Sluggish Economy

Mitt Romney and many conservatives have criticized the president for not doing “enough” to create an environment where the economy can thrive. (This post is a continuation of yesterday’s post.) Basically, their main complaint is that taxes are simply too high. They’ve even suggested that corporate taxes are too high, even though we know several corporations are paying nothing in taxes in spite of making billions of dollars in profits. In my mind, the real question is why the economy is so sluggish.

First of all, we have to remember where we started. Back in 2009, we were losing over 700,000 jobs per month. The Obama administration needed to do several things quickly in order to stop the hemorrhaging of jobs. We needed a stimulus package. The question was how big the stimulus package should be. (The question wasn’t whether the government should stimulate the economy or not. No other entity was big enough to stimulate the whole economy. The private sector was on life support. The government was the only entity available.) According to Okun’s law, there is a relationship between GDP and the unemployment rate. Basically, using some fancy math, if we raise the GDP by approximately $300 billion per year we should lower the unemployment rate by approximately 1%. So, we got an $800 billion stimulus package and our unemployment rate topped out at around 10%. One would’ve expected the unemployment rate to drop by two or two and a half percent. (Remember, not all of the $800 billion was what some economists would call good stimulus. Some of that money was spread out among tax cuts and other things that have less of a stimulative effect.

Basically, we under stimulated the economy. Given the political atmosphere at the time, I think it is foolish for us to believe that President Obama would’ve gotten a larger stimulus package through Congress. Most economists were calling for a stimulus package somewhere between $1.2 trillion and $1.5 trillion. There is no way that would’ve gotten through Congress. As a matter of fact, we know that the president’s economic team came up with similar numbers and decided that there was no way they were gonna be able to get a package of $1.2 trillion to Congress. Larry Summers pared the package down to $800 billion. We got almost exactly what we expected. This is what the economists told us we were going to get. The question is, where do we go from here?


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Errington C. Thompson, MD

Dr. Thompson is a surgeon, scholar, full-time sports fan and part-time political activist. He is active in a number of community projects and initiatives. Through medicine, he strives to improve the physical health of all he treats.


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