The overwhelming reason for the Democrats’ losses was their failure to take the necessary measures to ensure a robust recovery from the recession.
This is a case where it clearly would have been better to fight for something that you want, and lose, than fight for what you don’t want, and win.
Of course, unemployment would be much worse today than 9 and a half percent if we hadn’t passed Obama’s inadequate stimulus, but you never were going to win in 2010 on 9 and a half percent unemployment. So Q1: Why was the 2009 stimulus so small? A1: Obama wanted an inadequate stimulus. Q2: Why did Obama want an inadequate stimulus? A2: That’s who he is: no “the Republicans and Blue Dogs made him do it,” that’s who he is.
Anyway, I disagreed yesterday with Jason Rosenbaum on the notion that Obama’s “giving in to Senate Democratic and Republican “moderates” to keep the size of the stimulus down” is what made the stimulus inadequate. Obama was and is one of the ‘moderates’ or blue dogs: the record shows that “giving in” happened only on a relatively small-scale, and that Obama’s initial $825 billion proposal — the one he wanted, pre-giving in — was only slightly less inadequate than the $787 billion package which eventually passed.
According to Mark Weisbrot’s colleague Dean Baker — “the person with the most serious claim” for predicting the onslaught of the housing/financial collapse — the stimulus Obama eventually got passed made up for only an eighth of the demand lost in the bursting of the financial and real estate bubbles. And for Obama’s initial, January 2009 proposal, before ensuing negotiations and compromises, Baker (and Krugman and others) had already pointed out the “much too small” problem (emphasis added):
Barack Obama’s big stimulus
The proposed $825bn economic stimulus package will do much to get the US back on track. But it needs to be even larger
Dean Baker
Guardian.co.uk
January 19, 2009… The main features of the bill are very much on the right track. The biggest problem is that it should be larger. This downturn is so severe that this package may not be sufficient to offset even half of its impact.
… If we assume a multiplier effect of 1.4 for the stimulus package being debated in Congress, then the $400bn in annual spending will raise 2010 GDP by $560bn, less than half what would be needed to bring us back to full employment by CBO’s estimate and just more than one-third by mine.
By mid-2009 progressive economists were nearly uniformly urging Obama to pass a second stimulus. Obama and his advisors said it was ‘too soon’. Baker, for example, wrote emphatically:
In short, we badly need another very big dose of stimulus. Unfortunately, the politicians and pundits in Washington are either too ignorant, dishonest, or scared to talk about the $2 plus trillion stimulus that this economy needs. As a result, tens of millions of people will lose their jobs and/or their homes because of continued economic mismanagement.
Weisbrot also notes that there would’ve been (and would be today) almost no economic price for spending the amount of federal dollars needed to make up for the double bubble bursting:
The irony is that our economy remains in a situation where we could spend this money without even adding to the public debt burden. This may seem like magic but it is not. When the economy is this depressed, with high unemployment and unused capacity, the Federal Reserve can create money and loan it to the Treasury – and such money creation does not cause any problem of inflation. In fact, since 2007, the Fed has created more than $1.4 trillion . . . But inflation is still running at just 1.1 percent annually – a level that is too low, even for the Fed.
On the other hand, the price the people of the U.S. will pay for Obama ignoring the good advice of people like Baker and Krugman will be enormous, almost incalculable. The Republicans won on Tuesday, they will stop any effort at stimulating the economy, and are instead pushing the perversion of cutting back government spending — even balancing the budget? — in the middle of 9% plus unemployment. So that’s the next two years. Then, in 2012, we face a battle between Mr. Obama, inadequate stimulus personified, and some neanderthal pre-FDR economics Republican. So, that has us covered till 2016. And all because Obama GOT WHAT HE WANTED: a vastly inadequate stimulus.