Economic Policy in the First Year of the Obama Administration
The past year has been one of enormous challenges for the American economy. President Obama took office at a time of economic crisis. The economy was losing jobs at a rate of close to 700,000 jobs a month, credit markets were functioning poorly, and real GDP was falling at a breakneck pace. The economy was at the edge of a cliff, and the possibility of a second Great Depression was frighteningly real.
Thus, the first task of the new administration had to be to be to turn around an economy in freefall. The American Recovery and Reinvestment Act, which the President signed less than a month after taking office, was the boldest countercyclical fiscal action in American history. Together with Administration's Financial Stability Plan, its actions to aid distressed homeowners, and actions by the Federal Reserve and other regulators, the Recovery Act is generating one of the sharpest economic turnarounds since World War II. Real GDP, after falling at an increasingly rapid rate for three quarters, barely fell in the second quarter of 2009 and rose in the third quarter; and, it is widely expected that when the fourth quarter data are released later this month, they will show even larger growth. Job loss, which averaged 691,000 jobs a month is the first quarter of 2009, averaged 69,000 in the fourth quarter—one-tenth as much. A new CEA report released Wednesday found that the Recovery Act has been instrumental to this change in trajectory, and that approximately 2 million people are employed who otherwise would not be, because of the Act.
With the economy still losing jobs and unemployment at 10 percent, the economy is obviously far from healthy, and we have a long way still to go. That is why the Administration is committed to taking every responsible measure to spur job creation—measures ranging from the "Cash for Clunkers" program last summer, to the extensions of unemployment insurance and additional business tax cuts in the bill the President signed in November, to ideas explored at the Jobs Forum in December.
But, the Administration always knew that stabilizing the economy would not be enough. The problems that led to the crisis were years in the making, and even before the crisis, we faced significant long-run challenges. That is why even as the Administration has worked to rescue the economy form the recession, it was also working to build a new foundation for stronger, more balanced growth. One key part of these efforts is financial regulatory reform that will protect the economy from actions that could threaten financial and economic stability, and protect ordinary Americans in their dealings with sophisticated and powerful financial institutions. Another key step is health care reform—reform that will not only make insurance more secure for those with insurance and expand coverage to those without it, but also slow the growth rate of costs while maintaining quality, and so benefit households, businesses, and governments at every level. The Administration is also working to improve our education system, to promote the transition to a clean energy economy, and to foster faster productivity growth through greater innovation. We will continue these efforts in the new year.
It has been a critical year for economic policymaking and we have made significant progress. Despite this progress, there is much left to do. The President knows that the recession will not be truly over until the labor market has recovered. That is why he and his economic team are committed to bringing about strong employment growth and building an economy that is stronger and more secure for years to come.
Christina Romer is Chair of the Council of Eocnomic Advisers