Cherry Picking from the Wrong Bush

Former Governor Jeb Bush’s trip to campus last Wednesday was a valuable chance to understand an alternative to the viewpoint Dee Dee Myers presented. He articulated the conservative vision for America, one where equality of opportunity and individual effort replace the need for government intervention in the economy. Bush pointed to the success that free markets have had in lifting people out of poverty and noted that no government program had ever achieved such success. He referred to the stimulus package of 2009 as “a hodgepodge of wonderful ideas…[that] didn’t work,” asserted that “every analysis has proven that it didn’t work,” and later concluded that “the end result is that we have the weakest economic recovery in modern times.” I agree with Bush’s vision of the free market as the driver of prosperity, and I agree that government should refrain from unnecessary involvement in the economy. I believe, however, that government has a role to play in responding to the occasional malfunctioning of the free market, and I strongly disagree with Bush’s characterization of the stimulus and the current administration’s economic record. Bush’s statement that “every analysis” has concluded that the stimulus didn’t work is demonstrably false. In an August 8 post past summer, Dylan Matthews of “The Washington Post” WonkBlog examined academic findings regarding the stimulus. He found 15 studies on the effectiveness of the stimulus. The studies used varying methods to arrive at their conclusions, but the general consensus was that the stimulus was successful in mitigating the effects of the recession. Of the 15 papers, 12 concluded that the stimulus worked, one concluded that the stimulus might have worked and two concluded that the stimulus did not work. It is true that economists are still debating the efficacy of the stimulus and that there will likely never be complete consensus amongst the academic community regarding the success or failure of the program. However, the body of academic work as it stands today largely points to a successful action by the federal government that shortened the recession, and saved or created jobs. Govorner Bush’s assertion that there is an academic consensus suggesting otherwise is simply inaccurate. The most common criticism of the stimulus is that it failed to prevent unemployment from rising above 8 percent, and that the economy has not recovered at the rate projected. This criticism, however, fails to take into account an important fact: no economist knew just how bad the recession actually was when the stimulus bill was passed. The economists who designed the stimulus in February of 2009 were working with the best available data at the time, which showed that the economy had contracted at a rate of 3.2 percent, annualized, in the fourth quarter of 2008. Every private forecasting firm arrived at a similar estimate. In 2011, a Bureau of Economic Advisors study found that the actual rate of contraction had been 8.9 percent, annualized. In other words, the economic hole at the end of 2008 turned out to be three times as deep as the creators of the stimulus had known it to be. What does the corrected data mean? During the summer of 2010, Douglas Holtz-Eakin, chief economic advisor to the McCain campaign, testified before the Senate Finance Committee that the stimulus had been a breakeven effort, with every dollar of government spending creating little more than a dollar of economic output. By applying Dr. Holtz-Eakin’s same methodology to the latest data, economists have found that the stimulus created around $2.10 in economic output for every dollar spent in the stimulus. The stimulus failed to prevent unemployment from rising above the 8 percent high watermark because the recession it was designed to combat turned out be much, much, worse then the economists of the time imagined. Do the faults of the stimulus suggest that there shouldn’t have been one at all? Ask Dr. Holtz-Eakin: “The argument that the stimulus had zero impact and we shouldn’t have done it is intellectually dishonest or wrong. If you throw a trillion dollars at the economy it has an impact, and we needed to do something.” In response to Bush’s claim that the current recovery is the weakest ever, payroll numbers tell a different story. Forty months into President Obama’s term, private sector employment under his administration became net positive. In contrast, 40 months into former President George W. Bush’s term, private sector employment was a full percent lower than when he had taken office. Former Governor Mitt Romney also made a similar claim regarding the weakness of the recovery in June 2011, saying that “this is the slowest job recovery since Hoover.” PolitiFact rated his statement as false, noting that there were two slower recoveries in terms of job creation: the 1980 to 1982 recovery under the Carter and Reagan administrations and the recovery under former President George W. Bush from 2001 to 2003. The fact-checking website also found that four other recoveries had been slower in terms of a reduction in the unemployment rate, the ones under former Presidents Richard Nixon, Jimmy Carter and Ronald Reagan, the recovery under George H.W. Bush and George W. Bush. While the current recovery has occurred in fits and starts and has been frustrating at times, it is by no measure the “weakest economic recovery in modern times” that Governor Bush portrays it to be. Once again, I agree with Bush’s assertion that markets should drive economic prosperity. Yet it is imperative to recognize that markets are driven by human emotions and whims, which are imperfect by nature. Markets sometimes fail when opportunities for profit outweigh common sense and caution. Events like the crash of 1929, the crash of 1987, the savings and loans crisis and the Long Term Capital Management debacle should remind us of this fact. The recession of 2009 was no different, having been triggered by a subprime mortgage meltdown caused by the collective myopia of millions of lenders, borrowers and bankers. While it is easy to say that government should not interfere in the economy, there are challenging questions that accompany this position. When American automakers become uncompetitive, should the government leave it to the markets, potentially endangering millions of auto industry jobs? Should the government have refrained from bailing out the big banks in the interest of avoiding moral hazard? The role of government in our economy should ideally be as small as possible, yet from time to time intervention is necessary. Jeremy Chen is a four-year Senior from Monmouth Junction, NJ.