The first showdown dominated the spring, as House Republicans refused to pass a routine bill to keep the government running unless Obama accepted severe spending cuts, plus restrictions on Planned Parenthood and other right-wing demands. Minutes before the deadline, Boehner and Obama cut a deal to slice $38 billion out of the budget, which both described as “the largest spending cuts in history.” The left erupted, accusing Obama of repeating FDR’s slam-on-the-brakes mistakes of 1937, capitulating to hostage takers and validating their antigovernment worldview. At the progressive Netroots Nation conference, there was a panel discussion on “What to Do When the President Is Just Not That into You.”399
But the fine print revealed that Obama paid a paltry ransom to rescue the hostage. Republicans wanted to whack Democratic priorities like Head Start and Pell grants, but the deal only trimmed $352 million-with-an-m in 2011, mostly smoke-and-mirrors cuts of money that never would have been spent. It didn’t rescind one cent of stimulus funds, and expanded stimulus programs like Race to the Top, TIGER, and ARPA-E. Republicans did block Obama’s push for new investments in clean energy, science, and high-speed rail, but they didn’t dismantle his earlier investments, or Planned Parenthood for that matter. Basically, the deal extended the status quo, neither advancing Obama’s agenda nor rolling it back. And that posed a problem for Boehner, whose Tea Party freshmen thought they had a mandate to repeal the Obama presidency. The speaker was reduced to bragging about eliminating four “czars,” Fox News shorthand for Obama policy aides, and even those four aides had already left government.
The next showdown dominated the summer, after House Republicans threatened to force the Treasury into default unless Obama agreed to more cuts. The insane spectacle of a superpower debating whether to pay its bills led to an unprecedented downgrade of the U.S. credit rating. And the bipartisan negotiations over a $4 trillion “Grand Bargain,” which would have attacked long-term deficits with tax hikes and entitlement reforms as well as spending cuts, inspired endless what-if rehash. But after all the melodrama—Cantor blowing off Biden, Obama walking out on Cantor, Boehner refusing to return Obama’s calls, Boehner quelling Tea Party rebellions—there was no default, no grand bargain, and no overthrow of the speaker. Republicans refused to accept any tax hikes, and Obama resisted short-term cuts that could tank the economy. The result was a last-minute mini-bargain that stretched $2 trillion worth of paper cuts over a decade.
Again, liberals were enraged, denouncing Obama’s focus on deficits during a jobs crisis, his acceptance of spending cuts without new taxes, and his willingness to consider squeezing Social Security and Medicare. While Summers, Romer, Bernstein, and even Orszag were all calling for short-term stimulus now that they had left the White House, the deficit-minded Geithner, the only survivor from Obama’s original economic team, was now his dominant adviser. In a hostage crisis where Tea Party Republicans seemed downright eager to shoot the hostage, and the global economy depended on the survival of the hostage, Obama didn’t think this was the time to make a public stand for Keynesian principles. And after a conservative wave election, his political advisers hoped a big bipartisan deal would reassure independent voters about his fiscal responsibility.
But again, the deal Obama actually struck was quite modest, delaying the vast majority of the cuts until 2013 or later. So they’ll depend on the 2012 election.
Which was what 2011 was really about.
The recovery stalled again while Washington was obsessing over spending and debt. Economists cited supply chain glitches created by the Japanese nuclear disaster, high fuel prices spurred by Middle East instability, and European austerity measures in response to the Greek crisis. The U.S. debt limit circus didn’t help, either, and the new stimulus from the lame-duck tax cut deal did not quite offset the loss of stimulus from the Recovery Act winding down. Meanwhile, states and cities kept slashing services and employees, creating more fiscal drag on the recovery.
In the fall, once Obama no longer needed Republican permission to keep the government from shutting down or stiffing creditors, he pivoted back to jobs, unveiling an American Jobs Act to give the economy more gas. Republicans called it “son of stimulus,” and it did feature more payroll tax cuts, unemployment benefits, public works, and state aid, plus the school construction binge that Senator Collins stripped out of the Recovery Act. Once again, Obama was betting his presidency on the unspoken S-word.
