The Last Two Years and the 2010 Election

Employment - Job losses were  rapidly accelerating at the time of President Obama's election, but quickly stabilized soon after, and began to rapidly decelerate after the passage of the stimulus.  Less than one year after President Obama was elected, the United States experienced its last month of negative private sector job growth and since that time has experienced 9 consecutive months of private sector job growth.

Stimulus -  The stimulus was found to have significantly improved economic growth and employment according to the nonpartisan CBO.  The CEA, multiple economic studies and institutions, the president of the US Chamber of Commerce, the director of the IMF, and the majority of those surveyed by the Wall Street Journal forecasting survey and National Association of Business Economics, also found the stimulus to be beneficial.

TARP and Monetary Policy - Though frequently characterized as a give away to banks, these policies were consistent with the financial accelerator model proposed  by Ben Bernanke to understand financial crises. The effects of these policies were actually viewed as more beneficial than the stimulus according to an extensive study by Zandi and Binder on the recent recession.  TARP, once estimated to cost $356 billion, is now estimated to cost $66 billion and even is expected to earn a profit according to some estimates.

Spending, Deficits, and Debt - The current deficits and projected future deficits are not caused by out-of-control spending for the "Obama Agenda" but instead are caused by the Bush tax cuts, the economic down turn, interest payments, and increased military spending.  The Republican sponsored prescription drug benefit will cost more over the next ten years than the stimulus, the bailout, and healthcare reform combined.

Healthcare - The healthcare reform bill was not "rammed down the throats" of an unreceptive public but was supported by 55% of those expressing an opinion in a Gallup shortly after its passage.  The CBO found the proposals on healthcare put forth by Republicans would achieve little, and the Republicans themselves did not support some of their own positions previously nor did they make any other attempt to address the rise in future medicaid costs when they were in power but instead exacerbated the problem by passing the medicaid prescription drug bill after allowing PAYGO rules to expire.

Economy -  The stock market has improved approximately 65% since reaching its low a few weeks after the passage of the stimulus.  The improvement in the stock market under the Obama administration is one of the best 2 year improvements of any president since 1900.  Almost all other economic indicators have also rapidly improved.  Employment has lagged but this is always one of the last indicators to improve after a recession.

Summary  - Though some claim no distinction between the two parties, the evidence indicates otherwise.  The Democratic party's policies are grounded in reality and supported by mainstream economic thinking.  The Republican party for 30 years has put forth a view of economics that the overwhelming majority of economists view as "voodoo" economics and has resulted in an unprecedented increase in debt.  In the history of this country no major political party has shown such a lack of concern about debt or conducted their fiscal policy so completely divorced from contemporaneous economic thought, theory, and empirical evidence.  The Republican party's scientific views are equally suspect, and if the worse case scenarios of climate change come true, the current economic crisis will be remembered fondly.

Employment

If  you're good at interpreting graphs, you can skip to the graph at the bottom of this section and avoid the explanation of the graph.

• In December 2007, the United States entered a recession according to the National Bureau of Economic research. The following month, the economy transitioned from creating jobs, to losing jobs.
  
  

  Change in Private Employment (thousands)	Nov	Dec	Jan '08
  	97	23	-12

  Source: Bureau of Labor Statistics
  
  
• After the initial month of negative job growth, job losses began to rapidly accelerate.



Change in Private Employment (thousands)	Feb	Mar	Apr	May	Jun	Jul	Aug	Sept	Oct
	-85	-58	-161	-253	-230	-257	-347	-456	-547





• In October, 2008, the Troubled Asset Relief Program (T.A.R.P.) was passed, and the brakes were slammed on job losses.  The acceleration of job losses soon stopped and job losses stabilized.
  
  

  Change in Private Employment (thousands)	Nov	Dec	Jan '09	Feb
  	-734	-667	-806	-707





• In February of 2009, the Stimulus bill was passed (ARRA), and in the following months job losses rapidly decelerated.  Eight months  after President Obama assumed office, in November of 2008, the economy had its first month of positive job growth in almost two years.
  
  

  Change in Private Employment (thousands)	Mar	Apr	May	Jun	Jul	Aug	Sept	Oct	Nov
  	-744	-649	-334	-452	-297	-215	-186	-262	75

  
  
  
  
• In December of 2009, less than a year after  President Obama's inauguration, the economy had its last month of negative private sector job growth and has since recorded 9 consecutive months of positive private sector job growth.
  
