"Obama's Stimulus Failure"

Dean Baker:

Obama's stimulus failure, by Dean Baker: The economy badly needs stimulus. ... In total, the economy has lost close to $1.3tn in annual demand as a result of the collapse of the housing bubble. This explains the economy's weak growth and high unemployment. There is no simple way to replace this demand.

We can gather together a coven of market-worshipping Republicans and sacrifice all the workers and retirees we want, it still will not replace the demand gap. We can love the private sector as much as we want and it still will not make firms go out and invest and hire when they don't see demand for their products. ...

This means that we need the government to generate demand to boost the economy. That was the point of President Obama's stimulus. Of course it was nowhere near large enough, as his advisors told him at the time. ...

If President Obama had been doing his job, he would have immediately begun pushing for more stimulus the day after the first one passed. He should have been straightforward with the American people and said that the stimulus approved by Congress was an important first step, but that the severity of the downturn was so great we would likely need more.

Instead of being honest with America, he started talking about the "green shoots of recovery" and said he was going to focus on the budget deficit. This was an error of unbelievable proportions. By raising the budget deficit front and centre, he backed himself into a corner from which it is almost impossible to now escape.

It was essential that Obama keep leading the charge on stimulus, explaining to the country the cause of the economy's weakness was a lack of demand. This story is counterintuitive, so it requires the voice of the president, along with many others, to constantly explain the logic to the country. People had to understand that we are poor because the country as a whole is spending too little to keep the workforce fully employed, not because the government is spending too much. ...

It's not surprising that they don't have the political support for more effective stimulus when they abandoned the effort to make the case almost two years ago.

The political constraints were and are real, and difficult to overcome -- but with strong leadership who knows? Unfortunately, we didn't get the leadership we needed (and the blame extends beyond the president, Democrats in Congress gave up without a fight as well). But the pivot to deficit reduction was surely a mistake.