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Saturday 20 February 2010

In late January of last year, President Obama took office facing the worst economic crisis since the Great Depression (and with two wars going badly and a trillion dollar deficit). He sought bipartisan support for legislation to help turn around the economy. Since interest rates were already at the “zero bound,” representing the limit of traditional monetary policies, primary reliance would have to be on fiscal policy. Despite analyses from his own Council of Economic Advisors that a fiscal stimulus of roughly $1.2 trillion was necessary, President Obama cut it back to less than two-thirds of that size in an effort to accommodate Congressional Republicans. Over one-third of the stimulus ($288 billion) took the form of tax cuts for over 95% of all Americans. This was done to appeal to Republicans, despite warnings that those tax cuts would likely be saved rather than spent, diluting their stimulative effect. It constituted the largest two-year tax cut in US history. Despite those efforts at bipartisanship, not a single Republican in the House voted for the bill and only three Republican Senators voted for it (one of whom, Arlen Specter, later became a Democrat after being ostracized by his former party for that treasonous act of bipartisanship). Less than a month into the new administration, in the middle of a national crisis, Congressional Republicans had already settled on a strategy of total opposition and obstruction. So despite the ARRA being too small and too tilted toward tax cuts – in the name of bipartisanship – how has the economy done during President Obama’s first year? daggatt ☀

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