RSS Feed MenuCountry by country, America’s misery is losing company. The recession has ended in Germany and France. Japan too. Also Brazil, India, and China. The Bank of Canada projects that Canada will return to growth in the third quarter of the year. Of the world’s 10 major economies, only those of Italy, the U.K. and the U.S. continue to shrink.
This bad news raises the question: what exactly did the United States buy with the $787 billion President Obama borrowed for his stimulus program?
It’s early yet, but here are some things we can say for sure.
The U.S. spent much more on its stimulus than any other Western economy. Japan’s stimulus cost about two percent of GDP. Canada’s about 1.5 percent. Germany and France did hardly any stimulus at all. The U.S. spent three percent.
In addition, the U.S. has also been spending its stimulus much more slowly than any other country. By the end of calendar 2009, Canada and Japan will have spent all of their stimulus, but the United States less than half.
In fact, the timing of the Obama stimulus seems to be driven much more by the political calendar than by the economic calendar. Despite the administration’s protests last winter that a burst of federal funds was required to avert imminent catastrophe, only about one quarter of the money was spent in fiscal 2009. More than half the stimulus funds will be spent in the 12 months leading up to the 2010 congressional elections.
What price has the U.S. economy paid for the White House’s political calculation? Before the Obama stimulus, the U.S. was among the industrial world’s less-indebted economies, with a debt-GDP ratio that was about two-thirds of the average of industrialized (OECD) nations. But by the time the stimulus wad has finally been spent, the U.S. will rank among the most-indebted economies, with a debt-GDP ratio close to America’s previous peak: 1945.
To put it in plain English, the Obama administration borrowed more money and then spent it later, with less economic benefit, and more political calculation, than the government of any other major economy.
That’s a particularly dismaying record when you consider that Barack Obama had the great strength of a decisive election victory behind him. Much weaker governments — like Canada’s, where Prime Minister Stephen Harper lacked a majority in Parliament — managed to behave much more responsibly.
The Obama administration has no shortage of excuses for its mistakes, some of which even have a ring of plausibility. It’s true, for instance, that the U.S. had a much more severe banking crisis than the other big economies. But that makes it all the worse that the administration invested so much in stimulus while utterly failing to develop an effective bank rescue plan. The Federal Reserve reports that U.S. banks actually tightened lending in the second quarter of this year; by any measure, that’s a severe policy failure.
Similarly, it’s true that recalcitrant members of Congress denied the administration the precise stimulus package it wanted, demanding more tax cuts and less infrastructure spending. But the plan preferred by the administration would have produced an even slower stimulus than the one that was adopted.
Anyway, it’s disingenuous for Democrats to complain that the package they got was too tax-cut heavy — even if that complaint made sense. It was Barack Obama’s own campaign promise of a tax cut for 95 percent of American workers that forced the tax cuts. And if a newly elected president who has just won his party its most decisive victory in 45 years cannot persuade Congress to do the spending he actually wants (as opposed to the tax cuts he pretended to want for campaign purposes) — well that’s an indictment of him, not Congress, which is always recalcitrant. It goes with the territory.
In the end, all of Obama’s excuses do not excuse very much.
President Obama is lucky in one regard. Because the opposition media are ventilating so many wild and false accusations against him – Death panels! Fascism! — his actual mistakes have received comparatively less attention. Then again, maybe he’s not so lucky. The lack of scrutiny means that his mistakes go unacknowledged and uncorrected until it is too late to recall and repair them.
No president likes criticism. President Obama seems to like it even less than most. That’s precisely why he needs to hear more of it. He might even learn from this criticism the lesson he needs most: to care more for the national economic interest, and less for the political imperatives of his party in Congress.
Originally published August 20, 2009, in The Week.
barker13 // Aug 20, 2009 at 11:38 am
Remind me, David… where did you stand on the “Stimulus” Package when it came up for a vote?
(I’m assuming you were standing with me shouting “no!” or else you wouldn’t bring the matter up… but one never knows with you.
(*CHUCKLE*)
Anyway… please refresh my memory.
(BTW… how’bout TARP? Were you in favor of or opposed to TARP?) (I was opposed.)
Thanks!
BILL
fact checker // Aug 20, 2009 at 3:18 pm
Ah yes Frum distort distort distort
china has spent more
Britain has spent more
Canada didnt need a stimulus plan because it didnt have a disaster in its banking system and that was because…. they had a more tightly regulated financial sector as does Japan (which didnt have a major bank breakdown this time but spent far more than the US when it did). Germany and France spent less because they had better regulatin and a smaller crisis. And oh yes the govt is permanently a large part of their economy
US debt to gdp peaked at 120% in the ww 2 period please give the source for your prediction of the same number
oh and by the way : tarp program proposed by Bush Secy Paulson $750 bln same size as the stimulus
cost of the Iraq far close to 5x the size of the stimulus
you are just a hannity with worse haircut
balconesfault // Aug 20, 2009 at 3:22 pm
I still don’t see this criticism over Obama spending too much … but spending it too slowly.
