The success and limits of economic stimulus

New unemployment insurance claims

It is a fact that economic recovery began after President Obama took office.  I believe that the recovery was helped by his economic stimulus program and by programs already in place such as food stamps and unemployment insurance.  These helped cushion the effects of the recession and allow recovery to take place.  I can’t prove this.  There is no way to go back in time and run another scenario in which the government stood aside and allowed events to take their course.

The problem is that the recovery is so slow, and that even when and if economic conditions get back to the way they were before.  During the supposed expansion preceding the 2007 recession, wages were declining (in terms of buying power), American manufacturing was being eroded and poverty was increasing.

Below are some charts which illustrate the weakness of the current economic recovery.

Click on 10 Depressing Charts About Long-Term Unemployment for a report from the Pew Center.  Long-term unemployment is the highest that it has been since World War Two, and the longer somebody is unemployed, the less likely the person is to find a job.  People who are out of work do not use their skills nor keep up to date, and when they do find work, it usually is in a lower-paid and less-skilled field.

The “qualitative easing”—shoving near-zero-interest loans onto the banks—was supposed to stimulate investment in the American economy.   So far this doesn’t seem to have worked.

Click on The Legacy of the Great Recession for a balanced view in the form of charts from the Center on Budget and Public Priorities.

Christina Romer, former chair of President Obama’s Council of Economic Advisers, recently wrote an article for The Browser web site recommending five books on the Great Depression.  One was by Milton Friedman; another by Ben Bernanke.  All five were about monetary and fiscal policy.  Not one had to do with putting people to work or preventing fraudulent and reckless financial practices, which I would think are the heart of the matter.

Click on Christina Romer on Learning from the Great Depression for her five books and her commentary.

My own opinion is that the best thing the government can do to stimulate the economy is to put people to work maintaining and improvement the neglected things we need to have a prosperous nation.  This includes maintaining essential government services such as schools and law enforcement, repairing the nation’s deteriorating roads, bridges, dams, levees and other physical infrastructure and investing in scientific research.

Tags: Economic stimulus, Great Recession, Recession