No, Obama's Policies Are Not Holding Back the Economy

Saying that Obama is hindering the economic recovery ignores the elephant in the room.

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A new college ratings system proposed by President Obama in August is scheduled to launch in spring 2015.
A new college ratings system proposed by President Obama in August is scheduled to launch in spring 2015.

Wall Street Journal columnist Daniel Henninger had fun this week arguing that President Obama's problems implementing health reform pale next to his problems getting the economy back to health. The attack on Obama's economic stewardship, however, looks just like the standard conservative attack on health reform: it's light on sound arguments and ignores the elephant in the room — Republican obstructionism.

First, health care. As the president says, it's on him that the rollout of and the health insurance marketplaces — where individuals can purchase health insurance to avoid the fine for not having it — has been, to put it kindly, rocky. But Republicans have provided no clear alternative to expand access to good quality, affordable health care, and they have made the rollout more difficult.

Many Republican governors and state legislatures have left implementation of their health insurance marketplaces (also known as exchanges) to the federal government rather than do it themselves — hardly the usual position of a party that believes in devolving as much power as possible to the states. And, at the moment, 25 states are not moving forward to implement the Medicaid expansions — which are a very good deal for them — leaving a significant coverage gap among low-income adults and complicating the determination of eligibility for coverage on the exchanges.

Finally, Republican proposals to "fix" the problem would undermine, not improve, health reform. The president's proposal, while not perfect, is the best on the table.

[See a collection of political cartoons on the economy.]

Like problems with the health care rollout, the problems in the economy are plain to see. Henninger plays fair when he notes that the president did not cause the Great Recession, which is the source of the problems with which we're still grappling.  But, he's wrong to say it's the president who "has the economy on lockdown."

First, he ignores what many economists and policymakers see as the main problem we still face – inadequate demand for goods and services. Second, he cavalierly dismisses the benefits of economic stimulus in such an economy. Third, he insists the main thing holding back the recovery is excessive business regulation. With that mindset, he naturally doesn't acknowledge the drag on economic activity and job creation from the premature austerity that Congress has imposed on the economy since Republicans regained control of the House in the 2010 mid-term elections and the barriers that Republicans have put in the way of a budget plan that could boost the recovery in the short run while still putting deficits and debt on a sustainable longer-run trajectory.

Just a reminder to all who, like Henninger, parrot the shibboleth that stimulus did not work: the Congressional Budget Office finds that gross domestic product has been higher each year since 2009 than it would have been without the 2009 American Recovery and Reinvestment Act and unemployment has been lower (see chart). 

CBO includes a broad range of estimates about the recovery act's impact to encompass the views of economists who continue to doubt the mounting evidence that stimulus is highly effective under the economic conditions prevailing in recent years. But, that evidence suggests that act's impact is quite likely much nearer the high than the low estimate.

[See a collection of political cartoons on Obamacare.]

Here's what the International Monetary Fund says about that research, the expansionary effects of fiscal policy (tax cuts and increases in government spending) and the "old Keynesian mulitplier" that Henninger mocks: "While debate continues, the evidence seems stronger than before the crisis that fiscal policy can, under today's special circumstances, have powerful effects on the economy in the short run [and] that fiscal multipliers are larger."

The powerful effects of fiscal policy in today's special circumstances work both ways. The economic forecasting firm Macroeconomic Advisers estimates that the economic uncertainty and policy choices to raise taxes and cut spending that we've made since 2010 have cost the economy up to a percentage point per year of slower economic growth and up to 2 million jobs.

It's Republicans whose policy preferences have pulled policy toward greater near-term fiscal austerity through spending cuts; Democratic plans look more like bipartisan proposals for less spending restraint in the short term and more deficit reduction that's balanced between revenues and spending down the road when the economy is stronger.

It's Republicans who have the U.S. economy on lockdown.

Chad Stone is chief economist at the Center on Budget and Policy Priorities.

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