KRUGMAN: Cleaning up America's economic mess
Published: Sunday, September 9, 2012 at 3:00 a.m.
Last Modified: Friday, September 7, 2012 at 3:39 p.m.
Great line. But is the mess really getting cleaned up? The answer, I would argue, is yes. The next four years are likely to be much better than the past four years — unless misguided policies create another mess.
In saying this, I’m not making excuses for the past. Job growth has been much slower and unemployment much higher than it should have been, even given the mess Obama inherited. More on that later. But, first, let’s look at what has been accomplished.
On Inauguration Day 2009, the U.S. economy faced three main problems. First, there was a crisis in the financial system, with many of the crucial channels of credit frozen; we were, in effect, suffering the 21st-century version of the bank runs that brought on the Great Depression. Second, the economy was taking a major hit from the collapse of a gigantic housing bubble. Third, consumer spending was being held down by high levels of household debt, much of which had been run up during the Bush-era bubble.
The first of these problems was resolved quickly, thanks both to lots of emergency lending by the Federal Reserve and the much-maligned bank bailouts. By late 2009, measures of financial stress were more or less back to normal.
This return to financial normalcy did not, however, produce a robust recovery. Fast recoveries are almost always led by a housing boom — and given the excess home construction that took place during the bubble, that just wasn’t going to happen.
Meanwhile, households were trying
Now, you may have noticed that in telling this story about a disappointing recovery I didn’t mention any of the things that Republicans talked about last week in Tampa, Fla. — the effects of high taxes and regulation, the lack of confidence supposedly created by Obama’s failure to lavish enough praise on “job creators.
And here’s the good news: The forces that have been holding the economy back seem likely to fade away in the years ahead. Housing starts have been at extremely low levels for years, so the overhang of excess construction from the bubble years is long past — and it looks as if a housing recovery has begun. Household debt is still high, but the ratio of debt to GDP is way down from its peak, setting the stage for stronger consumer demand.
And what about business investment? It has been recovering rapidly since late 2009, and there’s every reason to expect it to keep rising as businesses see rising demand for their products.
So, the odds are that barring major mistakes, the next four years will be much better than the past four years.
Does this mean that U.S. economic policy has done a good job? Not at all.
Clinton said of the problems Obama confronted on taking office, “No one could have fully repaired all the damage that he found in just four years.” If, by that, he meant the overhang of debt, that’s very much the case. But we should have had strong policies to mitigate the pain while households worked down their debt, as well as policies to help reduce the debt — above all, relief for underwater homeowners.
The policies we got were far from adequate. Debt relief has been a bust — and you can argue that this was, in large part, because the Obama administration never took it seriously.
But, that said, Obama did push through policies — the auto bailout and Recovery Act — that made the slump a lot less awful than it might have been. And despite Mitt Romney’s attempt to rewrite history, the fact is that Republicans bitterly opposed both measures, as well as everything else the president has proposed.
So Clinton basically had it right: For all America has suffered on his watch, Obama can fairly claim
Paul Krugman is a columnist for the New York Times.
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