February 23, 2014 8:05 pm
RIP Obama’s stimulus: funeral for a policy success
Rarely has the gap between the US public’s perception and that of economists been greater
©Matt Kenyon
Five years after Barack Obama helped to prevent a Great Depression, his $830bn stimulus is unloved and misunderstood. Republicans have had an almost clear run at a law they say squandered taxpayer dollars. Yet without it the Great Recession would have been far deeper in the US. As is often the case, Mr Obama chose the right policy and failed to win anyone over. Next time America needs to dig itself out of disaster – and that time will come – it will be a far tougher sell. The past is never dead, said William Faulkner, it’s not even past.
Rarely has the gap between the public’s perception and that of economists been greater. A plurality of Americans say the stimulus was a bad idea, according to the Pew Research Centre. Almost all economists say it was essential. Some believe it was too small. Others that it was too large. Some say it should have been skewed towards more direct spending, others towards larger tax cuts. But virtually no accredited scholar doubts a measure that saved 9m jobs, added between 2 and 3 percentage points to US gross domestic product and paid for itself in higher tax revenues. On economic grounds it is as close to an open and shut case as you get.
There was money for rural broadband, cash to keep teachers in their jobs and resources to upgrade roads and highways. Mostly they will be remembered for traffic jams.
Even Mr Obama’s “make work pay” tax cuts, which took up more than a third of the stimulus, passed by unnoticed. In contrast to George W Bush, who had passed his own mini-stimulus a year before leaving office, American taxpayers did not receive cheques in the post signed by the president. Economists advised Mr Obama that a one-off tax windfall would more likely be saved than spent, thus defeating its purpose. Instead they said it should be secreted into their fortnightly pay stubs.
Among Mr Obama’s advisers, only Joe Biden, the vice-president, saw the futility in giving most Americans an invisible boost of roughly $40 a month in their take-home pay. “Are you totally kidding me?” Mr Biden asked – or words to that effect. Apparently not.
Instead of seeing that Mr Obama had cut their taxes, most Americans believed they had gone up. They still do (quite wrongly). Mr Obama is seemingly powerless to convince them otherwise.
But the largest fallout from what was Mr Obama’s biggest act as president – more so even than his healthcare reform – is bitter polarisation. It was Richard Nixon, a Republican president, who said: “We are all Keynesians now.” That held true right up until February 2009. Mr Bush passed two stimulus bills – both of which pasted his name all over the tax rebate cheques. Even after Mr Obama was elected, Republicans drafted their own stimulus bill, which was only marginally smaller than the Democratic version.
Everyone understood the need to revive a plummeting US economy. Only the means were disputed.
The Keynesian Humpty Dumpty was shattered the day Mr Obama’s stimulus was enacted. It is very hard to see how it will be put back together again. Only three Republicans – all of the them in the US Senate – voted in its favour, having extracted big concessions in the form of larger tax cuts and less spending.
Every single Republican in the House of Representatives voted no. In place of Humpty Dumpty, Republicans have adopted Hamlet’s Polonius as their mascot: “Neither a borrower nor a lender be.” Keynesianism has been supplanted by Austerianism. Technical expertise be damned. All that matters is perception.
Can Mr Obama do anything to change it? Probably not. Whether his successor is Hillary Clinton or a Republican, the US federal government is more distrusted than ever, according to the polls. Mr Obama inherited a historic low of public mistrust. It has since plumbed new depths.
But Mr Obama’s political failing began in his first 100 days with his mis-selling of the stimulus. It helped give rise to the Tea Party that put an end to a sensible debate on what fiscal policy can do for US growth. In the president’s defence, it is hard to argue that “things could be so much worse!” – even if that was true of the stimulus. It is far easier to say: “See how rapidly things are getting better!”
The first was the case Mr Obama needed to make. He botched it. And thus we are left with a trademark Obama legacy. The US president assumed a good policy would make the case for itself. Republicans filled the vacuum with their own.
Mr Obama won the policy and lost the politics. Now he is losing both.
Copyright The Financial Times Limited 2014
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