Obama's Reaction to the Recession

There's a very nice article by Ezra Klein discussing what the Obama administration did to respond to the financial crisis.  Bottom line:  the severity of the problem was greater than they thought.

I think that Obama isn't aggressive enough, and this article provides some support for this argument.  Klein says that the administration thought that you could do a little bit, and if the country needed more stimulus, you could always go back and add more.  Says Jared Bernstein, labor economist and former Chief Economist and Economic Policy Adviser to Joe Biden:

“If you’re at the barber and they don’t cut your hair short enough, you can always ask them to go a little further,” Bernstein says. “That’s sort of how I thought about stimulus policy. I don’t think we could have done more in February of 2009 based on political and implementation constraints. But I probably didn’t recognize how hard it would be to go back to the barbershop.”

Sadly, when it became apparent that the stimulus wasn't enough, Obama's opponents were happily calling the stimulus a failed strategy and effectively blocking any further stimulus.  Bottom line:  being cautious with the stimulus screwed the administration.  And the country.

Also interesting is this graph:

The two smooth curves show what Obama used to sell his plan.  They represent the projected unemployment rates with and without the stimulus plan.  The idea was:  hey, look at how much better things will be with the stimulus.  Of course, the problem was much worse than anyone thought:  the jagged line that is above both curves represent the actual, much higher, unemployment rate.  Ouch.

And as for the administration's various programs to address the housing crisis:  basically little of the money has been spent, and the mortgage servicers are so busy foreclosing that they don't give a rats ass about restructuring anybody's payments.  ProPublica has a piece on this subject that's worth reading, it recounts how poorly these homeowner assistance programs have done.

Krugman, though generally approving, thinks Klein lets the administration off the hook too much.  Krugman notes that he's been saying this all along and the administration was just foolishly optimistic/ignorant to do anything differently.  He concludes:

Now, Ezra may be right that none of this would have made much difference. But the White House was weak and confused in the face of a political and economic debacle, when it should have gone all out.

And you know what? It should still go all out. The chances of success are lower than they would have been if it had taken a strong position two years ago, but it ain’t over until it’s over.

It would be nice, but will it happen?