, and would cost an additional $1.7 trillion if extended, are self-explanatory.
President Obama’s $787 billion stimulus plan has been much debated. Republican lawmakers, all of whom excepting the senators from Maine voted against the plan, have generally referred to it as a joke or a travesty. The problem with their stance is that the stimulus has clearly worked. These Republican lawmakers are fond of citing CBO reports that highlight the cost of legislation. They jumped all over every estimate of cost for the health care bill from the CBO, and they even pounced on the CBO estimate that the public option in the House health care bill would only cover 4% of the population. They like the CBO…unless the CBO says that the stimulus worked. The CBO has found that the stimulus is working. These are the CBO’s findings in April of 2010.
- Raised the level of real (inflation-adjusted) gross domestic product (GDP) by between 1.7 percent and 4.2 percent,
- Lowered the unemployment rate by between 0.7 percentage points and 1.5 percentage points,
- Increased the number of people employed by between 1.2 million and 2.8 million, and
- Increased the number of full-time-equivalent (FTE) jobs by 1.8 million to 4.1 million compared with what those amounts would have been otherwise. (Increases in FTE jobs include shifts from part-time to full-time work or overtime and are thus generally larger than increases in the number of employed workers.)
But that is not the sum of the effects of the stimulus package. The stimulus targeted 37% of its total to tax cuts; $237 billion in individual cuts, and $51 billion in business cuts. So how about the wasteful government spending side?
- $155 billion towards healthcare– this includes state Medicaid support, health information technology grants, COBRA subsidies, community health centers, military hospitals, and the Veterans Health Administration.
- $100 billion towards education– this includes nearly $54 billion in direct aid to local school districts at their discretion.
- $82 billion for social programs– this includes $40 billion for extended unemployment benefits as well as almost $4 billion for job retraining.
- $48 billion for transportation– almost $28 billion of this total is for road construction, with monies for rail, mass transit, air traffic upgrades, and shipyards.
- $18 billion for water, sewage, and public lands upgrades– this includes over $4 billion for flood control and billions more for rural water supply projects.
- $7 billion for federal building upgrades– more than 2/3 of this total went to military and homeland security projects such as barracks upgrades.
- $10.5 billion for communication and information security– 70% of this total is marked for creating national access to broadband technology.
- $21.5 billion for existing energy work– smart grid, radioactive cleanup, and power transmission upgrades form the bulk of this category.
- $27 billion for energy efficiency projects and green energy– covering everything from loan guarantees for private sector renewable energy development to weatherization for homes to the energy efficient appliance credits.
- $14.7 billion for housing– including money to renovate urban blight and make public housing more energy efficient.
- $18 billion for science and other projects– including $4 billion for local law enforcement and money for NASA and the U.S. Geological Survey.
Of course the bulk of this spending is done by contractors and private enterprise. State and local government, charities and other non-profits, large construction firms and individual contractors; these are the folks spending this money in every state in the union. The raw numbers of the stimulus success were demonstrated earlier through the CBO analysis, which itself was backed up by independent work from Moody’s Financial. The numbers show the evidence for a Depression averted and a recovery begun. Further evidence is shown in the simple jobs graph at left; it takes more than 18 months to undo years of misspent policy. We have many months to go before our economy is back at full strength, but the graph is clear on one point: we are headed in the right direction.
We gave supply side economics a good run for its money during the Bush Administration. It had a fair hearing and a chance to shine. No American should be ashamed for giving it a shot, but the evidence is clear. We need policies that accommodate a world class infrastructure and education system. We need policies that favor the workers who both produce and buy the units of commerce. We need more than just a promise to cut taxes and work miracles.
The Rational Middle is listening…