BERKELEY – President Barack Obama has not had an easy first year economically. He inherited a financial system on the verge of collapse. He was bequeathed an economy in recession and an unemployment rate destined to rise. And he faced a Congress and an economics profession with a tendency to confuse these real demons with imaginary ones.
His strength has been not to allow the perfect to become the enemy of the good. His $787 billion fiscal stimulus was good. To be sure, it was based on unrealistically optimistic assumptions about the depth of the recession, the strength of the recovery, and the level at which unemployment would peak. It was too heavily tilted toward tax cuts that would tend to boost saving rather than consumption. And, unaccompanied by a credible medium-term fiscal strategy, it unnecessarily excited the apostles of fiscal doom. But, having said all that, the stimulus package gave the economy a necessary shot in the arm.
Obama’s efforts to stabilize the banking system, it almost pains me to acknowledge, succeeded despite themselves. I would have preferred bigger capital injections. I would have liked to see his administration use its leverage to replace the management responsible for creating the financial mess in the first place.
But the stress tests and targeted TARP money, the path of least resistance taken, enabled the banks to earn their way back to solvency. However distasteful the uses to which those earnings have been put, they at least prevented the financial system from falling off a cliff.