Unfortunately, Obama and his economic team were overly optimistic about how fast a full recovery could be achieved. An extended period of slow growth was inevitable, given the severity of the crisis and recession. There should have been a more single-minded focus on the recovery, and the administration’s ambitious policy agenda in other areas should have been scaled back.
Republicans are blaming Obama for the continued economic weakness, which they say is caused by excessive government intervention. It seems delusional to blame the 2008 financial crisis and resulting recession on too much regulation, but Obama’s policy overreach has made it easier to paint him as an advocate of big government. His re-election will depend heavily on whether the economic recovery strengthens or weakens in 2012.
The immediate problem facing the economy is weak demand. Recovery is under way, but it continues to be slow and it could falter in 2012. It will need to be nurtured, both in the remainder of this administration and in the next presidential term. Given the budget crisis, there are limits to what more can be done with federal spending, but I lay out here eight important steps to restore growth:
- Continued stimulus for workers’ incomes;
- Maintaining assistance for housing;
- Providing continued aid to the states;
- Controlling the trade deficit;
- Helping Europe address its debt crisis;
- Setting a framework for a balanced budget;
- Encouraging states to bring in private capital to undertake significant
- infrastructure investments; and
- Embracing the trends of developing educational technology and expanding competition among educational institutions.
The Obama Record
The financial crisis started in 2007 and evolved into a full-blown recession by 2008, with the rate of job decline hitting a high point with over 700,000 private-sector jobs lost a month November 2008 through the spring of 2009. Private sector payroll employment fell 8.8 million from its peak to its trough. The financial crisis and severe recession were deeply damaging, and no president has the power to turn around the economy quickly. The U.S. economy bounced back pretty quickly from severe recessions in 1975 and 1982, but those recessions were very different. The job loss in this recession was far more severe, and the bursting of the housing bubble left a legacy of trillions of dollars of lost wealth, underwater mortgages, weakened banks, slow growth in wage incomes and a collapse in residential construction.
The fiscal policy of the Bush administration tied Obama’s hands in dealing with the recession. President Bush inherited an FY 2000 budget surplus but ran large budget deficits from FY 2002 through 2008, including a 3.2 percent of GDP deficit in his last year. These deficits limited the size and duration of the stimulus policies available to overcome the collapse of private demand.