From ‘Review of Keynesian Economics’, v. 2., n. 3, Autumn 2014, pp. 400-02
Author Jack Rasmus tends to orient his research towards challenges facing the US economy. And in this recent title he carefully and skillfully delves into exploring what he regards as failures of the Obama administration’s policies, which can be justly summarized as ‘too little and too late.’ However, he stresses that the tepid recovery that began in 2009 did indeed generate one notable outcome, namely that the highest income earners in the United States increased their shares in national income, while the population at large suffered declines.
Rasmus describes the 2008 downturn as an ‘epic’ recession. He notes a Type I Epic Recession and a Type II Epic Recession, with the latter transitioning toward a depression. While he limits his book’s focus primarily to the US economy, Rasmus does call attention to the problems facing the European Union and the eurozone, which he attributes to the policy failures of uninspired leadership. In addition, with the once-impressive performances of the BRICS (especially China and Brazil) now cooling down, there is a real risk that failed leadership in the largest economies of the world could help to trigger a global depression. From this perspective, Rasmus suggests that the 2008 downturn could be classified as a Type II Epic Recession.
In his ‘Introduction,’ Rasmus traces the spending of $11 trillion dollars in federal funds, then seeks to measure the outcomes. He notes three economic stimulus programs advanced by the Obama administration that cost about $3 trillion dollars. Then, more than $9 trillion were relied upon to support banks. After all of this spending, Rasmus fails to find any positive outcomes. Although he does clarify that indicators of financial asset prices tended to recover from their 2008 levels, he stresses that non-financial indicators suggest only partial recovery of prior losses.
While the groups that gained and lost are considered in more detail as the main topic of chapter 1, chapters 2 and 3 develop the idea that the Obama administration sought to deal with the downturn by shifting the emphasis away from an effective spending program and toward adjusting the system of taxation, and with the consequences of substantial job losses and rising unemployment that was not effectively addressed. Rasmus notes that direct and substantial aid to homeowners facing mortgage foreclosures were considered, but in the end, as Congress took control of TARP funds, direct assistance for Americans diminished. And then as much as $50 billion earmarked as foreclosure aid was channeled into the Home Affordability Modification Program (HAMP), which tended to provide funds for mortgage lenders dominated by large banks.
The lag between formulation of policy and implementation is considered in chapter 4, and is noted to have contributed toward the failure in offering a substantial stimulus to the US economy when it was needed.
Chapter 5 considers the 2010 Economic Recovery Program and notes that the administration sought to emphasize increasing exports instead of directly concentrating on restoring the 25 million jobs that were lost early on in the crisis.
Chapter 6 juxtaposes the midterm elections of 2010 with what Franklin Roosevelt and Jimmy Carter had to deal with at the time of their midterm elections. In particular, Rasmus offers details of Roosevelt’s National Industrial Recovery Act, or NIRA, as a way to offer contrasts between the two approaches. Rasmus emphasizes that the NIRA led toward a more com¬prehensive set of policies and programs and developed into what we appreciate as Roosevelt’s ‘New Deal,’ with programs that certainly helped citizens mitigate some of the difficulties associated with the Depression decade. With this as background, Rasmus critiques the tendencies of the Obama Administration to shift from an emphasis on a stimulus-driven recovery, to focusing upon deficit reduction.
This leads into the topic of chapter 7 and the relationships between deficit management and the likelihood of a second major contraction in 2013 taking place as a ‘double dip’ recession. Chapter 8 offers details that suggest the US and world economy is indeed tending toward an economic depression. Rasmus considers several variables such as declines in consumption and investment spending, as well as government spending at the federal and state levels affecting, in particular, levels of public sector employment and the offering of public services such as education.
With its title,’ From Failed Recovery to Austerity Recession,’ chapter 9 details the opportunities missed through focusing upon budgetary austerity that have contributed toward an extended economic downturn.
Not giving over to a protracted lament on the hopelessness associated with the Obama administration’s politics and policies in this era of neoliberalism, Rasmus believes the US can avoid becoming mired in a depression. This is his expressed hope. And with his chapter 10 he outlines a set of common-sense policies and creative institutional changes designed to promote short-term, medium-term, and long-term recovery. Rasmus’s proposed recovery program focuses on jobs, housing, and state and local government reforms. He includes detailed proposals for a fundamental restructuring of the tax, retirement, and banking systems. He offers proposals that, in my judgment, would help the US economy to achieve the kind of economic growth that would generate benefits for broad sectors of the population, including young people, those in their working years including the unemployed, and the elderly.
A lack of talent has never been a serious problem for America over its comparatively short history as an independent nation. In 2008 and 2012, President Obama demonstrated his ability to assemble a brilliant team to help get him elected. Why can he not do the same by bringing in a team of economic advisers with talents equal to the members of his core election team.
Reflecting back, it seems that over his two terms, President Bill Clinton certainly engaged some of the best talent in our economics profession. He not only brought in talent with well-honed analytical abilities and that communicated effectively with the public, he also brought in talent that remained loyal to his administration, and some to the very end of his 8-year term. Some decades earlier, President John Kennedy invited to Washington exemplary talent, and there were selected economists who rendered his Council of Economic Advisers as the hallmark of what we as talented American economists could offer our nation. Lamentably, our ‘Council of Economic Advisers’ got sidelined during the Bush era. Now we have a ‘National Economic Council’ that has been headed by leadership better credentialed in jurisprudence than in economics. Sadly, it seems to me that we shall likely remain locked-in with a status quo: not led, but rather managed by the cautious and uninspired.
Finding little reason for optimism related to improvements on the policy front during the remainder of the Obama administration, still I think this is a fine book that is both timely and crucial to digest, for the themes are fully pertinent to the current US political economy. The arguments are well founded and based upon empirical evidence that is carefully researched, selected, and presented. This book could serve advanced undergraduates and graduate students focused on the US macro economy, its challenges, and the failures - at least to date - of our political class to effectively address challenges related to the recent financial crisis and the failed policies that have not, so far, set the US economy on the road to a sustained recovery.