Do Facts Matter? Keynes would want to know

After Monday’s market sell-off, Republican leader Eric Cantor was quick to blame President Obama’s “anti-business, hyper-regulatory, pro-tax increase agenda” saying it “has led to dangerous uncertainty in our economy.”  Of course, by Friday the markets had almost fully recovered, without Obama changing his policies.   But for those who are convinced that Obama’s “anti-business” policies have hurt the economy, here is some data to ponder:

Growth in the last quarter of 2008 and first quarter of 2009 (from the stock market crash until March 2009) was -8.9% and -6.7%, respectively.   The economy was in free fall.  On February 18, 2009, Obama’s stimulus bill was signed into law.  Here is the GDP  growth rate for the next seven quarters, through the end of 2010, during which the stimulus was in effect: -0.7%, 1.7%, 3.8%, 3.9% 3.8%, 2.5%, and 2.3%.    In other words, the economy almost instantly stopped declining, then started growing and then grew very strongly, with a healthy 3.0% annual growth rate for all of 2010.

Then the Obama stimulus mostly expired (particularly the funds going to state governments) at the end of 2010.  And starting in January 2011 the House was back in control of the Republicans after the elections of 2010, and were able to block any Democratic policies.  Relieved of the Obama stimulus and with the Republicans able to stop any actions by the Democrats, did the economy improve?    No – GDP growth for the first two quarters of 2011 fell sharply, to 1.3% and 0.4%.

If Obama’s policies, and the stimulus in particular, were so bad for business then
why did GDP growth perform so well while the stimulus was in effect, and perform so badly after?

When the facts change, I change my mind. What do you do, sir?” — attributed to John Maynard Keynes

Obviously, Republicans will do anything they can to block a renewed stimulus; they would much rather go into the Fall 2012 elections with the US having a growth rate of 1% than 3%.    That must explain why they are so vehemently opposed to any further stimulus spending — they do accept that Keynes was right; they just don’t want Obama to be able to benefit from Keynesian polices.

About jackgoldstone

Hazel Professor of Public Policy at George Mason University
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