Current Events: U.S./Impact of Fiscal and Monetary Policy on U.S. Economic Performance
QUESTION: What major fiscal and monetary policy actions were taken during the Great Recession (2007-2009)? What impact did they have on U.S. economic performance?
I understand how how the recession occurred in the first place. I know that as far as fiscal policies, Bush passed the Economic Stimulus Act of 2008 and also the Emergency Economic Stabilization Act of 2008 which established the Troubled Assets Relief Program. Obama passed the American Recovery and Reinvestment Act in early 2009. I also am familiar with the objectives of each. For monetary policy, I know what quantitative easing is and that the Fed controls interest rates.
My question is on what their impact on U.S. economic performance was. The more research I do, the more confused I'm getting. It of course seems all very political; Liberals interpreting data one way and Conservatives another. Some say it absolutely worked. Some say it failed miserably. Some just keep talking about the federal deficit. Some say it prevented a deeper economic recession or possibly even depression. I'm leaning towards the latter. I'm not entirely sure though. If you could just point me in a direction and towards some reliable data (statistics, charts, etc.) that won't make my head spin, it'd be really appreciated. Thanks
ANSWER: Hi Amy,
I certainly understand your frustration about finding reliable sources. But, I hope I've found something that helpful to you. Here's an article from a trustworthy website:
As you'll see, it's 3 years old, and was prepared in relation to the 2012 election. However, it furnishes both a variety of good data about the years in question, and definitions of terms.
You're absolutely right in eschewing the partisan explanations of the political response to the 2008 trouble. The truth is that it's impossible to know whether Bush/Obama policy reactions prevented the problems from worsening, whether they exacerbated the situation, or whether they had no consequential effect.
I hope this helps, and good luck!
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QUESTION: Thank you for the article. So even though it wasn't the right way to go, how did it impact the U.S. economic performance? good, bad, neutral?
In all, I'm trying to draw key conclusions and supporting data/evidence regarding the impact of fiscal policy action during the Great Recession. There are a ton of numbers here, but I'm sure some are more important than others :) What kind of data would you recommend I focus on? Unemployment, Real GDP, Aggregate demand, Consumption, etc.? Particularly since the amount of information and misinformation out there regarding this topic is staggering.
I think the most important data points are the unemployment rate, yearly GDP, and the poverty rate. By comparing the 2008 and 2009 numbers the recession is revealed (for example, GDP is lower in 2008 than in 2009). The data show that the economy has weakened immediately following 2008. So, depending on how elaborate your analysis needs to be, you can stick with those 3 points, and add others as needed (especially home prices, the federal deficit, and the Dow Jones Average).
Now, regarding whether the political responses "worked." As you've discovered to your frustration, here's the only non-partisan answer: Despite the stimulus and other emergency measures, the economy continued to weaken, and the US experienced recession. According to all major economic indicators, the economy was worse just after 2008 than it was just before 2008. So, the policies of the elected officials and by the Federal Reserve failed to avert recession and massive economic dislocation. To that extent, then, they didn't work. HOWEVER, the alternate view is that - according to reputable economists in addition to political partisans - the emergency policies mitigated the economic collapse. Without them, the problem would have been far worse. To that extent, then, the policies DID work because they successfully prevented something worse than what actually happened. Which view is right? Well, it can't be disputed that the economy was terrible after 2008, and that much more was promised from the stimulus and other measures than was actually delivered. But, it's simply not possible to disprove the notion that the situation would have been worse without the emergency measures - though it's not possible to prove it, either.
So, I hope this helps to clarify!