When the economy stood at the precipice

One of the more unsatisfying political fights in America is over whether the 2009 stimulus “worked.” The debate itself is mind-numbing, in large part because there’s no way to win when the truth — it could have been worse — is something no one wants to hear.

Was the effort successful? In so far as it prevented a calamity, of course it was — the stimulus took an economy that was shrinking and made it grow; it took an economy that was hemorrhaging jobs and created conditions in which it created jobs. There are millions of Americans working today who’d be unemployed were it not for the Recovery Act.

And yet, it was terribly unsuccessful insofar as the economy still stinks and the jobs crisis hasn’t gone away.

With this in mind, Ezra Klein had a really terrific piece of work over the weekend, going into detail on the nature of the recession, how and why administration officials made the decisions they did, and just how impossibly difficult the circumstances were (and are).

It’s tough to excerpt from a 6,600-word feature piece — I do hope folks will set aside some time to simply read it — but let’s take note of some of the highlights. Ezra notes the seemingly-insurmountable hurdles facing the Obama administration before the president was even sworn into office, including the fact that they were relying on information that turned out to be wrong — they were told the U.S. economy was shrinking quickly, when it fact, the contraction was already at catastrophic levels.

The Bureau of Economic Analysis, the agency charged with measuring the size and growth of the U.S. economy, initially projected that the economy shrank at an annual rate of 3.8 percent in the last quarter of 2008. Months later, the bureau almost doubled that estimate, saying the number was 6.2 percent. Then it was revised to 6.3 percent. But it wasn’t until this year that the actual number was revealed: 8.9 percent. That makes it one of the worst quarters in American history. Bernstein and Romer knew in 2008 that the economy had sustained a tough blow; t hey didn’t know that it had been run over by a truck.

This contributed to an inadequate response, compounded by political circumstances that prevented a more ambitious stimulus and a second bite at the apple, which some in the administration falsely assumed would be a possibility.

Ezra also explains related developments that interfered with the recovery — the European debt crisis and oil market swings are described as “aftershocks” — including the limited options in dealing with the housing crisis, massive public-sector layoffs that acted as a counter-stimulus, and the very nature of a recession caused by a financial crisis, which is altogether different from a cyclical crisis in duration and severity.

In the bigger picture, though, after reading Ezra’s piece, I’m left with two related thoughts. The first is Republican critics of the administration’s efforts have been so wrong, they deserve to be laughed out of the room — any room. Every GOP instinct since the start of the recession in 2007 has been entirely backwards, and the fact that they’re strutting around in 2011, as if the high unemployment rate somehow lends credence to their twisted economic worldview, borders on criminal. If Republicans weren’t permanently discredited by the crash itself, their hilariously wrong responses to the downturn should remove any doubt about their intellectual bankruptcy and ruined credibility.

Second, as bad as things are right now, I’m reminded how much better off the nation is thanks to the unappreciated efforts. One of the more important and accurate economic analyses — the Rogoff/Reinhart research that Ezra highlights — projected that unemployment in 2011 would reach between 11% and 12%. That didn’t happen, not because Rogoff and Reinhart were wrong, but because of the efforts Democrats took.

Faced with impossible circumstances, a broken political system, and a fickle and impatient public, the Obama administration managed to prevent an extraordinary crisis. It wasn’t enough to create a robust recovery, and the American public is largely convinced the efforts were a horrible failure, but for those who care about the details, aggressive government action prevented a nightmare.