October 12, 2012
As part of Zócalo Public Square’s “Up for Discussion” series, Dean Baker discussed the topic “Will the [American Recovery and Reinvestment Act of 2009] eventually be remembered as a new “New Deal”?” — an argument made by Michael Grunwald, in his new book “The New, New Deal.”
As has often been said of Barack Obama’s supporters, Michael Grunwald has drunk the Kool-Aid. While the stimulus certainly helped boost the economy in a situation where it was facing its worst downturn since the Great Depression, it will be remembered more as a lost opportunity than as a transforming set of changes like the New Deal.
President Obama took office with the economy in a free-fall. The opposition had been completely discredited by pursuing the policies that had brought on this disaster. His own popularity ratings were in the stratosphere. President Obama could have seized this opportunity to try to turn the economy in a fundamentally different direction.
This would have meant first and foremost building on the anger the country felt toward the large Wall Street banks. If he had taken an aggressive stance of prosecuting criminal activity and breaking up large insolvent banks, he almost certainly would have the support of the vast majority of the country. It is unlikely that the Republicans in Congress could have sustained resistance that was centered on protecting the large banks responsible for the disaster.
He also should have clearly laid out the need for large, sustained stimulus to replace the $1.2 loss inannual demand as a result of the collapse of the housing bubble. While it is impossible to know how successful he would have been in getting more stimulus, the failure to go this route almost certainly condemned the country to a decade of high unemployment and weak growth.
Furthermore, President Obama has done nothing to get the dollar down to a level consistent with more balanced trade. This leaves the economy’s fundamental imbalance to be dealt with further down the road. Nor did he take any steps to provide workers with more leisure time by bringing the work year in the United States more in line with the work year in other wealthy countries.
There were major political obstacles to a real New Deal, but that it not an excuse for trying to invent one out of whole cloth.
