Appearing on ABC’s “This Week,” former Gov. Eliot Spitzer (why do they give him a forum?) offered the Democratic Party’s defense of the Obama economy. The Republicans, Spitzer sputtered, “want to go back to medieval medicine, the bloodletting, leeches. They want to go back to the very crazy economics that brought us over the cliff and created a cataclysm.”
Ah, ABC must have hired him for his high-minded contribution to the debate. Spitzer continued: “What we tried here under Barack Obama is Keynesian economics, restructure the economy, invest where you need to. It worked for 70 years. It will work in the next 100 years. That is what the public should focus on.”
Spitzer must not have been paying attention when we experienced stagflation in the 1970s – impossible under the Keynesian model. Does Spitzer really want the public to focus on the Obama economic record? The president doesn’t seem to. He scarcely mentions the nearly $1 trillion economic stimulus, Dodd-Frank or Obamacare. He seems more eager to talk about free contraceptives, gay marriage and bashing the rich. Obama doesn’t seem to think there’s anything to boast about. In fact, he’s been creative about finding excuses. The financial crisis was worse than we knew, he says. Or it was the Japanese earthquake, the European debt crisis or the Arab Spring.
Let’s take Spitzer up on his invitation and focus on the economic record. The American Recovery and Reinvestment Act of 2009, which was supposed to jump-start the economy and keep unemployment below 8 percent, clearly failed. Unemployment topped 10 percent after the stimulus became law and has remained above 8 percent since.
In their new book, “Debacle,” John Lott and Grover Norquist remind us that the Obama administration had all of the data about the severity of the economic crisis of 2008 by the first months of 2009. Yet in May 2009, Obama claimed that the stimulus was “already seeing results,” and “laying the foundation for a better economy.” By September, Vice President Biden was saying, “In my wildest dreams, I never thought it would work this well.” The summer of 2010, administration spokesmen crowed, would be the “Recovery Summer.”
It wasn’t. The economy limped along. Unemployment climbed to 9.6 percent. President Obama himself acknowledged in October 2010 that he had learned something: “There’s no such thing as shovel-ready projects.”
Economists John F. Cogan and John B. Taylor analyzed both the Bush (2008) and Obama stimulus spending to see whether increased government spending had the desired “multiplier” effect that Keynesian theory posits. Keynesians argue that when government spends money, say on construction workers, the workers then go out and buy products such as refrigerators and thus, goose economic activity. It didn’t work either time. Both in 2008 and 2009, stimulus spending had no effect on consumption. Individuals and states used the money to pay down existing debt instead.
Of the vaunted $862 billion stimulus in 2009, which Obama had claimed would build roads and bridges and “invest in the future,” Cogan and Taylor found that only $4 billion was devoted to infrastructure projects as of January 2011. Fully half of all stimulus spending went to fund Medicaid – which may or may not be good social policy but is hardly a stimulant to economic growth. And arguably, the strings the federal government attached to Medicaid funds – insisting that states could not restrict eligibility rules or reduce benefits – was bad policy.
Further, as John Lott observes, the stimulus funds were hardly targeted to help “those hardest hit by the economic crisis” as Obama had promised. Instead, “the states hardest hit by the recession received the least money. States with higher bankruptcy, foreclosure and unemployment rates got less money. And lower-income states also received less.”
The key was politics. “Having an entirely Democrat congressional delegation in 2009, when the bill passed, increased the per capita stimulus dollars that the state receives per person by $460. In addition, the states that Obama won by the largest percentage margin in 2008 got the most money.”
Large Democratic donors did well, too, including Solyndra owner George Kaiser, Tesla Motors owners Leon Musk, Larry Page and Sergey Brin, NRG Energy owners Warren Buffett, Steven Cohen and Carl Icahn, and Fisker Automotive’s Al Gore.
The Obama economic policy did not help those who were worst off, failed to revive the economy, sank the U.S. more steeply in debt, and rewarded Obama’s friends and supporters. By all means, let’s focus on it.