Cleaning Up the Economy

Bill Clinton’s speech at the Democratic National Convention was a remarkable combination of pretty serious wonkishness, has there ever been a convention speech with that much policy detail?, and memorable zingers. Perhaps best of those zingers was his sarcastic summary of Republican case for denying Obama re-election: “We left him a total mess. He hasn’t cleaned it up fast enough. So fire him and put us back in.” 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 last 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 Mr. Obama inherited. More on that later. But, first, let’s look at what has been accomplished. (source: Paul Krugman – NYTimes – 07/09/2012)

On Inauguration Day 2009, U.S. economy faced three main problems. First, and most pressing, 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 quite quickly, thanks both to lots of emergency lending by the Federal Reserve and, yes, 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 (or being forced by creditors) to pay down debt, which meant depressed demand. So economy’s free fall ended, but recovery remained sluggish. Now, you may have noticed in telling this story about a disappointing recovery I didn’t mention any of things Republicans talked about last week in Tampa, Fla., effects of high taxes and regulation, the lack of confidence supposedly created by Mr. Obama’s failure to lavish enough praise on “job creators” (what I call “Ma, he’s looking at me funny!” theory of our economic problems). Why the omission? Because there’s not a shred of evidence for GOP theory of what ails our economy, while there’s a lot of hard evidence for the view a lack of demand, largely because of excessive household debt, is real problem. 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 bubble years is long past, and it looks as if a housing recovery has already begun. Household debt is still high by historical standards, but ratio of the debt to G.D.P. is way down from its peak, setting stage for stronger consumer demand looking forward.

And what about business investment? It has actually 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, as I said, 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. Bill Clinton said of the problems Mr. 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 the policies to help reduce the debt, above all, relief for underwater homeowners. The policies we actually got were far from adequate. Debt relief, in particular, 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, Mr. Obama did push through policies, the auto bailout and the Recovery Act, that made the slump a lot less awful than it might have been. And despite Mitt Romney’s attempt to rewrite history on the bailout, the fact is Republicans bitterly opposed both measures, as well as everything else the president has proposed. So Bill Clinton basically had it right: For all the pain America has suffered on his watch, Mr. Obama can fairly claim to have helped the country get through a very bad patch, from which it is starting to emerge.


Acerca de ignaciocovelo
Consultor Internacional

2 Responses to Cleaning Up the Economy

  1. Professor Uziel Nogueira says: Obama gave the best speech since he became president. Why? Because he said the truth about the real state of the US economy ” You didn’t elect me to tell you what you wanted to hear. You elected me to tell you the truth. And the truth is, it will take more than a few years for us to solve challenges that have built up over decades,” he said last night. Obama’s candid statement of the state of the union has two conclusions. First, the economic problems — particularly the high unemployment — will not be solved in the next four years. It doesn’t matter whether the Pres is Obama or Romney. Second, Obama offers an economic plan to induce structural changes to increase competitiveness and create (hopefully) millions of well paid jobs in high quality manufacturing. Romney offers a 21st century version of 1980s Reaganomics. Government is out and the invisible hand of the market is in. The 1% will take care of creating jobs that were lost during the financial debacle of Wall Street. Certainly, the 99% -most middle class folks – will continue to be worse off under a Romney’s administration. For a Brazilian citizen like myself — where government is the SOLUTION and not a problem, Obama’s vision is the correct one and should be reelected.

    However, I lived long enough in the US to know that millions of Americans don’t think like me. My only doubt continues to be: Is Obama really different from Romney?

  2. Times have changed. In the speech he delivered at the Democratic National Convention Thursday night, US President Barack Obama replaced lofty rhetoric with sober, hard-nosed pragmatism. He said Americans have a choice between two futures for their country. Will that message be enough to help him beat Romney?

    It was nothing like the soaring speech from four years ago. It was no dazzling, history-making address, no major pitch, no inspirational oration leaving listeners with goose bumps. And it was far from the ferocious takedown of his opponent that Bill Clinton had delivered the previous evening. No, the speech that President Barack Obama delivered on Thursday evening at the Democratic National Convention in Charlotte, North Carolina, advocated for a second term in office without making use of streamers and garlands. Of course, it ended in a typically rhythmic climactic closing, but it was also very sober. It was combative but serious, at points defensive and almost introspective. “And while I’m proud of what we’ve achieved together, I’m far more mindful of my own failings,” Obama said. Then, he very simply asked for more time to solve the nation’s problems. But perhaps this was exactly the speech that he had to deliver now. The 2008 election is far behind us, and then came the great crash of the recession. Americans don’t want to listen to a preacher now; they want a pragmatist. “The times have changed,” Obama said, pausing to add, “and so have I.” The high-flying Obama deliberately chose to keep his feet on the ground. Four years ago, he courted voters under the banner of hope. “Eight years later,” he said, “that hope has been tested.” The speech was heard by 22,000 enthusiastic Democrats gathered in the Time Warner Cable Arena. They wanted to show the president their love and repeatedly interrupted his speech with chants of “Four more years! Four more years!” But, this time around, the tears seen in Denver’s Mile High Stadium in 2008 were few and far between. Of course, that might also have something to do with the venue. Plans had originally called for Obama to speak before 74,000 fans in the outdoor Bank of America Stadium. But threatening storms forced him into the much smaller arena. There, his words quickly bounced off the walls — both literally and figuratively. During his speech, Obama touched on the issues of education, taxes and the national debt. “This feels like a State of the Union — not a convention rallying cry,” conservative blogger and Obama fan Andrew Sullivan wrote as he followed the speech live. But that is hardly a coincidence: Obama has his base in his pocket. Instead, he is appealing to the so-called “independents,” the swing voters who are more pragmatic than ideological, and who want to hear something concrete rather than lofty rhetoric. At the moment, no one can say whether Obama’s speech will work. But one thing is certain: The only thing that people still remember about last week’s Republican National Convention is the bizarre monologue that Clint Eastwood held with an empty stool, and no one is talking about Mitt Romney’s speech anymore. When it comes to the Democratic convention, Bill Clinton’s tour de force will surely stick in people’s minds more than Obama’s speech. When the delegates dispersed after the speech, they were fired up and affirmed — but not particularly inspired.

    Here are some reflections on the key points of Obama’s speech and the convention: (…..)


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