Morning Must-Read: Matthew O’Brien: Happy Birthday, Stimulus! You Saved the World

Matthew O’Brien: Happy Birthday, Stimulus! You Saved the World: “It really was the end of the world….

2008 Lehman’s collapse seemed like the start of something worse than a second Great Depression… the biggest economic shock in recorded history, and the abyss beckoned. But we avoided it. We ‘only’ got a Great Recession…. That’s because, despite the quicker collapse, policymakers today didn’t make all of the mistakes of the 1930s. Instead of raising rates and trying to balance budgets as the bottom fell out, they did the opposite—at least initially. In early 2009 China launched a relatively massive $585 billion infrastructure program. The Fed started printing money and buying bonds à l’outrance. And then there was the stimulus…. $787 billion stimulus was too small for the job, and even smaller than it sounded. A full $70 billion… [wa fixing the Alternative Minimum Tax. That left far too little money to fill the economy’s hole—a hole that was far deeper than we realized at the time. Indeed, when the administration said the Recovery Act would keep unemployment below 8 percent, it thought GDP was falling 3.8 percent; subsequent revisions showed it was actually falling 8.9 percent. But even if so much of the stimulus hadn’t gone to non-stimulus, and even if we’d known exactly how bad the economy was, there was one last problem. The administration assumed this time wasn’t different. That the economy would bounce back on its own—and soon. But it didn’t, and they should have known that it wouldn’t.”