Student Questions: Obama’s Economic Policies

BY Business Desk  November 24, 2009 at 10:13 AM EDT

money; via Flickr

Editor’s note: This week, the Business Desk continues to feature questions from students in three high schools around the country.

Question: What changes has President Obama made to American economic policy? — Anthony, senior, Carle Place High School, Carle Place, N.Y.

Paul Solman: It’s hard to say, isn’t it? I mean, we’ll never get to run the experiment a second time, with a different president, much less a different Congress or Federal Reserve to see what changes could be made, would have been made absent Obama.

If you read history, you’ll find the greatest experts disagreeing about the effect previous presidents had on economic policy.

I don’t mean to duck the question, though. President Obama is clearly on one side of a great divide in economic thinking: the side of greater control of markets, more regulation, a more progressive tax system, greater sharing. This marks a major change from the economic theory that’s been in control of American policy for most of the time since 1981 and the coming of Ronald Reagan: freer markets, less regulation, a less progressive tax system. Democratic President Bill Clinton leaned the country back in the somewhat more government-oriented direction, but he too emphasized DE-regulation and free markets. George W. Bush then pushed this philosophy even further — until the crisis of 2008. At that point, he lurched back the other way, or allowed his Treasury Department to do so.

So my answer is: President Obama has made a major change in the U.S. economic policy of recent decades, though it’s not clear any other president, faced with crisis, might not have done the same.

Obama has not, however, gone as far as many of his supporters wished (and many of his opponents feared). He did NOT nationalize U.S. banks, meaning he did not declare them bankrupt and take them over. That would have punished those who ran them (executives), those who owned them (stockholders), and those who loaned money to them (bondholders). Instead, the government loaned money to the banks on favorable terms (to them).

Nor did the president push as hard as many wanted him to push — for a bigger stimulus package (more government spending); for tougher limits on greenhouse gases; for more universal health care.

On the other hand, he has taken steps to address all three problems — unemployment, global warming, health care — with government solutions. That’s a major change in economic strategy.