Barro on Obama’s Policy Objectives

Robert Barro, a creative and influential Harvard economist, published an opinion article, “The Folly of Subsidizing Unemployment,” that makes several interesting points besides the point made in the title.  Barro faults the Obama administration with being more concerned with transforming the American economy than ending the Great Recession.  He writes

In general, the current administration has been too focused on expanding government, redistributing more from rich to poor, and stimulating aggregate demand. I have previously criticized the stimulus package as cost-ineffective. In particular, whatever tax reductions were in the package did not involve the cuts in marginal income tax rates that encourage investment, work effort and productivity growth.



Now the administration wants to kill the 2003 income-tax cuts, at least the parts that reduced marginal income tax rates for high-income earners and for all recipients of dividend income. This proposal is particularly disturbing because the 2003 law was George W. Bush's main economic achievement; unlike most of Mr. Bush's policies, this one was well-conceived and effective.

I agree with Barro’s criticism.  To the extent that a president can influence economic activities, I believe that influence should be directed toward ending the recession without compromising long-run growth, not changing America.  I also believe that economic evidence suggests that the presidency has limited means to combat recessions and that President Obama’s main objective may not be to end the recession but to change American. David Kennedy, a Stanford historian and author of Freedom from Fear, a book about the Roosevelt administration, and a guest on EconTalk, offers the opinion that Roosevelt’s main objective was not to end the Great Depression but to fundamentally alter the American economy to improve the welfare of the poor and reduce economic risk.  Kennedy said,

There’s a deeper story; I’m going to try to develop a little thesis. I think I can make a case that Roosevelt's top priority was not ending the Depression as soon as possible. His top priority was to use this moment of political, sociological, ideological disruption, malleability, to accomplish reforms that he had thought well before the Great Depression came along that were necessary to make modern American life viable.


A single word that sums up that objective that is in the title of the single most famous piece of legislation that comes down to us from that era, the Social Security Act.  Security is unmistakably the touchstone and core of everything he wanted to accomplish: take the risk out of old age, mortgage lending, securities trading--or at least reduce the risk in all these sectors; and to make American life across the board for individuals and institutions more predictable and less susceptible to these wild ups and downs that had been characteristic of the American economy since the early 19th century, since the United States had entered the early industrial revolution era.


He got a lot of that accomplished. He established the Securities and Exchange Commission, passed Unemployment Insurance, created Fannie Mae, and created the Federal Housing Authority.  Those things worked well for half a century.

Perhaps future historians will not judge the Obama presidency on the effectiveness of the programs he instituted on ending the Great Recession but on how he transformed American by extending health coverage to the poor, improving diets, expanding “green” energy while simultaneously limiting the use of fossil fuels.