Charlie Cook: Stimulus Has Been Discredited

While I generally loathe press releases, I have to admit that one caught my eye on Monday morning. The e-mail release from the Republican National Committee simply said, “They Own It.”  

As I expected, “They” referred to President Obama and Democrats, and “It” referred to the economy. Within the first six months or even a year of a new administration, it’s fair game to blame predecessors for any problems. Indeed, it’s a legitimate and time-honored tradition by presidents of both parties. But such arguments get much less convincing as the second year comes to an end. Once into the third year, such claims sound downright silly. Gradually, any president and any administration take ownership of the problems facing the country.

While Obama and Democrats can say that they inherited a terrible economy and downturn that has since only marginally improved, it’s far more complicated than that.

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First, the administration’s initial response, the much-maligned economic-stimulus package, was far too modest and unfocused.  

And second, as soon as the stimulus package was completed, they pivoted too quickly to addressing climate change and health care. These were the signature issues in voters’ minds that defined the legislative objectives of Obama and the Democratic Congress.

Republicans felt that the spending package was expansive and unnecessary and would run up deficits, with the consensus among economists being that unemployment wasn’t going to get worse than 8.2 percent.  

Democrats seemed to see it as an opportunity to load up the Christmas tree with funding for programs that they felt were worthwhile and had been shortchanged under Republican rule. Forecasters underestimated the severity of the downturn and both parties responded by not taking it as seriously as they should have.

The highly regarded Blue Chip Economic Indicators survey of top economists in January 2009, when Obama was sworn in, showed an expectation that unemployment would average 8.2 percent for 2010. The reality, of course, was that the lowest monthly unemployment rate in 2010 was 9.4 percent, and it shot up to 9.8 percent for two months that year.  

Presumably, had everyone known how bad the jobless situation would be, both parties would have sought to spend on things where they would get the maximum bang for their buck in terms of job creation.

Unfortunately for Democrats, accountability only applies to those in power, so it’s they and Obama who will continue to pay the price for not having been more aggressive with programs that would have generated more jobs.

This can also explain why Obama and Democrats felt comfortable moving on to climate change legislation in the summer of 2009 and then health care, an issue which would dominate the agenda.

Indeed, one can argue that there was a reticence to spend too much political capital on fighting for a bigger stimulus package because they wanted to hold it back for these issues. Had Democrats vowed to fight tooth and nail to create more jobs and pull the economy out of the recession, voters’ memories and how they see the parties might be quite different.

Now we find ourselves sitting at 9.1 percent unemployment, and the very concept of economic stimulus spending has become discredited, at least among Republicans.

To be sure, an increased focus on the deficit issue has made it almost impossible.  

The Fed, through monetary policy, has stimulated the economy in an unprecedented manner. But there seems to be a limit to how much that can help and the spending stimulus is largely worn out. With another stimulus politically untenable now and monetary policy having done about as much as can be done, policymakers are in a pretty helpless situation.

With last month’s dismal unemployment report and economic-growth forecasts rapidly being revised downward, it is becoming increasingly clear that it is unlikely that economic growth will be sufficient to create meaningful job growth on a sustained basis through the 2012 election.  

The odds of unemployment dropping much below 8.0 percent by Election Day are quite small. Many have been pointing to the fact that no modern president has been reelected with an unemployment rate above 7.2 percent, which is technically true.  

It is important to note, though, that Ronald Reagan was the president who was reelected when unemployment was at 7.2 percent, and he won in a 49-state landslide.  

Just two years earlier, during the 1982 midterms, unemployment was at 10.8 percent.  Presumably, Reagan still would have won if unemployment was at 7.3 percent; there was nothing magical about 7.2 percent.  

The point is that unemployment had topped out and the economy had clearly turned around with the arrow pointing in the right direction. The best Obama can hope for is that the economy will improve from its worst point and that the arrow will be pointing in the right direction.

In Reagan’s case, he basically rode out the storm of the recession and the economy improved in time for his reelection campaign, where he was able to run on the theme of “Morning in America.”  

For Obama, it’s pretty clear the recovery won’t be nearly as robust. In addition, he has to deal with a more complicated narrative where he must reconcile an early focus on subjects that would best be forgotten with making the case that he should have his contract renewed for another four years. That won’t be easy.

This article appeared in the Tuesday, June 7, 2011 edition of National Journal Daily.

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