What could Obama have done differently to create jobs and improve the economy? attempts an even handed analysis of the criticisms of Obama’s performance on job creation. I think it does a fairly good job, but even it falls a little short.
In the article, there is an attempt at giving the President the standard pass on the ineffectiveness of his actions.
But there’s something else worth keeping in mind: Economic shocks like the one we went through with the housing bust and the financial crisis take a long time to recover from. In a paper written last year for the Federal Reserve Bank of Kansas City, the economists Carmen and Vincent Reinhart, experts on the history of such crises, concluded that the effects typically linger for around a decade. “Income growth tends to slow and unemployment remains elevated for a very long time after a severe shock,” they wrote, predicting “a lengthy period of retrenchment.”
Where is the analysis of why history has shown that, “Economic shocks like the one we went through with the housing bust and the financial crisis take a long time to recover from.” ?
Perhaps an analysis of that history might show that government had never taken really strong action to try to improve the situation. I suppose it would be tautological to say that government never took effective action in these situations. In any case, this history should not be taken as proof that effective action is not possible.
You will be able to judge Obama’s proposals on Thursday. I buy the story from most economists that the original stimulus plan was too small. Given an inadequate amount of stimulus the first time around, an even larger stimulus is probably needed this time. I would bet that Obama’s stimulus plan will call for a smaller stimulus than the last time. Whatever Congress passes will be significantly smaller than what Obama requests. Therefore the plan will fail to stimulate the economy. One thing you can be sure of, that failure will be incorrectly used as proof that stimulus does not work.
Do I get any points if my prediction is borne out?
Another example of the failure of even-handedness is shown in the following excerpt:
President Obama has admitted that few infrastructure projects turned out to be “shovel-ready.”
Frum, by contrast, thinks more of the stimulus should have been devoted to infrastructure projects, and less to things like Pell Grants and individual tax rebates. Assuming there were enough projects that could have been started quickly–something that’s far from clear, as Obama’s concession on “shovel-ready” projects indicates–that approach might have had more impact on unemployment, because those projects create jobs directly. The White House’s recent, belated embrace of an “infrastructure bank” for that purpose suggests that the president and his advisers might agree.
In fact, the initial infrastructure stimulus did have the desired effect, but then the money ran out. Had the program been larger and properly phased in, after running out of the initial shovel-ready projects, more projects could have become shovel-ready in time to prevent the relapse. This is another example of what could have been the lesson learned from history instead of the standard one being promulgated by this article.
As I pointed out in the previous post Roll Back the Reagan Tax Cuts,
I think it was Nassim Nicholas Taleb who pointed out that it is one thing to note some historical behavior, but quite another to postulate that you know the reason why it happened.
What I’d like to see is a list of the possible explanations for the observed behavior. Then an indication of what analysis was done to rule out or rule in each alternative.