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Tuesday, October 11, 2011

"The Chart That Will Get Obama Fired"

As the writer states, I don't think anyone else could have or would have done much better, but it certainly highlights Obama's inexperience and naivety.
(Side note: Speaking of how naive Obama was, anyone remember a little place called Guantanamo? It was such a major issue during the campaign and one of his big promises... He thought he could just shut it down with the stroke of a pen. Whatever happened to that?)

Anyway, the article from Business Insider:
Ezra Klein of the Washington Post has written an excellent treatise on how the American economy collapsed, what the government did about it, and what the government might have done differently that would have actually fixed it.

At the beginning of the article, Klein publishes what might be described as the chart that will get President Obama fired.

The chart (below) shows three lines:

  1. The incoming Obama Administration's projections for what the unemployment rate would be if no stimulus was enacted in the depths of the financial crisis.
  2. The Obama Administration's projections for what the unemployment rate would be with the President's stimulus plan.
  3. The actual unemployment rate.
The actual unemployment rate in the chart, you will note, is higher than the "nightmare scenario" initially envisioned by the Obama Administration (The unemployment rate with no stimulus).

As the chart makes instantly crystal clear, the Obama administration drastically underestimated how bad the economy was and drastically overestimated its ability to do something about it.

As a result of this, President Obama over-promised and under-delivered on the single most important challenge of his Presidency (so far).

Also as a result, President Obama gave the Republicans ammunition to argue that his stimulus "failed," when, in fact, it helped matters considerably (just not enough to fix everything).

(Obviously it's not this chart that will get Obama fired--it's what the chart shows: Unemployment well above the level at which any President since Roosevelt has been re-elected, and the "failure" of Obama's stimulus to bring it down to a level that he said it would.)

Could the Obama Administration have fixed the economy in four years had they had done something different?

In my opinion, no.

Given the extent of the damage—and the kind of damage—that Obama inherited, this was always going to be a long slog. As a quick glance at debt-to-GDP charts show, this recession was not a run-of-the-mill cyclical recession. It was a debt-fueled balance sheet recession. And if there's one thing history shows about those, they take years if not decades to fix. (See Japan and the Great Depression).

But Obama certainly could have given himself a better chance to get re-elected despite the horrible economy. If Obama had recognized how bad things were, asked for a much bigger stimulus than he ended up asking for, and, importantly, set the appropriate expectations, he'd probably have been able to pin the blame for the mess where it belongs: On the three decades of decisions that facilitated the debt build-up that eventually culminated in the financial crisis.

Instead, however, Obama over-promised and under-delivered. And this will make it that much harder for him to get re-elected.
I'm no economist, so I'm not sure what effect an even larger stimulus would have had but regardless of size, I do think stimulus funds could have been better allocated to maximize impact.
But then again, maybe nothing could have improved our situation.
Maybe "America is getting soft" (which is actually something Obama and I can agree on) and our whole society needs to change.


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