James Pethokoukis

Politics and policy from inside Washington

Did Obama save U.S. from a depression? Not so much

June 21, 2011

My old boss John Merline of Investor’s Business Daily eviscerates  President Obama’s recent claim that back in 2009 “we had to hit the ground running and do everything we could to prevent a second Great 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.

It’s an interesting strategy. Since the White House can’t sell whatever this is as any sort of recovery, they are trying to buy time with voters by inflating the risks the U.S. economy faced when Obama took office.  Of course, there is a rival meme: He made it worse.

Comments

Mr. P: Precisely.

Although initially I welcomed Mr. Obama’s election in 2008, I have felt since early 2009 – at the time Mr. Obama won his Nobel Prize – that this guy was basically a fraud and all of his policy manoeuvres merely made a bad situation much worse. Stimulus, indeed, and the disastrous Medicare reform. That and Mr. Bernanke’s money printing have done nothing to improve the US economy. Not much of a record to run on.

Posted by Elektrobahn | Report as abusive
 

Um, the great depression had 25% unemployment, in addition to a whole host of other problems we are not currently experiencing. Consult your history book before your write headlines for your commentary. You know, to make sure they are accurate.

Posted by BB1978 | Report as abusive
 

This article has a definite political slant and leaves out any data that contradicts the author’s view.
He seems to have forgotten about the bank failures an dteh impacts to the auto industry that account for a large percentage of employment with all of their associated business with suppliers and many other jobs.
Failing to enact a stimulus could have easily spawned a run on banks and much worse unemployment than we experienced, which is not the same but similar to the run up to the great depression.
He also chooses to only point fingers at the Obama administration, when the Bush White House with some of the same advisors saw the need for a stimulus and passed the first TARP program and considered other possible actions.

Posted by mikemm | Report as abusive
 

I do not care for any President, Senator or Congressman what so ever. That being said, we have all these economic armchair quarterbacks that sit back and critized now but did not stand up in the beginning and say what the common person wanted in the first place which was let the whole damn thing collapse and toss out every wealthy crook and make do with what shakes out. But no. these same individuals of all levels of expertise and education have critized every President that have ever served. What a bogus article.

Posted by rcd1160 | Report as abusive
 

Just because the economy had hit bottom before the stimulus took effect doesn’t mean that the economy would have improved without it. And saying that the recession officially ended before the majority of the money was spent doesn’t really mean much either. The economists may say it ended in June of 2009 but workers would say otherwise. I don’t believe the stimulus was ever intended to satisfy economists’ views on the recession – it was meant to put people back to work, and it accomplished that goal to a greater degree than doing nothing would have.

As for the last sentence claiming that Obama made the economy worse, what is the evidence of that claim?

Posted by EddieB33 | Report as abusive
 

Just because the economy had hit bottom before the stimulus took effect doesn’t mean that the economy would have improved without it. And saying that the recession officially ended before the majority of the money was spent doesn’t really mean much either. The economists may say it ended in June of 2009 but workers would say otherwise. I don’t believe the stimulus was ever intended to satisfy economists’ views on the recession – it was meant to put people back to work, and it accomplished that goal to a greater degree than doing nothing would have.

As for the last sentence claiming that Obama made the economy worse, what is the evidence of that claim?

Posted by EddieB33 | Report as abusive
 

The so-called stimulus served the interests of the District of Columbia and state capitals across the country, delaying necessary budget cuts. Texas recently had to close a $27 billion gap, which it would have done earlier had not Gov. Perry accepted billions in stimulus money. Basically all those government workers got an extension of their cushy benefits while the private sector tightened its belt and shed real jobs. Obama has said twice there were no shovel-ready jobs.

Posted by hecatr | Report as abusive
 

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