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Home Publications Blogs Beat the Press President Obama Underestimated the Severity of the Downturn

President Obama Underestimated the Severity of the Downturn

Wednesday, 27 October 2010 04:28

David Leonhardt has an interesting discussion of public attitudes towards President Obama and the Democrats on the eve of the elections. He notes that the stimulus helped, but the economy is not where President Obama's advisers expected it to be right now.

It is worth noting that President Obama's advisers seriously underestimated the severity of the downturn. They had projected that even without any stimulus package the unemployment rate would peak at just over 9.0 percent. In fact, the unemployment rate peaked at 10.1 percent last fall, even with the stimulus in effect. It had already reached 9.4 percent in May, just as the first effects of the stimulus were being felt. A major reason for the inadequacy of the stimulus was this failure to fully appreciate the severity of the downturn.

Comments (13)Add Comment
written by Ron Alley, October 27, 2010 6:13
Obama's response to the economic crisis has been to avoid alienating the banks and the Republicans. He has little to show for his efforts. His leadership can charitably be described as timid and ineffective.

Both you and Leonhardt miss the point. Obama the candidate promised change. Real change is the product of real leadership. Obama has missed every opportunity to exert leadership.

I think Krugman got it right in his October 18 blog entry. Here is a link.

written by coriolis, October 27, 2010 7:24
Maybe he shouldn't have chosen for his economic team, economists who missed a Six Trillion Dollar Housing Bubble?
I am confused
written by Paul, October 27, 2010 9:15
Is it true that Obama and his team were the only ones who underestimated the severity of the Great Recession? What were all the other "experts" like Krugman predicting two years ago that the unemployment rate would be? As I recall, nobody except maybe Dr. Doom Roubini was predicting double digit unemployment two years ago.
Sorry- Krugman got it right years ago
written by Wes, October 27, 2010 12:14
And so did MANY other major economists-- pretty much all the smart people got it right while Obama and all the other ideologically pure Chicago school alums got it DEAD WRONG. I was there, the articles are all still online-- Reich, Krugman, Roubini, Smith, Calculated Risk, the list of folks that got it RIGHT goes on and on-- Obama choose to only listen to the ideologically pure-- as in pure wrong.Corruption only listens to itself.

I supported Obama since 2004-- no one is more disappointed than I at what a pathetic corporate shill he has turned out to be. I can't even listen to the man now-- he just lies too much-- it's unbearable.
Democrats should learn
written by Jack, October 27, 2010 12:41
One thing or two from the ever reliable GOPs. Democrats failed in their projections as Dean and others accurately assessed.

Meanwhile, GOPs are always conservative in making projections and never failed to UNDERESTIMATE anything including WMD, Mission Accomplished, Housing Bubble, etc.
Too little too late
written by Bryce, October 27, 2010 1:08
Obama and his team -- they've done some things, but not enough. It's the same almost anywhere you look, but especially in the economy. Dems are wondering why women aren't enthusiastic about voting in the midterms, but it's clear that the administration hasn't done enough to target their financial suffering. And now the administration is trying to backpedal and say that they did. This is a really big issue, women are half the population and increasingly support households. I recommend checking out this great series on women and the jobs crisis that brings up their specific issues and makes recommendations on how to fix them: http://www.newdeal20.org/categ...bs-crisis/
Wes, you are HILARIOUS!
written by Paul, October 27, 2010 4:10
Have you ever read Krugman's blog?
Let me summarize it for you:
"The [Obama]plan limits the rise in unemployment, but things are still pretty bad, with the rate peaking at something like 9 percent and coming down only slowly. And then Mitch McConnell says “See, government spending doesn’t work.” Let’s hope I’ve got this wrong."
Oh he got it wrong all right. He's a better predictor of McConnell than the economy.
Even Roubini underestimated unemployment
written by Paul, October 27, 2010 4:25
Dr. Doom in late 2008:
"U.S. GDP growth is going to be negative through the end of 2009. I see the unemployment rate peaking at around 9% by 2010."
written by GQ, October 27, 2010 4:36
paul...take things out of context much? krugman said that the obama plan would shave 2pts of unemployment off of what it would otherwise have been. if he says that with obama's plan, it would be 9%, that means he was predicting it would be 11% without it. alas, the peak was 10% before the stimulus even took place. with the stimulus in place, it has hovered around 9.5%. would you like him to have hit it right on the nose before you give credit?
GQ, as the saying goes:
written by Paul, October 27, 2010 5:10
"Figures don't lie, but liars figure."

Krugman was going with the same outside number that Roubini was using. They were both wrong as usual for the consensus approach. Also, Krugman was assuming only $775 bilion of stimulus and Obama's total has been over a trillion - still not enough.

Bottom line: Everybody got it wrong; don't pick on Obama.
written by GQ, October 27, 2010 5:43
i'm not going to even address the idea that everybody got it wrong, because that's just not true. but regardless, even if you want to say that, krugman, roubini and the rest were screaming that the stimulus was too small and that the fact that it was coopted by ineffective tax cuts made it even worse. for obama to not make that point was criminal in that it shot his credibility and hamstrung his ability to ask for serious stimulus in case it was needed (which it now is and which he now can't get). it even reduced them to cheerleading for a broken recovery (remember sending turbo timmy out there for his nyt op-ed) in what reeks of obama's version of a mission accomplished banner.

plenty to pick on...
Hey GQ, We Agree on something
written by Paul, October 27, 2010 9:17
Obama's stimulus was structured wrong and the parts that were right were too small.
What should have been: $100 billion cash for clunkers, home buyer tax credit for everyone, payroll tax holiday = unemployment of 7%, foreclosures ended long ago, auto industry at 15 million annual sales.
But instead we got "green tech" jobs, high-speed rail and insulating buildings. Not exactly "shovel ready."
written by boxer, November 03, 2010 6:31
It's elction day plus one. I feel like it's Xmas, can't wait to see what's under the tree for duplicitous

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.