"But Obama Promised to Keep Unemployment
Below 8%!"
Not really. In early January 2009, the incoming president's transition team did release a politically disastrous report warning that the jobless rate could hit 9 percent without the Recovery Act, while predicting it would stay below 8 percent with the Recovery Act, a gaffe that launched a thousand talking points after unemployment reached 10 percent despite the Recovery Act. The report was cluttered with caveats about "significant margins of error" and such. But nobody remembers caveats. The authors, economists Christina Romer and Jared Bernstein, even included a humdinger of a footnote about the pre-stimulus baseline: "Some private forecasters anticipate unemployment rates as high as 11% in the absence of action." But nobody remembers footnotes. We remember that unemployment still hasn't gotten below 8 percent, because Republicans have never stopped reminding us. And the media have repeatedly cited the report to dismiss the Recovery Act as a failure by the administration's own standards.
Clearly, the 8 percent prediction was a mistake -- an understandable mistake, a marketing mistake, a mistake well below Obama's pay grade, but a mistake. The Romer-Bernstein report was not nearly pessimistic enough. Unemployment passed 8 percent before the stimulus money even started to flow. But that's no reflection on the stimulus. Romer and Bernstein correctly predicted that the Recovery Act would reduce unemployment by a couple of percentage points -- what they underestimated was the pre-stimulus baseline. They knew things were awful, but they had no idea just how awful. Hardly anyone did back then. The Bureau of Economic Analysis initially pegged growth for the fourth quarter of 2008 at a horrific -4 percent, but that was later revised to a beyond horrific -9 percent; at that rate, the United States would have lost more than an entire Canada's worth of output in 2009.
Even at the time, Obama and his advisors understood that the Recovery Act would not restore full employment by itself; as Vice President Joe Biden told me in his quirky way, it was never supposed to carry the whole sleigh. The White House expected the Wall Street bailout, the auto-industry bailout, and its fledgling plan to aid struggling homeowners to provide additional support for the economy. Obama's top economic aide, Larry Summers, has been savaged for keeping Romer's warnings that $1.8 trillion would be needed to close the output gap out of a key memo to the president, but even Romer agrees that's a bum rap. The memo did warn that an $850 billion stimulus would close "just under half of the output gap," insufficient to return the unemployment rate to its "normal, pre-recession level." As one aide told me, whatever you think of Obama, he knows how to multiply by two.
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