Paul Krugman asks whether President Obama can take credit for the improving economy.
“Normally the Fed, not the White House, rules the economy. Should we apply the same rule to the Obama years? Not quite.”
“The Fed has had a hard time gaining traction in the wake of the 2008 financial crisis, because the aftermath of a huge housing and mortgage bubble has left private spending relatively unresponsive to interest rates. This time around, monetary policy really needed help from a temporary increase in government spending, which meant that the president could have made a big difference. And he did, for a while; politically, the Obama stimulus may have been a failure, but an overwhelming majority of economists believe that it helped mitigate the slump.”
“Since then, however, scorched-earth Republican opposition has more than reversed that initial effort. In fact, federal spending adjusted for inflation and population growth is lower now than it was when Mr. Obama took office; at the same point in the Reagan years, it was up more than 20 percent. So much, then, for fiscal policy.”
Krugman notes, however, that Obama has indirectly aided the economy by shielding the Fed’s independence and preventing the Fed from being “bullied into raising interest rates.”