  

  Change in Private Employment (thousands)	Dec	Jan '10	Feb	Mar	Apr	May	Jun	Jul	Aug	Sept
  	-83	16	62	158	241	51	61	117	93	64

  
  
  
  
  

Stimulus 

• The turn around in the graph above shortly after the passage of TARP and the stimulus might be simply a coincidence caused by reversion to the mean, but many economic forecasters and organizations who have performed careful studies believe both programs contributed significantly to income growth and employment.

CBO Estimates

• The nonpartisan CBO (Congressional Budget Office) has estimated that the stimulus has increased GDP and employment in every quarter since its passage and in the most recent quarter may have increased full-time equivalent employment by as much as 5.2 million on a yearly basis.
  
  
  
  Source: Congressional Budget Office.
  Note: * = between -0.05 and 0.05.
  a. A year of full-time-equivalent employment is 40 hours of employment per week for one year.
  
  
  
  
  Source:  EconompicData
  
  

Estimations by other organizations and economists.

• The CBO was not the only organization to find that the stimulus had a positive impact on employment and GDP.  The Council of Economic Advisers (CEA) also found a positive effect as did private forecasting organizations and economists.



Source:  CEA

• At least 70% of the economists from the Wall Street Journal's forecasting survey said that "the American Recovery and Reinvestment Act boosted growth and mitigated job losses,...."  Critics of the stimulus frequently cite the survey by the National Association of Business Economics which showed that 73% of the respondents  did not believe the stimulus affected hiring at their firms, but this is different than believing that the stimulus did not affect the economy.  When asked directly if GDP is higher because of the stimulus, 83% responded yes, and "the latest NABE forecast reflects a greater appreciation of the importance of stimulus policies in countering forces holding down the economy’s performance. " The director of the IMF, the president of the U.S. Chamber of Commerce, and the American Enterprise Institute also agreee the economy benefited from the stimulus.

Other Evidence

• Many economic variables were declining at a rate similar to the Great Depression.  These variables improved after passage of stimulus  measures here and in other countries.
  
  
  Figure 1. World industrial production, now vs. then
  
  
  Source: Vox
  Figure 2. Volume of world trade, now vs. then
  
  
  
  

Critics

• Critics have also pointed to Christina Romer's prediction as evidence that the stimulus was ineffective.  In January 2009, Romer, who was the incoming Chair of the Council of Economic Advisers at the time, predicted  that unemployment would be 8% with the stimulus and 9% without the stimulus.  Since unemployment has exceeded 9%, critics claim the stimulus failed.  This criticism shows a lack of understanding of the role of economists.  Contrary to popular believe, the primary role of economists is not to make predictions.  The primary role of an economist is to provide advice as to what policy options lead to better outcomes.  At the time she made the prediction, fourth quarter results had not yet been reported so the true depth of the problem was unknown.  Romer predicted that the economy would do better with a stimulus than without one, and because the true depth of the problem was unknown, she actually understated the positive impact the stimulus would have on the economy according to subsequent analysis by the CBO.  

• Some have also criticized the composition of the stimulus or the effectiveness of certain spending to increase employment. Nancy Pelosi stated that unemployment benefits "is a job creator" and that ""[unemployment benefits] creates jobs faster than almost any other initiative you can name."  As can be seen below, Nancy Pelosi's analysis agrees with the information provided by the CBO.  For not making up her own economic analysis, but rather listening to the CBO whose duty it is to provide Congress with economic advice, Nancy Pelosi was heavily criticized by Republicans.
  
  
  
  
  

TARP and Monetary Policy

• Studies and forecasters that found the stimulus benenfited the economy, generally have found that TARP and monetary policy have been equally beneficial if not more so.  In the Wall Street Journal forecasting survey mentioned above, forecasters believed that "...the Federal Reserve played the biggest role in rescuing the U.S. economy from the financial crisis...."   Mark Zandi and Allan Blinder, in their extensive analysis using Moody's econometric model, also found that financial policy benefitted the economy slightly more than fiscal policy, as can be seen in the graph below.
  
  
  Source:  The Long Run Blog
  
  

• The financial accelerator model, developed by Ben Bernanke and others, is a model designed to understand why small changes, such as $500 billion loss in subprime mortages, are amplified and result in much larger changes and losses.  The model demonstrates that nonbank companies and institutions can be subject to the "bank run" type situations that bankrupt finanancially sound institutions in poor liquidity environments.  Quantitative easing and TARP, though frequently characterized as "give aways" to the financial industry brought about by special interest influence, are judicious policies based on the implications of the financial accelerator model.  It's true these policies benefit the financial industry, but that's what they are designed to do.  The CBO in August estimated that the cost of TARP, which was once estimated to cost as much as $356 billion, will cost $66 billion and the Treasury estimates the cost may be as low as $30 billion.

