Thursday, April 22, 2010

Does Obama Deserve Credit for the Economic Recovery?

Scores of books, articles, and blogs, and those in press and under contract, have tried to explain the financial and economic crises of 2007-09. Important factors include unqualified home buyers, complicit lenders, policies promoting home ownership, overly loose monetary policy, lax government regulation, development of incomprehensible financial instruments, irresponsible investment houses, and others.

The same holds for recovery. What accounts for the rapid rise in stock prices since the low of March 9, 2010, the improvement in employment conditions, and return to economic growth? Posited factors include stabilizing the financial system, normal operation of the business cycle, accommodative monetary policy, tax cuts and stimulus spending, improving consumer confidence, and others.

Politicians, academics, the media, and the blogosphere are engage in a great debate to justify the policies they support to prevent another meltdown and improve current economic conditions. Left and right disagree on the role of the stimulus, how fast to tighten monetary policy, the need for additional financial regulation, and so on.

In November voters will cast their judgment on President Obama first two years in office in the mid-term elections. Democrats will find it hard, even if true, to blame Bush and Republicans for the financial crisis. If unemployment remains high, Democrats will be blamed and likely suffer large losses. If hundreds of thousands of new jobs are created every month between now and November, Democrats will lose fewer seats than forecast.

If the economy improves, Obama will get the credit. His achievements will include having passed a stimulus package that Democrats will claim prevented a second depression, restoring confidence in consumer and financial markets, enacting health reform to cover millions of uninsured, strengthened financial regulation (which appears increasingly likely) to prevent future meltdowns, withdrawing 50,000 troops from Iraq, and escalating the war against the Taliban. One thing is clear. Whether by hook or by crook, whether for good or for bad (where you stand depends on where you sit), Obama has delivered on several of his key campaign promises. This stands in contrast with many of his predecessors who, once installed in the White House, forgot their constituents.

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