August 09, 2011

Too little. Too late?

The focus of this blog lately is the nation's current economic mess and how we got there. This is installment 2. Here's #1.

As I argued yesterday, the Great Recession of the last few years was facilitated by 30 years of zombie economics, which consisted of deregulating industry, privatizing services, cutting taxes for the wealthy, and eroding programs that promoted shared prosperity.

In late 2008 and early 2009, Congress and the Bush and Obama administrations enacted policies designed to correct course. First, under Bush's watch, the TARP program or Wall Street bailout was passed. Most people hated it, for good reasons, although it may have actually helped stall the slide of markets and lending institutions and wound up costing less than expected.

The second was the passage of the American Recovery and Reinvestment Act, better know as the stimulus. It was a big bill and a massively mixed bag, consisting of some elements that really helped boost the economy (like extending unemployment insurance, subsidizing COBRA and boosting food stamps) while others that didn't (things like tax cuts for businesses).

Here's the rationale behind it: three things drive economic growth: private spending, business investment and government spending. In a recession, the first two tend to tank, leaving the third to take up the slack.

The main problem with the Recovery Act, as several economists have argued (search this blog for more) is that it wasn't big enough and it didn't place enough focus on direct job creation. At the time it was designed, it was estimated that unemployment would peak at around 8 percent. More than two years later, the rate is still 9.1 nationwide.

The Recovery Act probably did help end the recession in at least a technical sense of helping GDP to stop falling and it did keep millions of Americans from falling into poverty, but it didn't go far enough or last long enough. Now, as it trickles to a halt, we're likely to see more and more layoffs, especially at the state and local level, and more cuts to needed programs and services.

The biggest problem with an inadequate stimulus was political: right wing opponents attempted to brand it as a failure with considerable success and use anger at slow job growth to turn public attention in another direction.

About which more tomorrow.


SHOCK DOCTRINE. Don't fall for it (again).

TALKING SENSE. Here's a statement from the AFLCIO on real and bogus crises.

WHAT ABOUT THE TOOTH FAIRY? Some evangelicals are questioning the literal historicity of Adam and Eve.

WHY NOT PEOPLE? A new study suggests that chimpanzees are more generous than previously thought. Perhaps humans are less so.


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