For months, Mitt Romney, John Boehner and other Republican leaders have falsely claimed that "President Obama made the economy worse." The same crowd which for years cried that George W. Bush "inherited a recession" accused Obama of blaming his predecessor for the greatest economic crisis since the Great Depression. Now, the GOP has seized on President Obama's comment that "sometimes I forget" the magnitude of the calamity he faced on January 20, 2009.
But while the Republican revisionists are intentionally erasing the context of Obama's remark, they are also inviting Americans to remember the depth of the cataclysmic Bush recession that began in late 2007. The GOP propagandists may regret having done so. After all, even after George W. Bush presided over the worst 8-year economic record in modern presidential history, Mitt Romney promises to double-down on the same policies that helped produce it. Meanwhile, the facts and the overwhelming consensus of economists - including John McCain's 2008 brain trust - show that Barack Obama saved the United States from "Great Depression 2.0" and put the nation on the path to recovery.
Back in December, President Obama used a speech in Osawatomie, Kansas to remind voters that Republican trickle-down economics "never worked." On Thursday in Seattle, he asked Americans to remember the devastation those policies produced:
We'd seen a record surplus that was squandered on tax cuts for people who didn't need them and weren't even asking for them. Two wars were being waged on a credit card. Wall Street speculators reaped huge profits by making bets with other people's money. Manufacturing was leaving our shores. A shrinking number of Americans did fantastically well, but a lot more people struggled with falling incomes and rising costs and the slowest job growth in a century.Sometimes people do forget the magnitude of the Bush economic disaster and that, in the face of total GOP obstructionism in Congress, the Americans people fought back. In 2012, Republicans should be hoping for amnesia on both counts.
So it was a house of cards, and it collapsed in the most destructive, worst crisis that we've seen since the Great Depression. And sometimes people forget the magnitude of it, you know? And you saw some of that I think in the video that was shown. Sometimes I forget. In the last six months of 2008, while we were campaigning, nearly 3 million of our neighbors lost their jobs; 800,000 lost their jobs in the month that I took office. And it was tough. But the American people proved they were tougher. So we didn't quit. We kept going. Together we fought back.
To better understand why, it's worth taking a second look at just how dire the U.S. economic situation was when Barack Obama took the oath of office. As The Economist and the Washington Post's Ezra Klein detailed, in early 2009 the American economy was not only in much worse shape than almost anyone imagined; it was literally on the brink of collapse. As The Economist explained the run-up to the passage of the $787 billion recovery program:
The White House looked at the economic situation, sized up Congress, and took its shot. Unfortunately, the situation was far more dire than anyone in the administration or in Congress supposed.As Klein points out, it "wasn't until this year that the actual number was revealed" for Q4 2008 by the Bureau of Labor Statistics. As The Economist lamented, the Obama administration was "flying blind" when it made its fateful prediction that unemployment would peak at 8 percent.
Output in the third and fourth quarters fell by 3.7% and 8.9%, respectively, not at 0.5% and 3.8% as believed at the time. Employment was also falling much faster than estimated. Some 820,000 jobs were lost in January, rather than the 598,000 then reported. In the three months prior to the passage of stimulus, the economy cut loose 2.2m workers, not 1.8m. In January, total employment was already 1m workers below the level shown in the official data.
But whether the White House should have known the unemployment picture was going to be much, much worse (as Joseph Stiglitz and Jared Bernstein argued) or that the February 2009 stimulus package itself was too small and too laden with tax breaks (as Paul Krugman warned at the time), there is little question that the American Recovery and Reinvestment Act worked largely as designed.
Start, for example, with the conclusions of the nonpartisan Congressional Budget Office (CBO). Despite Republican mythmaking that the American Recovery and Reinvestment Act (ARRA) "created zero jobs," in November the CBO reported that the stimulus added up to 2.4 million jobs and boosted GDP by as much as 1.9 points in the previous quarter. As The Hill explained, the CBO has found that "President Obama's 2009 stimulus package continues to benefit the struggling economy":
The agency said the measure raised gross domestic product by between 0.3 and 1.9 percent in the third quarter of 2011, which ended Sept. 30. The Commerce Department said Tuesday that GDP in that quarter was only 2 percent total...
By CBO's numbers, the $800 billion stimulus added up to 0.9 million jobs in 2009, 3.3 million jobs in 2010 and 2.6 million jobs in 2011.
Mark Zandi, an adviser to John McCain in 2008, was adamant on positive role of the stimulus. Federal intervention, he and Princeton economist Alan Blinder argued in August 2010, literally saved the United States from a second Great Depression. In "How the Great Recession Was Brought to an End," Blinder and Zandi's models confirmed the impact of the Obama recovery program and concluded that "laissez faire was not an option":
The effects of the fiscal stimulus alone appear very substantial, raising 2010 real GDP by about 3.4%, holding the unemployment rate about 1½ percentage points lower, and adding almost 2.7 million jobs to U.S. payrolls. These estimates of the fiscal impact are broadly consistent with those made by the CBO and the Obama administration.But their modeling also suggests that the totality of federal efforts to rescue the banking system dating back to the fall of 2008 prevented a catastrophic collapse:
We find that its effects on real GDP, jobs, and inflation are huge, and probably averted what could have been called Great Depression 2.0. For example, we estimate that, without the government's response, GDP in 2010 would be about 11.5% lower, payroll employment would be less by some 8½ million jobs, and the nation would now be experiencing deflation.
Even Douglas Holtz-Eakin, former head of the CBO and chief economic adviser to John McCain during the 2008 election, acknowledged the impact of the stimulus. Certainly no fan of either Barack Obama or the design of the ARRA, Holtz-Eakin told Ezra Klein that:
"The argument that the stimulus had zero impact and we shouldn't have done it is intellectually dishonest or wrong. If you throw a trillion dollars at the economy it has an impact, and we needed to do something."
In the face of united Republican opposition, President Obama and the Democrats did do something. But thanks to GOP stonewalling in Congress and in governor's mansions across the country, steep cuts in state and local government payrolls offset the gains of the federal stimulus. "In fact, if it weren't for this destructive fiscal austerity," Krugman explained in March, "Our unemployment rate would almost certainly be lower now than it was at a comparable stage of the 'Morning in America' recovery during the Reagan era."
We're talking big numbers here. If government employment under Mr. Obama had grown at Reagan-era rates, 1.3 million more Americans would be working as schoolteachers, firefighters, police officers, etc., than are currently employed in such jobs.
And once you take the effects of public spending on private employment into account, a rough estimate is that the unemployment rate would be 1.5 percentage points lower than it is, or below 7 percent -- significantly better than the Reagan economy at this stage.
Looking at a report from the Congressional Budget Office last fall, Paul Krugman described how the austerians of the Republican Party had produced an "anti-stimulus" by state and local and local governments:
What it tells us is that the US federal government has been practicing destructive fiscal austerity since the middle of 2010 (and that's not even talking about what's happening at the state and local level). Here's the average of CBO's high and low estimates of the impact of the ARRA on the level (not the rate of growth) of GDP by quarter:
And you wonder why the economy isn't recovering strongly?On Thursday in Seattle, President Obama simply reminded Americans who brought the U.S. economy to its knees by January 2009 and who's been fighting to fix it ever since. That's history Republicans should want voters to forget.