Even the political theater critics who usually panned Obama for failing to market his policies clearly and repetitively had to admit he followed their advice on his jobs bill. He proposed it in a prime-time speech to Congress, then led raucous rallies for it around the country, including an in-your-face event at the creaky bridge connecting McConnell’s state of Kentucky to Boehner’s state of Ohio.400 At every stop, he led chants of: “Pass this bill!” But Congress didn’t pass the bill. Reid broke it into individual components, but those didn’t pass, either. They were dead on arrival in the Republican House, and some Democratic senators were distancing themselves from the Obama agenda, too.
Whatever muddled-message or mythos-logos problems Obama had, his real problem was 9 percent unemployment. He had said that if he couldn’t fix the economy in three years, he was looking at a one-term proposition. Time was almost up. Republicans mocked him as Herbert Hoover 2, Jimmy Carter Jr., and after an August jobs report with no jobs, President Zero. (The report was later revised to 100,000 jobs. Nobody revised the nickname.) The people had spoken, and Republicans were flexing their muscles. When independent economists warned that the GOP plans for sharp short-term spending cuts would kill hundreds of thousands more jobs, Boehner blithely responded: “So be it.”
But now that he had no chance to pass legislation, Obama was happy to “get caught trying,” fighting losing battles that would highlight his differences with the GOP and start framing the 2012 campaign. He was positioning himself as a Reasonable Man with a Balanced Approach, supporting investments in education, innovation, and other popular things, paid for by modest tax hikes on oil profits and million-dollar incomes. He contrasted that with the extremism of so-be-it Republicans, who wouldn’t even close a tax loophole for corporate jet owners. They had closed ranks around House Budget chairman Paul Ryan’s plan to replace Medicare’s health care guarantee for the elderly with private vouchers and shred nonmilitary spending; after Gingrich called the plan “right-wing social engineering,” he took so much heat from the Limbaugh wing of the party he had to call Ryan to apologize. At one Republican debate, the candidates vying to replace Obama were asked if they would reject a deficit reduction deal that included $10 in spending cuts for every $1 in tax hikes, and all eight raised their hands.
Reasonable and balanced were not selling points in the Republican primary. For a few weeks, the front-runner was the megalomaniac reality TV star Donald Trump, who built his groundswell by questioning Obama’s citizenship. (The president finally released his birth certificate to prove he was native-born. Fewer than half of GOP primary voters were convinced.) Tea Party congresswoman Michele Bachmann, who claimed the 2011 East Coast earthquake was God’s way of demanding spending cuts, also took a turn on top of the polls. So did an obscure right-wing businessman named Herman Cain, who suggested the unemployed should blame themselves instead of Wall Street; Texas governor Perry, who dismissed Social Security as a Ponzi scheme; former speaker Gingrich, who proposed putting poor kids to work as janitors; and former Pennsylvania senator Rick Santorum, who called Obama a snob for urging young people to go to college.
There was one Republican candidate who terrified the White House: former Utah governor Jon Huntsman, the reality-based conservative who had slammed his own “very narrow party of angry people” before serving as Obama’s ambassador to China. But trashing the GOP and working for Obama was not a winning primary strategy, especially after his virtually disqualifying admission via Twitter that “I believe in evolution and trust scientists on global warming. Call me crazy.” Former Massachusetts
governor Mitt Romney, widely considered the Republican favorite, also had a history of reality-based behavior, including the health reforms that inspired Obamacare. But he was furiously backpedaling from his sensible-moderate past for the primary, vowing to repeal Obamacare, questioning climate science, embracing the Ryan plan to privatize Medicare. He accused Perry of insufficient hostility to illegal immigration, Gingrich of insufficient fervor for the free market, Santorum of sympathy for Big Labor and Big Government.
“It’s been a lot of fun watching Mitt bash these right-wingers from the right,” says one Obama aide.
