Did Obama Really Prevent A Second Great Depression? By JOHN MERLINE
It has become a common refrain at the White House and among administration supporters that President Obama's aggressive efforts to stimulate growth prevented an economic catastrophe.
"We had to hit the ground running and do everything we could to prevent a second Great Depression," Obama told supporters last week.
Politically, the claim makes sense. Casting the challenge Obama faced as immense can help explain the economy's lackluster performance in the two years since the recession officially ended.
But is it an accurate portrayal of what really happened?
IBD reviewed records of economic forecasts made just before Obama signed the stimulus bill into law, as well as economic data and monthly stimulus spending data from around that time, and reviews of the stimulus bill itself.
The conclusion is that in claiming to have staved off a Depression, the White House and its supporters seem to be engaging in a bit of historical revisionism.
Economists weren't predicting a Depression.
White House economists forecast in January 2009 that, even without a stimulus, unemployment would top out at just 8.8% — well below the 10.8% peak during the 1981-82 recession, and nowhere near Depression-era unemployment levels.
The same month, the Congressional Budget Office predicted that, absent any stimulus, the recession would end in "the second half of 2009." The recession officially ended in June 2009, suggesting that the stimulus did not have anything to do with it.
The data weren't showing it, either.
The argument is often made that the recession turned out to be far worse than anyone knew at the time. But various indicators show that the economy had pretty much hit bottom at the end of 2008 — a month before President Obama took office.
Monthly GDP, for example, stopped free-falling in December 2008, long before the stimulus kicked in, according to the National Bureau of Economic Research. (See nearby chart.) Monthly job losses bottomed out in early 2009 while the Index of Leading Economic Indicators started to rise in April.
The stimulus timing is off.
When the recession officially ended in June 2009, just 15% of the stimulus money had gone out the door. And that figure's likely inflated, since almost a third of the money was in the form of grants to states, which some studies suggest they didn't spend, but used to pay down debt.
Other programs Obama often touts — Cash for Clunkers, mortgage help, homebuyer tax credits, the auto rescue plans — either came as the recession had ended or was ending or were widely deemed to be busts.
The stimulus wasn't up to the task.
Economists on both sides of the aisle complained at the time that the stimulus was too small or too slow-acting to be very effective at growing the economy, much less stopping any Depression.
Liberal economist and New York Times columnist Paul Krug man wrote that while "the administration insists that the plan is adequate to meet the economy's need ... few economists agree."
Conservative Harvard economist Martin Feldstein, who had advocated for a large stimulus, likewise complained that the one Obama signed would do "too little to raise national spending and employment," calling it an "$800 billion mistake."
Obama himself admitted last week that the stimulus was too slow-acting, saying at his Jobs and Competitiveness Council that "shovel-ready was not as shovel-ready as we expected."
Also often overlooked is that a tremendous amount of stimulus already was in the economy when Obama took office, including President Bush's $150 billion stimulus, two unemployment benefit extensions and $250 billion spent on "automatic stabilizers."
More importantly, the Bush administration pushed through the controversial $700 billion TARP program (which Obama sustained), while the Fed pursued an aggressive anti-recession campaign by, among other things, effectively lowering its target interest rate to zero.
Princeton economist Alan Blinder and Moody's Analytics chief economist Mark Zandi studied the relative contribution of Obama's $830 billion stimulus compared with TARP and the Fed's "financial-market policies."
While the economists credit Obama's stimulus for helping end the recession when it did and keeping unemployment lower than it would have been, they concluded that TARP and the Fed's actions were "substantially more effective" at saving the economy from ruin.
http://www.investors.com/NewsAndAnalysis/Article/575847/201106201754/Stimulus-Prevented-Second-Depression-Evidence-Says-No.htm
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