Obama Didn't Fix The Economy. He Made It Worse.

Anyone who has watched the 17-minute, Tom Hanks narrated, Obama web documentary, The Road We've Traveled, saw a President being portrayed as the "hero" who put together an economic team that saved the economy from one of the worse recessions since the Great Depression. But, was the economy really saved by team Obama and their Keynesian-minded economic strategy of spending our way out of a recession? To that, I say no. In fact, I contend that all that Keynesian spending has actually retarded growth.

To prove this point, one needs only to look at the last three years of economic growth in terms of Gross Domestic Product (GDP). But, first, lets look at the economy in the last quarter of 2008 through the end of 2009:

From the graph above, you can clearly see that economy hit rock bottom in the last quarter of 2008. After that, there was a steep recovery as noted by the trend line that I applied to this chart. Most economists would say that this kind of sharp recovery was to be expected because, historically speaking, the deeper the recession -- the faster the recovery (aka the Zarnowitz rule). Of course, Obama and his supporters would have you believe that this snap-back in the economy was all their doing. That might well be true if it weren't for the fact that the economy was improving on its own before any stimulus monies ever got out the door. In fact, only about 26 to 28% of the $787 billion dollars in stimulus funds were actually spent in 2009. There were delays because most of the so-called shovel-ready projects had to be re-bid to conform to Federal work rules. More importantly, the Stimulus Package was intentionally back-loaded by the Democrats with 60% of the spending to occur in 2010; an election year.

Certainly, the last quarter of 2009 was economically beautiful with an outstanding 5.7% annualize economic growth rate. In fact, that quarter was so good that many Keynesian-minded economists were projecting that 2010 would grow by 6% or more as even more stimulus monies would be applied. All over the place, in early 2010, economists thought they were seeing "green shoots" and Joe Biden boldly proclaimed "a summer of recovery" in June of 2010. But, the "shoots" turned brown and the summer didn't recover very much at all. Instead, the economy slowed down to a meager 3% growth for the year; proving that all that extra stimulus did very little to contribute to an economic rebound. As a result of the disappointing numbers, Obama started to use the excuse that the "recession was deeper than we had thought"; even going so far as to blame the Bush economic team for hiding data about how extreme it was. Then, too, Keynesian economists like Paul Krugman of the New York Times began blaming the slowing economic recovery on the fact that stimulus spending was too little. In their minds, the stimulus should have been well over a trillion dollars; maybe even two $trillion.

Then, after that dismal growth rate in 2010, the once-enthusiastic Keynesian economists took a more somber position on 2011's GDP growth. For 2011, the consensus estimate for growth was 3.1%. Once again, the economists got it all wrong and 2011 only grew by 1.7%. For the second year in a row, the economy's growth rate declined. In fact, one could say that the 1.7% growth in 2011 wasn't really growth at all because you need at least 2.5% growth to start making any real dent in the unemployment rate.

So, that brings us to this year. Economists are now saying that the economy should only grow by 2.1% to 2.2%. But, if the history of prediction over the last three years repeats itself, I'm betting that we will again see another decline in the growth rate. That's why I think we will only see growth of about 1% this year or worse. There are a lot of roadblocks out there for any real growth. Gasoline, food and other energy prices are hurting the consumer and consumer spending is likely to retreat. The housing market is still stagnant and foreclosures are still too high. One of our many trading partners, the European Union, has moved into recession. Most importantly, spending by the Obama Administration continues unabated.

In conclusion, I think the economy was recovering on its own in 2009; just as the Zarnowitz rule predicted. But, spending and debt accumulation has its consequences. The dollar is devalued in the process and, subsequently, the consumer is pinched by higher and higher food, energy and import prices. And, that's where John Maynard Keynes got it wrong.