Monday, March 18, 2013

How Anemic Was The Stimulus?

We know that the 2007-2009 economic collapse has been unprecedented in terms of the toll taken on jobs, and such devastation has unfortunately continued to linger much longer than history would have otherwise suggested. Why has the economy remained in such a funk, with the rate of unemployment stubbornly hovering well above the 7% level?

One significant reason has been the lack of fiscal stimulus. Oh yes, we had the American Economic Recovery Act of 2009, but it was much too low a figure in relation to the economic damage it aimed to mend. And a good chunk of that Act was not good old fashioned fiscal stimulus in the form of spending but rather tax cuts, which are substantially less effective when it comes to turning around an ailing economy. Meanwhile, since the downturn, the political climate has been obsessed with the opposite of fiscal stimulus, that being austerity in the form of deficit reduction. (Never mind that Economics 101 dictates the time to spend and ignore the deficit is during economic recessions/depressions. Instead we had GW/Cheney obliterate a surplus ala Cheney's "deficits don't matter" -- it didn't matter then, but apparently it does now, exactly at the wrong time.)

So the stimulus was not big enough, but the nagging question remains: how big should it have been? I think the two charts below help to establish at least a ballpark figure on that number.

The first chart shows the percent of job losses as compared to past recessions. As you can see, this current recession has been the worst ever in this respect. The second chart shows amounts of fiscal stimulus delivered in past recessions, more specifically during the Reagan and GW Bush recessions compared to Obama's inherited debacle.

The first chart makes the case that compared to Reagan's (purple line) and GW's (brown line) recessions, Obama's (red line) recession is twice as bad as Reagan's and three times worse than GW's downturn. These figures are arrived at by comparing the worst point in the job loss levels, the red line (Obama) bottoming below -6% as compared to -3% for Reagan and -2% for Bush II.

It's just one metric, admittedly, but it is apples-to-apples and employment loss does get at the root of an economic decline. What is made plain to see is that the fiscal stimulus (in real dollars) for Obama should have been at least 2x-3x greater than that passed during the recessions of Reagan and GW.

And yet the second chart clearly shows that not only has stimulus been anemic during this most recent recession/depression, it hasn't come close to the levels achieved during the Reagan and GW downturns. In fact, we see the bars for the recent downturn actually go negative, when as just stated, those bars should be 2x-3x higher than what is shown for the 1981-1982 and 2001 recessions. Incredible. A far worse economic condition and yet far less stimulus delivered as a remedy.

Of course, the fiscal stimulus bars are positive for recessions other than Obama's because prior to when the "Kenyan" took office, Congress knew that spending was necessary to help get an ailing economy humming again. Democrats worked with Republicans to pass such fiscal spending bills for the betterment of all Americans. Clearly that has not been the case for Obama, with Republicans vowing to stonewall and vote against any meaningful fiscal stimulus in the form of government spending.

Well there you have it, one attempt to arrive at an estimate for how much bigger stimulus should have been compared to past precedent. What is obvious is it was woefully too small, and remains so. As a further stick in the eye, real interest rates are negative, meaning investors are paying the federal government to take on added debt! We should be spending more and ignoring the deficit! Bridges, roads and infrastructure will have to be repaired at some point -- now is the time, not just because it will help the economy and job market, but because it also makes sense financially given the level of real interest rates.

Oh forget it. Since when did facts and reason make a difference to modern-day Republicans?


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