Biden on the Economic Recession

Scott Wilson, writing for the Washington Post in "Biden Acknowledges Administration 'Misread' The Economy," writes

Vice President Biden acknowledged today that the administration underestimated the depth of the economic recession months ago as it prepared a recovery package that is only now beginning to take effect.

"We misread how bad the economy was, but we are now only about 120 days into the recovery package," Biden said on ABC's "This Week." "The truth of the matter was, no one anticipated, no one expected that that recovery package would in fact be in a position at this point of having distributed the bulk of the money."

I read with incredulity. The administration underestimated the depth of the recession? Every news source from newspapers to radio and television to the blogosphere seemed full of economists stating that the economic crisis was the worst since the Great Depression. Democrats everywhere based their campaigns on the financial crisis and rising unemployment. Candidate and then President Obama said much the same. At his first press conference, which was held in the economically hard hit city Elkhart, Indiana, ("Transcript: Obama takes questions on economy," CNNPolitics.com, February 9, 2009) he said,

So what I'm trying to underscore is what the people in Elkhart already understand, that this is not your ordinary, run-of-the-mill recession. We are going through the worst economic crisis since the Great Depression.

We've lost now 3.6 million jobs, but what's perhaps even more disturbing is that almost half of that job loss has taken place over the last three months, which means that the problems are accelerating instead of getting better.

A closer reading of transcripts of President Obama's speeches indicates that his administration's big interest has been and remains reforming policies that he believes have been neglected for decades.  These policies include the environment, health care, and education.  Form the his state of the nation address (CNNPolitics.com, February 24, 2009) President Obama said,

That is why, even as it cuts back on programs we don't need, the budget I submit will invest in the three areas that are absolutely critical to our economic future: energy, health care, and education.

It begins with energy.

We know the country that harnesses the power of clean, renewable energy will lead the 21st century. And yet it is China that has launched the largest effort in history to make their economy energy efficient. We invented solar technology, but we've fallen behind countries like Germany and Japan in producing it. New plug-in hybrids roll off our assembly lines, but they will run on batteries made in Korea...

Our recovery plan will invest in electronic health records and new technology that will reduce errors, bring down costs, ensure privacy, and save lives.

It will launch a new effort to conquer a disease that has touched the life of nearly every American, including me, by seeking a cure for cancer in our time.

And -- and it makes the largest investment ever in preventive care, because that's one of the best ways to keep our people healthy and our costs under control.

This budget builds on these reforms. It includes a historic commitment to comprehensive health care reform, a down payment on the principle that we must have quality, affordable health care for every American...

Already, we've made a historic investment in education through the economic recovery plan. We've dramatically expanded early childhood education and will continue to improve its quality, because we know that the most formative learning comes in those first years of life.

We've made college affordable for nearly 7 million more students, 7 million. And we have provided the resources necessary to prevent painful cuts and teacher layoffs that would set back our children's progress.

But we know that our schools don't just need more resources; they need more reform. And that is why...

That is why this budget creates new teachers -- new incentives for teacher performance, pathways for advancement, and rewards for success. We'll invest -- we'll invest in innovative programs that are already helping schools meet high standards and close achievement gaps. And we will expand our commitment to charter schools.

Edward Lazear, a professor at Stanford University's Graduate School of Business, a Hoover Institution fellow, and President Bush's last chairman of the Council of Economic Advisers saw much of the same thing when he weighed in on the need for a second stimulus ("Do We Need a Second Stimulus?," Wall Street Journal, July 9, 2009).

With the economy weak and the labor market continuing to decline, there is now talk of a second stimulus (which is actually the third, counting President Bush's 2008 tax rebates). This would be a mistake. The truth is there hasn't been any stimulus to speak of so far this year. Moreover, what's being called stimulus is just a smoke screen for a permanent expansion of government. Let's start with some facts...

Congress and the Obama administration have used the economic downturn as an excuse to expand the size of government. Calling it a stimulus, they have instead put in place a spending agenda that will unfold over the next two years. Although a little over one-third of the American Recovery and Reinvestment Act of 2009 goes to tax relief, the rest is in the form of spending programs that will be difficult to stop once they are up and running.

Only a small share of the spending will occur in 2009, even though Keynesians would argue that stimulus spending should be frontloaded to kick-start growth. The Congressional Budget Office estimates that the largest share of the spending will occur in 2010, with the amount in 2011 being slightly larger than in 2009. Again, the timing exacerbates the problem: It will be tough to cut back on spending written into budgets as far out as 2011.