Obama’s Legacy: The Great Recession and the Stimulus

If I recall correctly, the principal GOP presidential candidates in 2008, even including John McCain, supported some sort of stimulus in the face of the deepening recession.  This was in keeping with past practice, including the period after the bursting of the tech bubble during the Bush Administration. When the Obama Administration proposed a stimulus, however, the GOP completely changed course and complained bitterly about waste and pork.

The stimulus essentially had five parts:  additional safety net payments; aid to state and local governments; temporary tax cuts; a public works program; and investments in clean energy.  The safety net payments effectively reduced misery and propped up aggregate demand. The aid to state and local governments similarly worked to maintain governmental service levels, while boosting demand.  The tax cuts, which were largely an unsuccessful attempt to bring Republicans into the fold, were a mixed bag;  large portions of the proceeds were predictably used for savings or to pay down debt, which didn’t help with the short-term problem.   The public works program was conceived as an updated version of New Deal programs, but the approval process for infrastructure projects is far more convoluted than it was in the 1930’s, and infrastructure is no longer built by armies of strong men with shovels, so this part of the stimulus was a bit of a disappointment.  Unlike the rest of the package, the energy investments were not really viewed as a short-term mechanism to create jobs and boost demand, so their effectiveness needs to be viewed on a longer-term basis.

Taken as a whole, the stimulus was a moderate success;  with the exception of a few GOP ideologues, there is a consensus among economists that it saved millions of jobs.  Left-wing critics, such as Paul Krugman, who complained that the stimulus was too small ignored both political realities and the weaknesses in its public works component.  The real question now is whether the GOP, by its vocal opposition to the Obama program, has precluded its own stimulus in the likely event of a Trump slump.  If it has, things could be even worse than I have predicted, which is saying something.