The bank bailout, which started during the closing weeks of President George W. Bush’s term, was highly unpopular but is generally credited with stabilizing the financial system.
Obama continued the program and ultimately used some of the $700 billion that had been allocated to prop up the financial system to bail out General Motors and Chrysler, a move generally accepted as a success.
Still, voters in 2009 and 2010 rebelled, and the bank bailout vote cost some lawmakers their seats.
Former Rep. Barney Frank, the Massachusetts Democrat who headed the House Financial Services Committee, noted the other day that “you don’t get credit for disaster averted.”
Some conservative economists say the $800 billion stimulus Obama pushed for in 2009 initially did help reverse the plunging economy, even though some liberals insist the dollar amount should have been even bigger.
But much of the credit for the current recovery, tepid as it may be, goes to the Federal Reserve. It has held short-term interests rates near zero and has undertaken a massive bond purchase program that has supported spending, lifted stocks and kept home mortgage rates at near record lows.
“The Fed was the single biggest policy move in the crisis. No question about it,” said Douglas Holtz-Eakin, a former director of the Congressional Budget Office and top economic adviser to Republican Sen. John McCain’s 2008 presidential campaign.
The question that defines the debate is not so much whether government steps helped, but whether it could have done more to accelerate the recovery. Many Democrats and liberal-leaning economists say the economy needed more stimulus. But Republicans, worried about skyrocketing deficits, cut back on spending instead.
Now many say the economy needs long term measures that would reduce spending on entitlement programs such as Medicare and Social Security and that would overhaul and simplify the tax system.
“We’ve done too much temporary targeted intervention, we’re passed the time for that,” said Holtz-Eakin, who now heads the American Action Forum, a conservative public policy institute. “It’s no longer 2008 when things were falling like a rock. It’s time to have long-term growth policies. We don’t have them.”
Obama and Republicans are at a stalemate, however.
Obama has proposed some changes that would reduce spending on Social Security and Medicare, including an adjustment that would lower cost-of-living adjustments. But he has insisted on more tax revenue by closing what he says are loopholes for the rich, a step Republicans won’t take.
The impasse has revived threats of a government shutdown after the current budget year ends Sept. 30 and, more economically damaging, a default if Congress can’t agree to raise the debt ceiling later in October.
Some conservative Republicans say they will only extend current spending levels or increase the debt ceiling if Obama delays putting in place his health care law, a condition Obama has flatly rejected.
House Speaker John Boehner, R-Ohio, has tried to keep the focus on spending reductions, even as some on his right insist on defunding or delaying the health care law.
“This year the federal government will bring in more revenue than any year in the history of our government, and yet we will still have nearly a $700 billion budget deficit,” he said. “We have a spending problem. It must be addressed, period.”