Home Is Where The Crisis Is
In his rumination on President Obama’s first year in office, The New Yorker’s George Packer identifies the American Recovery and Reinvestment Act – the stimulus package – as the administration’s crucial undertaking. While the nation’s eyes focused on and glazed over because of the debate about health care reform, Obama’s first significant act as president, according to Packer, tells us the most about the administration’s successes and failures:
[T]he key to Obama’s first year is the Recovery Act. It set the pattern for everything that followed: intelligent but cautious policymaking; legislative compromises that watered down the bill’s impact without enlisting more than a tiny number of Republicans; an immediate campaign by opposition politicians and media to declare the program a failure; a weak, uncoordinated Administration effort to explain and champion the stimulus package; gradual public disillusionment.
Packer’s analysis of ARRA parallels that of most stimulus watchers: the stimulus package has been a policy success but a political failure. The Act has helped turn the economy around: it added somewhere between 1.0 million and 2.1 million jobs to the economy in the last quarter of 2009 and boosted GDP between 1.5 percent and 3.5 percent, leading to GDP growth of 5.6 percent in that quarter.
However, both the content of the bill and the administration’s advertisement of its benefits have generated very little public support: only 6 percent of Americans believe the package has so far created jobs. Even as administration press releases tout the package’s successes, the Recovery Act has generated little if any political momentum for the White House. Politically, that the stimulus package had only just begun its most spendthrift months at the very time Congress was offering up a buffet of different job creation measures is indicative.
ARRA is the mirror image of the administration’s response to the housing crisis, which has been a political success but a policy failure. The housing crisis rages on as fiercely as it did last year when the Obama administration announced its Home Affordable Mortgage Program (HAMP) to modify the mortgage terms of homeowners in or at risk of default. The program’s results have been poor.
The TARP inspector general testified this week that:
A year into the program, although more than a million trial modifications have been initiated, the number of permanent modifications thus far, 168,708, has been, even according to Treasury, “disappointing.” One Treasury official’s current estimate for how many permanent modifications will result from HAMP – 1.5 to 2 million over the course of the four-year program – may be only a small fraction of the total number of foreclosures that will occur during that period.
Signs of improvement in the housing market have proven ephemeral and the latest indicators show falling prices, fewer sales, and more foreclosures. The administration has repeatedly tried to address the housing market, first offering incentives to modify mortgages, then encouraging short sales, and now incentivizing principal write downs. But nothing has worked.
Despite the failure of its policy responses, the Obama administration has taken little heat from the public for its reaction to the housing crisis. Most people now think that the housing market is no longer crashing and the previously toxic association between the financial crisis and the housing crisis – the origin of the Wall Street/Main Street dichotomy – is rarely mentioned.
The reason for the contrast between ARRA and the administration’s response to the housing crisis is probably quite simple. The stimulus package merely required spending lots of money and cutting lots of taxes, while “fixing” the housing market would require reforming the very industry that fueled the country’s pre-crash growth.
However, the political success of the administration’s housing policy should not be disregarded. Obama has, after all, reacted to a changing crisis with very public alterations in policy. It has practiced a strategy of “reculer pour mieux sauter,” regrouping in the face of new conditions and tweaking policy accordingly. Somewhat unsurprisingly given the perceived political failure of the stimulus package, Congress has now taken up a similar strategy in its quest to create jobs, debating and passing a host of measures with much noise and little likely impact.