A year of living on the brink

Let’s begin with the first and most significant policy disappointment. The central economic event of the past six years, both as policy and symbol, was the Obama administration’s $834 billion stimulus bill in 2009, the American Recovery and Reinvestment Act. Its explicit purpose was to revive the U.S. economy. How was nearly $1 trillion of additional federal spending supposed to do that?

Proponents of the stimulus bill’s theoretical underpinnings, which date to the 1930s and a famous economist with three names, have argued for 80 years that by injecting large quantities of money into a weak economy (public spending), the population will use the unexpected money to make purchases, and this stimulated consumption in turn will cause private companies to hire more workers to produce goods to meet—the key idea—demand.

Beyond this textbook, Depression-based effort at economic stimulus, the only other significant initiative taken by the Obama presidency (not counting the indirect effects of Dodd-Frank, ObamaCare, shutting down power plants, putting bankers under house arrest and whatnot) has been to transfer responsibility for economic growth to the Federal Reserve Bank. The Fed produced three rounds of quantitative easing, a monetary policy that created so-called zero-bound interest rates in the U.S. from late 2008 until now. The Bank of England followed. Early last month, the European Central Bank adopted its own version of quantitative easing. It’s been the greatest monetary experiment since the creation of coins around 700 B.C.