Revised government data released this morning shows the recession was significantly worse than previously thought. Instead of shrinking by 2.5 percent in 2009, the economy actually shrank by 3.5 percent.
Two points to remember about that:The first is that all of those who argued that the early 2009 Obama stimulus was insufficient to plug the hole in the economy had an even stronger case than they realized (though you can be sure stimulus opponents will cite the same numbers to “prove” that the stimulus was even more ineffective than they’ve been claiming it was all along).
The second perhaps more important point is that by the fall of 2009, the Obama Administration had already decided the recession was so yesterday that it was time to shift into deficit-reduction mode. Stimulus was out, austerity was in.
Obama has since acknowledged that the economy was in worst shape when he took office than he realized at the time. These revised numbers show just how bad 2009 was and call into further question the combination of economic policy and political policy changes that the President implemented even as the country was mired in a 3.5 percent contraction of the economy.
Why is that important now? You can draw a straight line from the President’s decision in the fall of 2009 to the current default crisis. I don’t want to downplay the impact of the Republican Party taking over control of the House in the 2010 elections — obviously that was a pivotal moment — but the 2010 elections were contested on a battlefield of the GOP’s choosing: that spending was wildly out of control, deficits were threatening the stability of the economy, and long-term debt would strangle the country. The President basically agreed, ceding vast acreage of political, rhetorical and policy ground to the Republicans.
And he continues to cede it today. The fact that the only way politically to avoid default and a downgrade in the U.S. credit rating is to impose huge spending cuts in a deal with Republicans reflects the framing of the problem that the White House adopted in the fall of 2009, with the economy in the depths of a great recession. We’re still paying the price for that fateful decision. A huge price.