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The GOP Misstate of the Union

January 25, 2012

The least surprising element to Barack Obama's 2012 State of the Union address was the Republican talking point that the President's policies have "made our economy worse." Speaker John Boehner regurgitated that point five times during his pre-buttal on Fox News Sunday before concluding last night that Obama's "policies are making our economy worse." Days after admitting "of course it's getting better," on Tuesday Mitt Romney returned to his uber lie that the President is "making these troubled times last longer." And in his official Republican response, Indiana Governor Mitch Daniels declared President Obama "has held back rather than sped economic recovery" and "cannot claim that the last three years have made things anything but worse."
Sadly for the trickle-down mythmakers of the Republican Party, the facts and the overwhelming consensus of economists - including John McCain's 2008 brain trust - prove otherwise. President Obama not only did not make the American economy worse; he saved it from "Great Depression 2.0."

Start, for example, with the conclusions of the nonpartisan Congressional Budget Office (CBO). Despite Republican mythmaking that the American Recovery and Reinvestment Act (ARRA) "created zero jobs," in November the CBO reported that the stimulus added up to 2.4 million jobs and boosted GDP by as much as 1.9 points in the previous quarter. As The Hill explained, the CBO has found that "President Obama's 2009 stimulus package continues to benefit the struggling economy":

The agency said the measure raised gross domestic product by between 0.3 and 1.9 percent in the third quarter of 2011, which ended Sept. 30. The Commerce Department said Tuesday that GDP in that quarter was only 2 percent total...
By CBO's numbers, the $800 billion stimulus added up to 0.9 million jobs in 2009, 3.3 million jobs in 2010 and 2.6 million jobs in 2011.

Given those findings, it's no wonder new 2012 GOP presidential frontrunner Newt Gingrich wants to abolish the CBO.

Mark Zandi, an adviser to John McCain in 2008, was adamant on positive role of the stimulus. Federal intervention, he and Princeton economist Alan Blinder argued in August 2010, literally saved the United States from a second Great Depression. In "How the Great Recession Was Brought to an End," Blinder and Zandi's models confirmed the impact of the Obama recovery program and concluded that "laissez faire was not an option":

The effects of the fiscal stimulus alone appear very substantial, raising 2010 real GDP by about 3.4%, holding the unemployment rate about 1½ percentage points lower, and adding almost 2.7 million jobs to U.S. payrolls. These estimates of the fiscal impact are broadly consistent with those made by the CBO and the Obama administration.

But their modeling also suggests that the totality of federal efforts to rescue the banking system dating back to the fall of 2008 prevented a catastrophic collapse:

We find that its effects on real GDP, jobs, and inflation are huge, and probably averted what could have been called Great Depression 2.0. For example, we estimate that, without the government's response, GDP in 2010 would be about 11.5% lower, payroll employment would be less by some 8½ million jobs, and the nation would now be experiencing deflation.

Even Douglas Holtz-Eakin, former head of the CBO and chief economic adviser to John McCain during the 2008 election, acknowledged the impact of the stimulus. Certainly no fan of either Barack Obama or the design of the ARRA, Holtz-Eakin told Ezra Klein that:

"The argument that the stimulus had zero impact and we shouldn't have done it is intellectually dishonest or wrong. If you throw a trillion dollars at the economy it has an impact, and we needed to do something."

Which is exactly right. To better understand why, it's worth taking a second look at just how dire the U.S. economic situation was when Barack Obama took the oath of office. As The Economist and the Washington Post's Ezra Klein detailed, in early 2009 the American economy was not only in much worse shape than almost anyone imagined; it was literally on the brink of collapse. As The Economist explained the run-up to the passage of the $787 billion recovery program:

The White House looked at the economic situation, sized up Congress, and took its shot. Unfortunately, the situation was far more dire than anyone in the administration or in Congress supposed.
Output in the third and fourth quarters fell by 3.7% and 8.9%, respectively, not at 0.5% and 3.8% as believed at the time. Employment was also falling much faster than estimated. Some 820,000 jobs were lost in January, rather than the 598,000 then reported. In the three months prior to the passage of stimulus, the economy cut loose 2.2m workers, not 1.8m. In January, total employment was already 1m workers below the level shown in the official data.

As Klein points out, it "wasn't until this year that the actual number was revealed" for Q4 2008 by the Bureau of Labor Statistics. As The Economist lamented, the Obama administration was "flying blind" when it made its fateful prediction that unemployment would peak at 8 percent.

Whether the White House should have known the unemployment picture was going to be much, much worse (as Joseph Stiglitz and Jared Bernstein argued) or that the stimulus package itself was too small and too laden with tax breaks (as Paul Krugman warned at the time), there is little question that the American Recovery and Reinvestment Act worked largely as designed. (Unfortunately, the draconian budget-cutting by state and local governments which have already cost 600,000 workers their jobs could rightly be deemed the "anti-stimulus.") As Krugman described the latest report from the Congressional Budget Office in November:

What it tells us is that the US federal government has been practicing destructive fiscal austerity since the middle of 2010 (and that's not even talking about what's happening at the state and local level). Here's the average of CBO's high and low estimates of the impact of the ARRA on the level (not the rate of growth) of GDP by quarter:

And you wonder why the economy isn't recovering strongly?

That's why the extension of the temporary payroll tax cut President Obama argued for so forcefully in the State of the Union address - and which Republicans continue to obstruct - is so essential for the U.S. to expand on its slow but steady job gains. As the Washington Post reported late last year:

Estimates vary on the extent that growth in the gross domestic product could suffer. Goldman Sachs economic forecaster Alec Phillips estimated that allowing the payroll tax cut to expire would reduce growth by as much as two-thirds of a percentage point in early 2012. Macroeconomic Advisers estimates that it would reduce GDP growth by 0.5 percent and cost the economy 400,000 jobs by the fourth quarter.

Nevertheless, Governor Mitch Daniels, who as head of the Office of Management Budget falsely claimed that George W. Bush "inherited a recession," suggested last night that President Obama's policies were "pro-poverty" and have "put us on a course to make it radically worse in the years ahead." But before proclaiming that "we do not accept that ours will ever be a nation of haves and have nots; we must always be a nation of haves and soon to haves," Daniels would have done well to remember George W. Bush's famous words from the 2000 campaign:

"This is an impressive crowd - the haves and the have-mores. Some people call you the elites; I call you my base."

As the record shows, it was President Bush who left the U.S. economy in much worse shape than he found it. And no matter how many times Republicans pretend that Barack Obama "made the economy worse," their lie will not become any more true.
(For more background on the charts above, see "The Legacy of the Great Recession" at the Center on Budget and Policy Priorities.)


Jon Perr
Jon Perr is a technology marketing consultant and product strategist who writes about American politics and public policy.

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