On the subway this morning, I saw a full-page advertisement in one of the free papers that said: "Obama and the Democrats Created the Economic Downturn and They Made it Worse." If that's not verbatim, it's certainly the gist. Gak. This is obviously a really stupid interpretation of events for a lot of reasons. They include, but by no means are limited to:
1) The ultimately toxic housing bubble peaked in Obama's first year as a junior senator.
2) A Republican president presided over the entire housing bubble and the beginning of the financial crash.
3) The beginning of the bailout was executed by Republican appointees -- Treasury Sec. Hank Paulson and Federal Reserve Chairman Ben Bernanke. Decisions made under their watch included the inception of TARP, the bailout of AIG and the bailout of our auto industries, three hallmarks of our response that continued under Obama.
That's the easy part. The hard part is thinking smartly about what exactly our fiscal situation would look like if Obama lost in 2008. But luckily for me, somebody's done that work and found that a McCain presidency wouldn't have been much healthier for the deficit. Bruce Bartlett, a supply-sider from the Reagan administration, wrote that the deficit under a President John McCain would be 93 percent as large as the current deficit. Here are the key pieces from his email to WSJ Real Clear Economics blog:
If one goes through the March update (pp. 6-7) and the August update (pp. 52-53) and adds up all the changes to the January estimate, you find that the deficit increase since January consists of $46 billion in lower than expected revenues due to the economy (11.5%), $129 billion in higher spending due to technical re-estimates (32.2%), and $226 billion due to legislative changes to both spending and revenues (56.3%).
This suggests that we would have had a deficit of at least $1,361 billion this year even if McCain had won (January deficit plus lower revenues and technical changes and no legislative changes) ... assuming no stimulus and that the economy would have performed as well without it.
That's only 14% less than the deficit currently projected. some of the legislative changes are due to higher defense spending and other non-stimulus related programs.
If we assume that McCain's stimulus would have been half the size of Obama's that leaves us with an estimated deficit of $1,474 billion under McCain--only 7% less than the deficit now estimated.
Upshot: Even if we assume that all of Obama's spending up to this point has been effectively dead weight with no positive future impact on the economy, the deficit would still be staggeringly high.