Making Sense of the Stimulus
In this political climate of loud no’s and yesses, good journalism is vital to disentangle all the maybes and what if’s.
As Republicans brand the 2009 stimulus of $787 billion a total failure and Democrats defend it as keeping the recession from getting worse, Ezra Klein of the Washington Post reports what economists and politicians were actually thinking and doing back then.
He cites the 2008 book of Carmen Reinhart and Ken Rogoff, “This Time Is Different,” a study of nine centuries of financial crises: “In their view, the administration wasn’t being just a bit optimistic. It was being wildly, tragically optimistic…
“In March 2009, Reinhart and Rogoff took to Newsweek to critique the ‘chirpy forecasts coming from policymakers around the globe.’ The historical record…showed that ‘the recessions that follow in the wake of big financial crises tend to last far longer than normal downturns, and to cause considerably more damage. If the United States follows the norm of recent crises…output may take four years to return to its pre-crisis level. Unemployment will continue to rise for three more years, reaching 11 to 12 percent in 2011.’”
But nobody in the Obama Administration or Congress was listening. Looking back now, Peter Orszag, who headed the Office of Management and Budget then, tells Klein, “I didn’t realize we were in a Reinhart-Rogoff situation until 2010.”
On the other hand, John McCain’s top economic adviser, Doug Holtz-Eakin, doesn’t think the White House made matters worse.
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4 Responses to “Making Sense of the Stimulus”
Wow, that WaPo article is surely depressing. But I believe it to be honest. This recession is horrid because it’s root cause is a financial crisis of epic proportions. And because the bubble that led to it — housing — effects everyone, there is no easy way out.
What an eye opener for Obama on his first days.
I don’t agree with Klein’s complete take on the situation, but his WaPo column was outstanding. It’s long but definitely worth a read.
A good friend of mine told me the bubble was going to collapse two years before it did. He sold his house then at a magnificent equity gain of very close to twice what he paid after only seven years. He speculated the collapse, sold out on the west coast, built a much nicer house on the east coast and put money back in the bank. His original purchase was with one of those shaky loans. Now he has no mortgage.
I find it hard to believe others in the Bush government didn’t see all this coming.
This only adds to my respect for a thinking Klein over shills like Krugman.