Accelerating the spending would have been the perfect formula for introducing greater levels of unaccountability and waste into the stimulus spending. Also, it would have likely produced a bubble, that would have required returning to Congress for more money to sustain.
Pacing the money out, giving local governments more time to plan for and competitively bid out projects to spend the money on, putting economic incentives out there that allow private businesses to invest their own money pursuing … that seems like a much more conservative approach to the stimulus than just immediately chucking all the wood on the fire.
Perhaps more conservative, but certainly not more radical.
ottovbvs // Aug 20, 2009 at 4:29 pm
………Economics never was Frum’s strong point……a little reality check……the stimulus package of roughly 800 billion is divided into basically three parts: income tax cuts and rebates of around 250 billion to prop up aggregate demand; transfers to the states of around 170 billion; and infrastructure spending of 375 billion. Exactly 75% of it is to be spent between passage of the bill in March and the end of 2010. So far about 150 billion has been spent and it show distinct signs of working. There has been a blizzard of stats lately showing an economy on the turn which is one of the principal reasons the Dow is now at around 9300. The major remaining problem which is to some extent a key to a recovery of consumer spending is unemployment. We’re still losing about 250 jobs a month…..much better than the 700,000 a month during the last five months of the Bush presidency but still a major concern…….the recovery act has been designed as a slow release program with much of it’s expenditure back end loaded on infrastructure projects which are much more effective job creators than tax cuts most of which get saved or used to pay down debt………this is going to unfold over the next 16 months and will ensure that by next summer the economy is growing at about 4 %……..if you want some realism and not Frum nonsense read Warren Buffett on the subject a couple of days ago……and David WHERE did you get the idea that France put no stimulus into their economy quite apart from the welfare state provisions that have buffered both France and Germany from the worst effects of the recession.
ottovbvs // Aug 20, 2009 at 4:53 pm
……..btw David you might want to ask yourself where was world ground zero for the potential collapse of the banking system and it’s largest recession……….which country has seen the largest amount of wealth evaporate (around $14 trillion)…….. lost the most jobs (6.7 million)……seen the largest decline in homes sales and prices (40% and 30% respectively)…….the cure has to be appropriate in size to the seriousness of the illness as Buffett understands if you don’t.
ottovbvs // Aug 20, 2009 at 4:55 pm
……..French stimulus package……France has arguably the most well developed welfare state in Europe which provided a major hedge against recession fallout……also France’s banking system was the most insulated against the mortgage meltdown…….you have to laugh at David and these idealogues on the right who spend much of their time trashing the French economy and now it’s a hero
http://news.bbc.co.uk/2/hi/business/7864942.stm
barker13 // Aug 20, 2009 at 5:32 pm
Re: Balconesfault // Aug 20, 2009 at 3:22 pm (#3) –
“I still don’t see this criticism over Obama spending too much…”
We know, Balc; we know.
(*SMILE*)
BILL
Superdave12 // Aug 20, 2009 at 6:57 pm
I don’t think pointing out the recoveries of those countries would help a conservative position.
First, our GDP is significantly larger than all of those countries.
Second, most of those countries have economic stabilizers, via their strong welfare states, which keep demand from falling during recessions.
Third, citing Stephen Harper is problematic. He credited Canada’s economic success due to the lack of deregulation of banking. He even mentioned that Canada not having a Ronald Reagan or a Margaret Thatcher were part of the reason Canada did not have a banking crisis.
oldgal // Aug 21, 2009 at 10:42 am
I find arguments such as Frum’s merely a regurgitation of a particular economic ideology. The unfortunate reality is that no one can tell if the fixes to a complex system could have been done better, or if a different approach would have yielded better results.
Looking at the economy from a problem-solving point of view, rather than an economic ideology point of view, my biggest concern is that the bleeding has not been stopped. It appears that the bailouts were a useful circumvention, and that its too early to tell if the stimulus is a useful circumvention. But the real bleeding is coming from the toxic assets, the ongoing foreclosures and the unstable housing market. It seems there is an unwillingness on all sides to determine who gets to take the losses and until this happens the bleeding will most likely continue. I have been unable to ascertain whether we are still pumping out mortgage derivatives and credit default swaps – if we are we may in fact be encouraging the bleeding.
I am one of those who has a real problem with excessive bonuses going to those who contributed so heavily to the problem. I would, however, have no problem rewarding those bonuses if they were paid off in toxic assets. This would get the bad assets off the books and give incentive to the appropriate folks to fix the problem…something about letting the drink their own kool-aid.
ottovbvs // Aug 21, 2009 at 11:08 am
oldgal // Aug 21, 2009 at 10:42 am
“But the real bleeding is coming from the toxic assets, the ongoing foreclosures and the unstable housing market.”
………..the toxic asset situation if not fully resolved is really under control…….check today’s announcement of new homes sales the biggest one month advance since 1999 and the fourth seasonally adjusted increase in a row …….also check out Bernanke’s speech this morning…….it’s not over by a long chalk but it’s beginning to turn as a consequnce of actions taken by Bernanke, Paulson, Geithner and Summers to stabilize the banking system and measures like the stimulus bill to get the real economy moving again