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Health & Fitness

It Is Still The Economy, Stupid.

Then the Economy was defined by Wall Street. Today many understand the economy is defined by Main Street as employment and the mantra is jobs, jobs, jobs.

Bill Clinton's famous campaign motto, "It's the Economy, Stupid", still resonates today. However, in the '90s the economy was frequently defined by Wall Street as measured by the stock market. Today many understand that the economy is defined by Main Street as employment as measured by unemployment statistics. With national unemployment hovering at 9 percent consumer confidence remains low and the economy seems unable to shake out of its doldrums.

John Maynard Keynes, the famed economist of the Depression era, stated, "I do not know what makes a man more conservative, to know nothing but the present or nothing but the past." Keynes advocated government stimulus of the economy during periods of high unemployment and illiquidity by public spending even if deficits were created to maintain employment in the short term until the economy recovered. Free market economists believed that the market would right itself in time and advocated balanced budgets, which in a recession when tax revenues fall, meant austerity programs and layoffs. This is the economic battleground for the 2012 election.

President Obama inherited an economy in free fall. The bank bailout at the end of the Bush administration pumped hundreds of billions of dollars into the banking system, unfortunately without requiring that these funds be loaned out to the public. The banks sat on the funds, used them for acquisitions and bonuses, and then paid back the Fed so they were once again free to grant lavish bonuses to senior management.

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In 2009, within months of taking office, Obama passed an $800 billion stimulus package over a Republican filibuster that stimulated the economy through a variety of tax cuts and federal grants and programs spread out over a three-year period. Some economists like Paul Krugman, who is an avowed Keynesian http://krugman.blogs.nytimes.com/2011/10/11/why-believe-in-keynesian-models/, warned that the package was too small, but was better than nothing, the alternative proposed by the Republicans. http://krugman.blogs.nytimes.com/2011/08/22/early-stimulus-worries/ In Krugman's view, the stimulus was too small given the severity of the problem http://krugman.blogs.nytimes.com/2011/09/05/on-the-inadequacy-of-the-stimulus/ He also laments it was not followed up with additional stimuli after the Republicans gained control of the House in the 2010 election. ttp://krugman.blogs.nytimes.com/2011/10/09/was-failure-inevitable/

The success of the 2009 stimulus was limited but substantial, according to the Congressional Budget Office and other experts, "... by any reasonable measure, the $800 billion stimulus package that Congress passed in the winter of 2009 was a clear, if limited, success. The Congressional Budget Office estimates that it reduced unemployment by somewhere between 0.8 and 1.7 percent in recent months. Economists at various Wall Street houses suggest that it boosted G.D.P. by more than two per cent. And a recent study by Mark Zandi and Alan Blinder, economists from, respectively, Moody’s and Princeton, argues that, in the absence of the stimulus, unemployment would have risen above eleven per cent and that G.D.P. would have been almost half a trillion dollars lower. The weight of the evidence suggests that fiscal policy softened the impact of the recession, boosting demand, creating jobs, and helping the economy start growing again. What’s more, it did so without any of the negative effects that deficit spending can entail: interest rates remain at remarkably low levels, and government borrowing didn’t crowd out private investment."

 http://www.newyorker.com/talk/financial/2010/09/20/100920ta_talk_surowiecki#ixzz1dhGhuvaM

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When he proposed his American Jobs Bill in 2011, President Obama did not use the word "stimulus", but it is clear that the purpose of that $500 billion package was to stimulate the Economy. It also set the stage for the 2012 campaign as the President uses this bill and its component parts, many of which had enjoyed bipartisan support in the past, to portray the Republicans as responsible for the "Do Nothing Congress" and to highlight the pernicious use of the filibuster by the Republicans to stymie legislation to improve the Economy. It also allowed President Obama to re-focus the debate from the deficit, to employment and the need to get more Americans back to work.

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