By the end of 2011, Obama’s approval ratings were starting to rebound, thanks in part to the Republican presidential freak show. He began quoting a line from Biden, who had cribbed it from an old Boston pol: “Don’t compare me to the Almighty. Compare me to the alternative.” In December, overconfident House Republicans made Obama look even better when they tried to seize one hostage too many, threatening to let the lame-duck payroll tax cuts and jobless benefits expire if the president didn’t agree to deep cuts in Obamacare and other concessions on the Tea Party wish list. This time, Obama called their bluff, daring Boehner to raise taxes on 160 million Americans. Eventually, Boehner caved. So the economy got an extra year of stimulus, just as the White House had planned, and Obama got another opportunity to highlight Republican intransigence.
But the main reason Obama’s approval ratings started inching up was that the jobless rate started inching down. As I write this in March 2012, unemployment has dropped to 8.3 percent, still terribly high—and yes, still higher than the Romer-Bernstein 8 percent prediction—but heading in the right direction. Even Romney is no longer saying the economy is weak because of Obama. He’s saying the economy would have been even stronger without Obama. For a change, the counterfactual shoe is on the other foot.
Still, Obama is the ultimate counterfactual president. “That’s us: avoiding even bigger messes since 2009,” one aide quips. He helped reduce our dependence on foreign oil, but we’re still dependent. He helped prevent atrocities in Libya, but he didn’t get credit, because the atrocities were prevented. His financial reforms could avert another disaster, but presidents rarely earn points for averting disaster. One exception was George W. Bush, who got huge mileage out of “keeping us safe” after September 11. Obama has kept us safer, and wiped out most of al Qaeda’s leaders, but apparently there needs to be a spectacular terrorist attack on U.S. soil during your presidency before you can get credit for avoiding another one.
The Recovery Act is the ultimate counterfactual policy. It’s impossible to know precisely what the economy would look like without stimulus, because there’s no way to run a double-blind study of an alternative U.S. economy. Nevertheless, it’s possible to start drawing conclusions about the Recovery Act’s impact.
Easing the Pain
The Great Recession will be remembered for rampant unemployment and rampant foreclosures. It won’t be remembered for rampant homelessness. There was no epidemic of foreclosed families on the streets, no Obama-era version of the Hooverville tent cities. The number of Americans without shelter actually declined one percent from 2009 to 2011.401
That wasn’t happenstance. That was the Recovery Act.
Remember that $1.5 billion homelessness prevention experiment with the sixty-fold funding increase? Early data suggest it’s been shockingly effective in keeping roofs over the heads of at-risk families. In the Miami area, it’s helped over 7,500 people with rent, utilities, and emergency rehousing, and only 103 have shown up in the shelter system. Nationwide, it’s helped house over 1.2 million Americans in crisis; if half of them had ended up on the streets instead, the homeless population would have doubled. Shelters would have been overwhelmed, along with emergency rooms and local jails.
“It works,” says Ron Book, a Florida Republican lobbyist who chairs the Miami-Dade County Homeless Trust. “It keeps people off the streets and saves an astronomical amount of money. I’m not a fan of the stimulus, but this is a huge bright spot.”
Whatever one thinks of using tax dollars to help people in precarious economic situations, the Recovery Act did help make their situations less precarious. It made food stamps more generous, transferring $20 billion to low-income families. It sent $250 checks to 55 million elderly and disabled Americans, helping them make rent, buy groceries, and keep their lights on. It boosted unemployment benefits $25 a week, extended their duration to almost two years, and helped laid-off workers keep their health insurance by subsidizing most of their premiums. It gave states about $100 billion to prevent massive cuts in Medicaid funding, and instead cover nine million additional low-income patients. Its refundable tax cuts redistributed billions more to the working poor.
The Great Recession did slightly increase the U.S. poverty rate, from 14.9 percent to 15.5 percent, but experts had expected a dramatic spike. An analysis by the Center for Budget and Policy Priorities found the Recovery Act’s transfer payments directly lifted at least seven million Americans above the poverty line of $22,000 for a family of four.402 They also made 32 million poor Americans less poor.
