Magazine article The New Yorker

Back on Track

Magazine article The New Yorker

Back on Track

Article excerpt

A few hours before President Obama presented his new job-creation plan to Congress last week, Ben Bernanke, the chairman of the Federal Reserve, made a less ballyhooed appearance, before the Economic Club of Minnesota. Bernanke reminded his audience that it has been exactly three years since the financial crisis that attended the collapse of Lehman Brothers. Then he pointed out that the recession that Obama had inherited from his Republican predecessor was even more calamitous than had previously been thought. Recent revisions to government statistics show that, between the end of 2007 and the second quarter of 2009, the Gross Domestic Product declined by more than five per cent--the deepest drop since the Second World War.

Obama didn't refer to Bernanke's update, but knowing the true magnitude of the collapse is critical to understanding the economic and political context in which the President spoke: nine per cent unemployment (sixteen per cent if you include people who have given up looking for a job, and those who can find only part-time work) and a widespread belief that the Administration's first stimulus package, the seven-hundred-and-eighty-seven-billion-dollar American Recovery and Reinvestment Act of 2009, was a failure. To quote Governor Rick Perry, of Texas, in last Wednesday's Republican debate, Obama "has proven for once and for all that government spending will not create one job."

The record demonstrates no such thing. A chart showing fluctuations of the G.D.P. over the past few years indicates a modest recovery beginning in the middle of 2009, just as the stimulus dispersals were kicking in; the recovery continuing at a decent clip for more than a year; and a severe tapering off toward the end of 2010, by which time most of the stimulus money had been spent. A visiting Martian looking at the chart might well conclude that but for the stimulus things would have been much worse, and that conclusion would be justified. Based on estimates from the nonpartisan Congressional Budget Office, by the end of 2010 the stimulus had created close to three million jobs, which is not far off the outcome that White House economists predicted in early 2009. The problem is that those economists, working with the figures available at the time, grossly underestimated the collapse in spending and hiring which the country was facing, and the scale of government action that would be needed to offset it. They rashly claimed that the stimulus would prevent the unemployment rate from rising above eight per cent--an error that the Republicans have been gleefully exploiting ever since.

President Obama didn't go into this history. During his admirably crisp and punchy speech, the word "stimulus" didn't cross his lips. But make no mistake: that is what he was proposing. If Congress were to pass the American Jobs Act without amendment (a fanciful thought), the federal government, over the next year, would inject into the economy roughly two hundred and fifty billion dollars in tax cuts, sixty billion in extended unemployment benefits for people who have been out of work for more than six months, and a hundred and forty billion in additional spending on teachers, schools, and transportation projects.

All told, the proposals add up to four hundred and fifty billion dollars, a considerable sum. But more than half of that outlay is necessary merely to make policy comply with an economic version of the Hippocratic oath: Do no harm to the bottom line. Why is that? In December, with the stimulus fast running down, the White House and Congress extended unemployment benefits and cut the employee portion of the payroll tax. …

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