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News : US Economy Last Updated: Aug 24, 2010 - 5:14:03 AM


Crisis No More: The success of Obama's stimulus program
By Michael Hennigan, Founder and Editor of Finfacts
Aug 20, 2010 - 7:09:10 AM

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Feb. 17, 2009: Aboard Air Force One, a close-up of the President’s signature on the American Recovery and Reinvestment Act, which he had just signed in Denver.

The impact on the economic crisis of President Obama's $787bn stimulus program, which was signed into law in February 2009, remains controversial and some 'pork barrel' add-ons are used by Republican opponents to tar the measure as a waste of public money.

It's hardly news that people like to have their cake and eat it and Sarah Palin, former governor of Alaska, is a vocal critic of the ballooning national debt, which doubled during the presidency of George W. Bush.

This week, New York Times journalist, Michael Powell, wrote of the paradox that is Alaska, a nation-size state of about 700,000 people where many seem to revile the federal government even as their politicians excel at reeling in and spending its money. Alaska is the top recipient of federal stimulus dollars per capita - - with no close second.  "We’ve got this schizophrenic thing where we now claim to hate pork but love what’s coming to us,” said Anne Kilkenny, a resident of Wasilla, a suburb of Anchorage and the home of Sarah Palin. “We are by any definition a net beneficiary of the federal government.”

In an article (pdf) in the summer 2010 issue of Pathways, a publication of Stanford University's Center for the Study of Poverty and Inequality, Gary Burtless, an economist at the Washington DC think-tank, the Brookings Institution, says that the recession that began in December 2007 ranks as the worst since World War II. It carved a huge slice out of Americans’ financial wealth and caused the biggest percentage decline in employment of the post-war era. Even though the stock market rebounded in 2009 and US output began to grow in the second half of that year, the recession continues to take a terrible toll on the incomes and psychological health of many families.

Burtless writes that no one should confuse the recent recession with the Great Depression, however. Two key features of that depression made it “Great”its severity and its duration. Between 1929 and 1933, real GDP in the United States fell almost 27%. US GDP did not return to its 1929 level until 1936. Real personal consumption declined more than 18%. In 1933, about one out of every four Americans in the labor force was jobless. The National Bureau of Economic Research (NBER), which is in the business of dating recessions, estimates that after reaching a cyclical peak in August 1929, the US economy shrank for the next 43 months, by far the longest period of uninterrupted economic decline in the twentieth century. In the 10 downturns since World War II, excluding the most recent one, the average recession lasted just 10 months. Even the longest post-war recessions, in 1973–1975 and 1981–1982, lasted only 16 months.

Burtless says as of his writing, NBER has dated the onset of the recession (December 2007) but has not yet determined its end date. The recession will not last 43 months, however. The economy began to grow again in the summer of 2009, and the unemployment rate started to decline late in the same year, less than 24 months after the recession began. Real GDP probably fell less than 5% from its previous peak. The number of private payroll jobs began to increase in the first quarter of 2010. The peak unemployment rate will almost certainly be less than 10.5%, far below the peak unemployment rate attained in the 1930s and somewhat below the peak unemployment rate hit during the 1981–1982 recession.

The tea leaves are clear he says in an allusion to the small government Tea Party movement: The Great Recession will not be a second Great Depression.

In the article, Burtless says President Obama’s stimulus package, though imperfect, deserves a great deal of credit for bringing America back to the positive trajectory the economy is on today. Any reasonable grader of the stimulus’s effects on driving recovery and combating joblessness would give the stimulus at least a B+. In the article, he says: "I first outline the size and contours of the government’s response to the recession, paying specific attention to how this response does and does not differ from government policy in recessions past. I distinguish between standard and nonstandard responses, that is, policies typical of those in other post-war recessions and those that are unusual. Then I consider the success of the policies and the public’s surprisingly hostile reaction to them. Voters’ sour views on the stimulus make it unlikely Congress will extend or expand the program, even if the economy takes a turn for the worse."

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