Spending, Debts, and Deficits

Spending

•  Many claim "out-of-control government spending " is causing the large deficits, but government spending has changed little relative to normal GDP levels.
  
  
  Source:  The Atlantic
  
  

• The trend in spending also has changed little over the last 5 years.
  
  
  
  Source:  New York Times
  

Deficits

• In 2001 the CBO predicted that after a decade of surpluses the USA would have no debt in 2008.  What happened?  A study by the Pew Economic Policy Group shows that  a decrease in revenue from deficit financed tax cuts and increases in defense spending and interest payments were the main contributing factors along with a downturn in the economy and slightly larger nondefense spending.  After 2008, the downturn in the economy plays a significantly larger role.  Decreases in revenue from deficit financed tax cuts played the largest role in creating deficits and debt, and nonmilitary spending played the smallest role, the opposite of what is claimed by most Republicans and conservatives.
  
  
  
  Source:  Pew Economic Policy Group

• A study by the Center on Budget and Policy Priorities shows that deficits over the next 10 years are also largely attributable to deficit financed tax cuts, slow economic growth, and increased military spending.
  
  
  
  Source: CBPP

• In 2001 the CBO projected average surpluses of $800 billion dollars from 2009 until 2011.  The actual projected deficit at the time was $1.2 trillion.  In examining this $2 trillion dollar swing, a report from the New York Times found that only 3% was caused by the "Obama Agenda" and only 7% by the temporary spending of the stimulus program.
  
  
  
  Source: YGLESIAS

• Though deficits are large under President Obama, and are projected to continue to be large, there is some indication that this situation will improve.  The formation of the bipartisan National  Commission on Fiscal Responsibility and Reform and the appointment Clinton's budget director as the new budget director of the OMB indicate that President Obama will continue the Democratic tradition of reality based financial management.  

Republican Fiscal Recklessness

• Republicans claim they must be re-elected to bring government spending under control, but Republican administrations have spent as much as Democratic administrations, and often more.
  
  
  
  Source: The Big Picture

• Most recently when Republicans controlled Congress and the Presidency, President George W. Bush was the first president in 175 years not to veto any bills in his first term, Congress allowed the PAYGO spending requirements to expire (since revived by the current Congress), and signed into law the perscription drug benefit for Medicare which over the next ten years will cost more than the stimulus, TARP, and healthcare reform combined.  In addition, the Republican Congress allowed Pork Barrel spending to increase by almost 150% as measured by Citizen's Against Government Waste.
  
  
  
  Source: CAGW

• The difference between Repulicans and Democrats is not in a willingness to spend, but rather a willingness to pay for spending.  Presidents in the postwar period from the time of Truman through Carter consistently paid down the national debt.  Starting with Reagan, Republican presidents began to show an unprecedented lack of concern about deficit spending and for the last 30 years the Republican Party has been one of the most fiscally irresponsible political parties in American history.
  
  
  
  
  Source: The Big Picture

• Republicans have justified this with the biggest lie in American politics today:  Tax cuts pay for themselves.  This lie originated in the Reagan administration, whose advisors Greg Mankiw referred to as "charlatans and crackpots" for their belief in this misconception.  Though  George W. Bush and other members of his administration frequently asserted tax cuts pay for themselves, the economists in his administration admitted otherwise.  In the last election, the major Republican candidates repreated this lie.
  
  
• When Republicans are forced to admit that tax cuts do not pay for themselves, they frequently resort to the second biggest lie in American politics:  Large cuts in spending can be accomplished through the elimination of "waste, fraud, and abuse."  Unfortunately, they're light on the specifics with regards to this topic.
  
  
  
  

Healthcare

• For years, rising healthcare costs have been projected to be a major budget problem.
  
  
  
  Source: CBO
  
  
• In 6 years of control of the Presidency and Congress, Republicans did little to address this issue other than make it worse.  President Bush in a debate with John Kerry noted that people referred to Medicare as Mediscare because politicians were scared to get hurt politically if they touched it.  He claimed to have overcome this by adding a perscription drug benefit, not realizing that politicians weren't scared to add to it; politicians were scared to address the future burgeoning costs of Medicare, a problem President Bush made worse, not better.
  
