Obama's Stimulus Delayed Recovery

April 6, 2012

In justifying the current deplorable state of the economy and his administration's inefficacy at fixing it, President Obama has often relied on the argument that recoveries from substantial financial crises are usually much slower than typical recession recoveries.  However, an international analysis shows that this line of argument is likely not true, say John Lott and Grover Norquist in Politico.

  • The Bureau of Labor Statistics (BLS) has produced comparable unemployment data using the same definition of unemployment for nine foreign countries, allowing for direct and fair comparison with the United States.
  • Four of these countries -- Germany, Japan, the Netherlands and the United Kingdom -- are currently recovering from financial crises.
  • The other five -- Australia, Canada, France, Italy and Sweden -- were simply recovering from a normal state of affairs recession.
  • From January 2009 to December 2011, the unemployment rates in the countries with financial crises actually increased less than in those that avoided such a crisis (0.66 percentage points versus 0.86 percentage points).
  • Both subsets also experienced similar growth patterns.

This suggests that the argument that the American recovery is slower than normal because of the unique downward burden of our previous financial crisis is weak.  Rather, the stagnant recovery is likely the result of how lawmakers dealt with that crisis.  Indeed, the stimulus bill spent nearly $1 trillion, inherently making that money unavailable to market-selected ends that would likely have been more efficient investments.  In addition, burdensome government regulations in financial markets, housing, health care, credit cards and energy have raised the costs of doing business.

A direct comparison of the United States with Canada helps flesh out the true sources of America's recovery malaise.

  • Their unemployment rates increased in lock step from August 2008 until six months later, in February 2009, when the stimulus was passed in the United States.
  • During those six months, the U.S. unemployment rate rose by 2.1 percentage points, from 6.1 percent to 8.2 percent.
  • Simultaneously, the Canadian rate grew by 1.9 percentage points, from 5.1 percent to 7 percent.
  • The countries' behavior only diverged when the United States passed its stimulus bill, when Canada recovered and America worsened.

Source: John Lott and Grover Norquist, "Obama's Stimulus Delayed Recovery," Politico, April 2, 2012.

For text:

http://www.politico.com/news/stories/0412/74737.html

 

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