Biden-Trump stimulation shows how badly Obama’s 2009 plan failed

The US economy has some problems. Inflation is higher than in the past several decades; continued lack of important items (above all, cars); and the pandemic is still affecting supply chains around the world.

All that considered, however, the economy has recovered from the COVID-19 shock at an astounding rate. In the latest jobs report, the unemployment rate fell 3.9 percent – historically, the rate of excellence has only been seen at best about once in a decade. Wages are on the rise, especially in low-wage occupations. If the pandemic is finally over this year and disruptions to supply chains are gone, 2022 could see the best job market for workers since the 1960s.

That may or may not happen. But even without further improvements, all of this still makes for a galloping comparison with the weak recovery from the 2008 financial crisis. We could have the economy. this many jobs, high wages in 2010 if then-President Barack Obama and the major Democrats in Congress hadn’t completely ignored their most important task: restoring full employment. .

Let me start by reviewing the story of the past year. When President Biden was inaugurated last January, unemployment rate is 6.4%, and the percentage of people of basic working age (25 to 54 years) who have a job is 76.4 percent. That’s the position of those numbers in 2014, halfway through Obama’s second term. A year later, the unemployment rate has nearly halved, and the base age employment rate is up to 79.0 percent – or equivalent. 2018.

In other words, the post-2008 recovery was so weak that in 2020 we have replicated four years of that era’s growth in one year. The past 12 months have seen about 6.4 million jobs created – more than half of the total The entire Obama presidency.

What explains the difference? There is one big and obvious answer: stimulation. In 2009, the Obama administration and congressional Democrats passed an economic rescue package of only about 831 billion dollars — less than half what the administration’s economists consider necessary. As a result, the immediate recession ended, but the subsequent recovery in both growth and employment was miserably weak.

During the COVID-19 pandemic, total stimulus spending has reached about $5 trillion: $2 trillion in CARES Act in March 2020, another $1 trillion in December 2020 and an additional $1.9 trillion with the US Rescue Plan in March 2021. And unlike the Rehabilitation Act in 2009, most of this money comes from direct payments to individuals. Individuals and businesses can afford it.

Well, these are two very different situations. In 2008, we went through a recession caused by the financial crisis and the collapse of the housing market. Of course, now we have a pandemic. But in terms of economics, there is a big overlap.

Keynesian theory suggests that a modern economy is vulnerable to a continuing collapse in spending. If a bunch of people get fired and lose their income, they stop spending, which causes other companies to go out of business, which means more job losses, etc. The 2008 crisis is a prime example. for this.

The 2020 crisis is different in that people voluntarily stay at home. This affects the economy’s supply, but demand also falls dramatically during the first few weeks of the lockdown. Without the CARES Act, there would be a catastrophic collapse in spending and possibly American society (remember, at the height of the economic disaster in March and April 2020, America lost 6 million jobs in a week).

These scenarios have enough common ground – and enough difference in policy responses – that we now know better than any question that spending can overcome recession and unemployment. And the more you spend, the faster the problem is fixed. If the Democrats poured enough money into the economy in 2009, they could bring the unemployment rate down to at least 5% on Election Day 2010 instead of the actual 10%.

So how did the Democrats screw up such a bad thing? Obama’s advocates often argue that there’s no way to get more stimulus from Congress, but that’s hardly a complete story.

Management advisors (especially economist Larry Summers and chief of staff Rahm Emanuel) make a gut test guess about the censors who would vote for the Senate, then refuse even propose more than that. They don’t aim high with the expectation of being bargained down to a still high number. They start too low. Obama himself failed to insist he would veto any stimulus that wasn’t big enough, he could then rely on the stock market crash and general panic to force a bigger bill. before Congress (this is exactly how the bank bailout got stuck just a few months ago).

More specifically, as Obama’s fundraiser Reed Hundt details in his book A wasteful crisisSummers and other key aides, such as Tim Geithner and Peter Orszag, all rejected the tricks that would have promote the effect of stimulant without raising its title price. They could have refinanced the state debt at extremely low federal rates, thus easing the pressure on their budgets, or gambled the budget window by balancing out-of-pocket tax increases. not valid for many years. On top of that, they could set up a green infrastructure bank that would generate $10 stimulus for every dollar spent, according to budgetary rules (because they could issue $10). dollars in loans for every dollar of capital, similar to a normal bank), and thus has made progress in fighting climate change while creating jobs.

They didn’t do it because the decision-makers in the Democratic Party didn’t want enough stimulus. They had their party wiped out completely in mid-2010.

Also, none of this is meant to endorse the Biden administration’s decision to allow the unemployment benefit hike to expire in September or its apparent plan to prioritize economic recovery over control. pandemic control. Unemployment rate cuts made no noticeable difference at the rate of job growth, and it appears that the pandemic’s failure to control has slowed the economy rather than boosted it because of disruptions to childcare and workers’ health. And even if implementing more public health controls (like stricter vaccine regulation) slows the economy somewhat, saving lives and protecting the hospital system is on the way. The brink of collapse in many states is well worth it.

But back in 2009 there was no pandemic and therefore no such trade-off between economic health and human health. There’s no reason – other than ideological bankruptcy and the philistine pig blinks-ignorant – don’t panic over stimulus, like $2 trillion for starters. Even better, Democrats may have established triggers to keep money flowing for so long, such as inflation below 5% and unemployment above 5%.

This time, at least we did better than 2009. Let’s hope America can remember the lesson of pandemic rescue packages for the coming crises.