Understanding Critics of Stimulus: Part LIX
This Is Neither an Offer to Sell nor a Solicitation of an Offer to Buy Japanese Government Securities; Such an Offer Can Be Made Only in the Prospectus...

David Leonhardt on the Ratf*^#: Understanding the U.S. Reponse to the Great Panic

I don't want to blame the Obama administration for the fact that the unemployment rate is kissing 10% and will in all likelihood stay there for a while--I blame the Bush administration and the McCain political team and the Republicans in congress and the monstrous disaster for America that is the Republican Party. Without Obama and company the unemployment rate would not be kissing 10% but would be 12% or 15% right now.

But it is definitely a ratf*^#...

David Leonhardt tries to make sense of how we got here. I don't, however, like his headline: it's not "how Democrats fell short," it's "how the Republicans made Washington fell short":

Economic Scene: [W]hen they are not speaking for quotation, some White House and Congressional officials acknowledge that they could have done more to stimulate the economy, and sooner. In part, they have been busy with other things.... The bigger reason, though, is politics. In the face of near-united Republican opposition, top Democrats have decided that the political costs of aggressively pushing for more stimulus are too high. Any new bill will help only on the margins, and it will give Republicans another chance to blame Mr. Obama for the deficit, even though the current deficit is more of their own party’s making....

If there was any doubt that the government could put people to work, at least temporarily, last year’s $787 billion stimulus program should have removed it. The bill passed in February 2009, when the economy was shedding more than 700,000 jobs a month, and it was greeted with considerable skepticism. Some economists went so far as to suggest it would hurt the economy. Michael Boskin, a Stanford professor and former aide to the first President Bush, wrote an opinion article in The Wall Street Journal on March 6, 2009, blaming Mr. Obama and his policies for the stock market’s drop in previous weeks. Soon, though, job losses began shrinking... the stimulus bill was a major cause. The Congressional Budget Office and private research firms estimate that the bill has added on the order of 2.5 million jobs. Since Mr. Boskin’s op-ed article appeared, stocks are up 56 percent. But the stimulus has been less popular than effective.... People see that the economy remains in bad shape, and they have a hard time getting excited by the notion that it could be worse.

These lukewarm views have then been aggravated by the country’s very real deficit problem... additional stimulus would only increase the deficit. Of course, it would have a much smaller impact on the deficit than the 2001 and 2003 tax cuts, the bipartisan Medicare prescription drug program or the wars in Iraq and Afghanistan did. The bond market, for its part, remains utterly calm about the near-term deficit, based on the government’s extremely low borrowing costs. But the political dynamic is set. Voters are wary of stimulus and worried about the deficit. Almost nobody in Congress is agitating for the ideal economic solution: a combination of short-term stimulus with longer-term spending cuts and tax increases. It’s easier just to express somber concern about both the deficit and jobs.

Against this backdrop, Mr. Obama and his aides decided not to go all out for more stimulus.

The one part of their strategy that seems almost impossible to defend is their approach to the Fed. By law, the Fed’s mission is to maintain low inflation and maximum employment.... [T]he Fed has taken no recent action to spur the economy.... And the White House and Treasury Department have allowed two of the seven Fed governor spots to sit empty since Mr. Obama took office. He finally announced nominees on April 29, and they await Senate confirmation.

Despite all this, there is reason to think that more stimulus may finally be on the way.... Will another half-million jobs make the economy feel strong again? No. Will the next round of stimulus be more popular than the last one? Probably not. Is it nonetheless the right thing to do? That’s another question entirely.