This week the White House's Council of Economic Advisers released a report marking the fifth anniversary of the American Recovery and Reconstruction Act -- the economic stimulus passed at the beginning of President Obama's term. Much criticized by Republicans, the stimulus was one of the most significant pieces of economic policymaking in generations. The CEA report was designed to tout the merits of the stimulus and the follow-up legislation, but it also provides a neat visual history of Obama's response to the economic crisis he confronted when he came into office and the meager recovery he presided over.
This first chart is a good summary of why Obama was perhaps destined to undershoot in his response to the economic crisis he faced. Obama's aides were drawing up plans for the stimulus in the final months of the 2008 campaign. In November and December of that year, professional forecasters had projected real economic growth in the final quarter of 2008 to be as bad as -4.1 percent and, in the first quarter of 2009, to be as bad as -2.4 percent. Meanwhile, they projected the unemployment rate to average as high as 6.7 percent in the final quarter of 2008 and as high as 7.3 percent in the first months of 2009. On all these predictions, they were way off. Actual economic growth in the final quarter of 2008 was -8.3 percent, and in the first quarter of 2009, it was -5.4 percent. Meanwhile, the unemployment rate averaged 8.3 percent in the first quarter of 2009. Obama's aides designed the stimulus for an economy in recession, but they didn't know it would be an all-out catastrophe.
The stimulus was projected to inject $787 billion (later revised to $830 billion) into the economy -- the most that White House legislative strategists figured they could get out of Congress, even though Democrats controlled the House and the Senate. As you can see, the stimulus was fairly well divided among different types of relief. The biggest portion was public investment -- those included the "shovel-ready" infrastructure projects and longer-term investments in green energy, broadband and the like. More than a quarter of the stimulus went to tax cuts, one-fifth went to helping states plug their own huge fiscal holes, and 15 percent went to bolster the safety net.
It quickly became pretty clear that the stimulus was going to be inadequate. But the irony was that because it was inadequate, it also got a pretty bad name. So did government spending more generally. Between pushing for passage of the Affordable Care Act and Wall Street reform, the White House made a continuous effort to get Congress to agree to more stimulus. Most of the success came before Republicans took control of the House at the beginning of 2011. The biggest victory was a critical tax deal reached in December 2010 that sliced payroll taxes for all workers. Some economists say that agreement possibly prevented a second recession in 2011. Whatever the case, from 2009 through 2012, the administration was able to secure roughly $700 billion in additional stimulus -- a substantial amount, though still much less than what they wanted and what many economists would argue was needed.
The following chart is one of the more befuddling of the White House's message on the economy. The administration has gone to great lengths over the years to boast about how much progress it's made in bringing down budget deficits. And, indeed, the deficit has fallen at the fastest pace in 50 years. But while the White House uses the shrinking deficit as a defense against Republican critiques that Obama is a profligate spender, it smells of disingenuousness. Most in the White House, like many professional economists, would argue that the deficit has come down too quickly given the weak economy. Celebrating the deficit's fast decline amounts to celebrating the rapid withdrawal of government stimulus -- something nobody in the White House would want to defend.
However one might criticize Obama's response to the crisis, this chart definitively shows the United States outperformed many peer countries in the years following the 2007-2008 banking crisis. Not all the credit goes to Obama. Forceful actions taken by President George W. Bush and by the Federal Reserve under Chairman Ben S. Bernanke also played a huge role in restoring economic growth.
Long after the Great Recession fades, many in the White House are hopeful that the stimulus will be remembered for the long-term projects that it catalyzed under the theory that a crisis shouldn't be wasted. Tens of billions of dollars were invested in scientific research, clean energy, health technology and other projects. Republicans have derided much of that spending as giveaways and cronyism -- such as the administration's investment in failed solar panel maker Solyndra. But at least some of the spending is likely to produce benefits that will remain with us for generations. The real question is whether the government will choose to sustain the level of investment in high-return parts of the economy. So far there is little reason for confidence: While lawmakers rolled back the deep spending cuts known as sequestration for two years, discretionary spending -- the type of spending dedicated to R&D or education -- has slowed dramatically under the tight budget agreements reached by the White House and Congress.