When Romney infamously said he’s “not concerned about the very poor,” he was actually making a legitimate point: The safety net was covering their basic needs. But that had a lot to do with the Recovery Act that Romney and his party consider such an unmitigated disaster. Killing the stimulus would have killed funding for Meals on Wheels for poor seniors, subsidized lunches for poor children, subsidized child care for poor families, and other safety net programs. The center calculated that without the Recovery Act’s aid to the vulnerable, the poverty rate would have increased at least five times more than it did. And that didn’t take into account the stimulus produced by that aid, which went to families with the highest propensities to spend it.
This is where evaluating the Recovery Act gets a bit trickier. The stimulus definitely helped tens of millions of people in need. But it didn’t produce full employment, which would have reduced the number of people in need. Republicans often claim the stimulus hurt the economy by growing the public sector, crowding out private investments, and using borrowed money that will have to be paid back with interest. Sometimes they merely dismiss the stimulus as an illusory “sugar rush.” Even Keynesian true believers often criticize the way the Recovery Act was put together.
Economists will study the stimulus for decades to come. But so far, the evidence suggests that in the short term it basically did what it was supposed to do.405
No, it didn’t keep unemployment below 8 percent.
This is the most common partisan indictment of the Recovery Act: Obama broke his 8 percent promise. But unemployment passed 8 percent the same month Obama signed the stimulus into law. It shouldn’t be blamed for failing to prevent an outcome that preceded its existence. And with the economy losing over 700,000 jobs that month, the jobless rate was clearly heading up no matter what Obama did. As impolitic as it was, the Romer-Bernstein report’s poor guess about the pre–Recovery Act baseline implied nothing about its forecasts of the Recovery Act’s impact.
In fact, the major private forecasting firms have mostly validated the White House forecasts of the Recovery Act’s impact.403 They estimate it increased GDP 2.1 percent to 3.8 percent at its peak, in line with Romer-Bernstein, and created or saved about 2.5 million jobs, slightly fewer than Romer-Bernstein. They’ve suggested that without the Recovery Act, unemployment would have hit 12 percent or higher, and would have remained in double digits through 2012. Their estimates largely depend on models of the economy rather than the actual economy, but it’s still notable that the leading forecasters all seem to agree.
Most economists do. Before it got caught up in Obama-era politics, Keynesian stimulus was the textbook response to a sharp downturn; as Romer said, it was about as controversial in the economics profession as antibiotics in the medical profession. Even now, 80 percent of the economists in a University of Chicago survey agreed the Recovery Act low
ered unemployment, while only 4 percent disagreed.404 A Washington Post review of early stimulus studies identified six that demonstrated a positive effect on growth and jobs, versus only one useful study (by prominent Republican economist John Taylor) that found the stimulus failed—and critics noted that Taylor’s data just as easily support the conclusion that the stimulus was too small.406 Even most Republican politicians stopped arguing that the stimulus failed to produce any jobs, instead claiming it cost too much per job. After all, the recipient reports alone documented 750,000 direct stimulus-funded jobs, and they only applied to one third of the Recovery Act.
If there’s no smoking gun to prove the stimulus helped stop the free-fall, the ballistics certainly match. Job losses peaked in January 2009, just before it passed. Output began improving that spring, just as it ramped up. The recession technically ended in June, just as it hit its stride. In pure macroeconomic terms, the Recovery Act seems to have outperformed the New Deal, because it injected more fiscal stimulus than the New Deal. “The evidence is so clear,” Mark Zandi says. “If it hadn’t become so politicized, every economist would agree.” Europe’s struggles after austerity have provided equally strong circumstantial evidence that anti-stimulus deepens slumps; similarly, the U.S. states that cut the most spending tended to lose the most jobs.
The obvious question is why, if the stimulus worked as planned, unemployment has remained so high for so long. Obama’s shadow transition team gave away part of the answer before he was even elected: Historically, recoveries from financial shocks are always slow and tough. And by some measures, the shocks of 2008 were nastier than the crash of 1929. Eight trillion dollars in housing wealth vanished almost overnight. The construction industry that created the bubble shut down, and millions of Americans could no longer use their homes as ATMs to finance the consumption that inflated the bubble. Families, businesses, and governments were all saddled with debt, leaving virtually no demand in the economy. Deleveraging takes time. So does restoring confidence.
The New New Deal Page 46