  
• In the healthcare debate, Republicans strongly supported tort reform, a policy the CBO determined would result in less than a 0.5% savings in medical costs and in a savings to medicare of about $5 billion a year.  The Republicans also supported competition across state lines, a policy also determined to be of little benefit by the CBO, and a policy the Republicans themselves did not support in a bill introduced into a Republican controlled Congress in 2005. The Republicans oppossed the "individual mandate" even though Republicans originally invented it and supported it and a similar mandate exists in the medicare perscription drug plan. For not supporting two policies the CBO said were of little benefit and one of  which Republicans did not support when it was originally introduced, President Obama was accused of being partisan and unwilling to compromise.  For supporting a policy the Republicans originally invented and supported, President Obama was called a tyrant and worse.
  
  
• The health care reform bill was not rammed down the throats of an unreceptive public as frequently asserted.  A Gallup poll after the passage of the healthcare reform bill showed that  55% of those expressing an opinion favored the healthcare bill.
  
  
  
  
  
• The new healthcare is already providing benefits.  The quote below from a post on reddit.com inspired this site, ObamacareWorks.com, to document the ways in which the healthcare reform law is already improving healthcare.
  

"Ten years ago, my mom started a non-profit performing arts school and theater company that has changed the lives of hundreds of kids. But the school is too small to be able to buy a group plan for its employees. And my mom has been trying for years to get private healthcare and been denied by ALL the major health insure companies where she lives. There was no government high-risk insurance pool in her state, and to get on Medicaid, they wanted her to sell her house and reduce her income by half so that she wouldn't look like she had so many assets. This summer, her state opted to use the federal money from the recent health care reform law to establish its own high risk health care pool. Today, she got the letter that she will be covered in 30 days at a very reasonable cost.

"What this means to her is that she will finally be able to access the kinds of treatments that will greatly improve her quality of life. The fingers on her right hand have bent almost 30 degrees. Before this, she couldn't afford the tests to qualify for the better treatments that will halt the deformation of her hands. She also frequently has to wait on tests because she has to save up or petition the doctor's office for a payment plan. My mom works seven days a week to give her community access to amazing cultural experiences - and this healthcare is going to allow her to keep that going for much longer. I'm not sure that everything in that legislation was a perfect idea. But this will change a huge number of people's lives in very real ways and we need to let people know."

Economy

• In almost every way possible the economy has improved since President Obama came into office.  Unemployment is still high, but unemployment is usually the last statistic to improve coming out of a recession and private sector job growth has been positive for 9 straight months.

• The stock market, a leading economic indicator, reached its low a month after President Obama assumed office and is near its two year high.  Three weeks after the passage of the stimulus bill, the Dow Jones Industrial average closed at a low 6626 and is now close to 11000, a gain of  approximately 65%.
  
  
  
  
  
• Even before stock market had two consecutive months of strong growth and its best September (a historically bad month) since 1939, the return on the stock market during the Obama administration was one of the best on record since 1900.
  
  
  


Source:   Bespoke Investments



• Other economic indicators have shown similar turn arounds, many exhibiting sharp v-shaped improvements
  
  
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Summary

Some feel no distinction exists between the two parties but the evidence indicates otherwise.  For anyone who is interested in the truth, and believes nuanced inductive reasoning trumps dogmatic deductive politically expedient reasoning, a clear difference exists between the two main political parties.  One party's policies are clearly grounded in realitiy; the other party bases their economic policies on a viewpoint considered "voodoo" by the economics profession.  In the history of this country no major political party has shown such a lack of concern about debt or conducted their fiscal policy so completely divorced from contemporaneous economic thought, theory, and empirical evidence and for this reason in the last two presidential elections, the majority of economists in surveys supported the Democratic presidential policy.

Currently Republican candidates are campaigning on the slogan that out-of-control government spending is driving this country towards economic ruin, but as you can see in the analysis above, this assertion is not supported by the empirical evidence.  Rather it is the disasteruous policies of the Republicans that have put us in the situation we currently find ourselves today.  The scientific views of Republican candidates are equally suspect, and if the worse case scenarios of climate change come true, the current economic crisis will be remembered fondly.

For those disappointed the current administration has not accomplished more, I invite you to consider what they have accomplished, and to ponder the possibility of how much worse things could have been had the leadership during this difficult time been provided by a political party that has increasingly ignored the advice and viewpoints provided by mainstream economic thought.