Obama's Economic Recovery In Review
Even before his term began two years ago, Barack Obama tried to lower expectations for economic recovery, telling ABC News that his $775 billion stimulus package wouldn’t solve everything immediately.
"Whether it's retail sales, manufacturing – all of the indicators show that we are in the worst recession since the Great Depression," Obama said. "And it's going to take some time to fix it."
That now seems like an understatement. Two years after Obama took office, the economy is growing, but unemployment is stuck at around 9.4 percent. Obama is expected to speak at length about the economy, focusing on jobs and the U.S.’s global competitiveness, at the State of the Union Address Tuesday night.
He told supporters in a video preview of the State of the Union that, though the financial system and large companies are back on track, the country has a long way to go.
“We’ve made progress, but as all of you know, talking to friends and neighbors and seeing what’s happening in your communities, we’ve still got a lot more work to do,” he said.
Here’s an overview of what he’s done so far.
The Big Bailouts
The Troubled Asset Relief Program was actually enacted by the Bush administration, but Obama’s team has been in charge of monitoring what has happened to the $700 billion spent by the Treasury to save the financial system from collapse.
The government money relieved the debt of struggling financial institutions. The reasoning was that, if the banking system were allowed to collapse, it would drag the entire economy into a depression. Hundreds of banks received money. The government gave $25 billion each to Citigroup and J.P. Morgan Chase – which have paid back their bailouts – and $15 billion to Bank of America, just to name a few.
Insurance firm A.I.G. received almost $30 billion, as did General Motors.
The bailouts sparked a populist outcry and a debate over “moral hazard.” Who was to say that, if banks were saved from collapse, they simply wouldn’t return to the practices that led to the financial crisis in the first place? This issue was supposed to be partly addressed by the Frank-Dodd financial reform act of 2010.
The consensus among economists though was that the bailouts essentially did what they were meant to do: Avoid “Depression 2.0."
A columnist for the Economist described the Obama administration’s handling of the bailout money as “a controversial approach that had to be adapted over time but appeared ultimately to work: American banks are now better capitalized than they have been for decades.”
The Stimulus Package
The Obama administration decided to take the Keynesian route and spend its way out of the recession. The $787 billion American Recovery and Reinvestment Act, passed in February 2009, funneled money to infrastructure development, tax incentives, education, housing and other projects that were supposed to create more jobs.
Some conservative economists argued that stimulus spending would not work, and South Carolina's Governor said his state would not accept the money offered through he package. The Supreme Court forced him to eat his words.
Some liberals, like Paul Krugman, argued that the package was about half as big as it should have been. He said in 2009 that “a fair bit of it,” like some of the tax incentives, was not really stimulus, and that the government was trying to use $650 billion to plug “a $2 trillion hole.”
In 2010, when unemployment had not abated, Krugman reiterated his criticism: “So this wasn’t a test of fiscal stimulus, even though it has played out that way in the political arena: the whole thing was obviously underpowered from the start.”
Cash for Clunkers
The government offered a subsidy to people with certain environmentally hazardous cars to scrap them and buy new, cleaner vehicles.
There was some excitement about it at first. “The boost in demand that the rebates have brought about is exactly the sort of stimulus that is urgently needed to escape what John Maynard Keynes called a ‘liquidity trap,’” The Economist argued.
Car sales jumped at first but fell off dramatically when the program expired. One study described the program as “a wash.”
In early September, 2010, Obama offered an three-pronged plan to boost job growth at a time when “stimulus” had become a political dirty word. He promised tax breaks for businesses making capital investments in the U.S., the extension of tax cuts for companies doing research and development, and $50 billion toward infrastructure investment. This did not impress.
Saving Small Business
While corporations and Wall Street have started to do well again, small businesses are still struggling, which is a problem because these are the businesses that are most likely to create jobs. As the Wall Street Journal put it, the U.S. economy has been "trying to run on one leg."
September 2010 saw the enactment of the Small Business Jobs Act, which spends $42 billion to help mom and pop shops. $30 billion of that goes to community banks to help them make cheap loans to small companies so that they can invest and hire. Access to credit has been a major concern for small businesses since the recession.
After enacting tighter regulations on corporations, Obama has begun the process of making nice with big business leaders, who still tend to see him as an antagonist.
He recently picked General Electric CEO Jeffrey Immelt to head a new jobs-focused panel.
At the State of the Union, the President will likely ask Congress to approve a new round of economic stimulus, focusing on more infrastructure investment, education and energy in order to spur job creation. This plan will face resistance from deficit-wary Republicans.
Obama’s economic plan focuses on global competition. This was a major theme in the media during the visit last week by China’s President Hu Jintao.
“We’re going to have to out-innovate, we’re going to have to out-build, we’re going to have to out-compete, we’re going to have to out-educate other countries, Obama told supporters on Saturday. “That’s our challenge.”
For more from Neon Tommy's special series examining Obama at the midpoint of his first term, click here.