I’d been dimly aware of Robert Lucas’ argument (PDF) that the Great Recession can be explained without reference to such petty concepts as aggregate demand, but until I read Gavyn Davies’ summary and critique I didn’t understand that thinking of it as an essay about the economy is a mistake. This is an essay about Barack Obama and how contrary to conventional wisdom he’s far and away the most significant policymaker in the history of the republic.
Lucas’ argument starts with the observation that historically speaking US GDP growth has been remarkably constant:
But lately, we haven’t seen the kind of bounce-back that would put us back to trend:
Lucas explains this without resort to demand-side theories by noting that per capita GDP is lower in Europe:
What’s happened, according to Lucas, is that Obama’s policies have caused us to deviate permanently to a lower, European-style growth path. The initiation of Social Security didn’t do that. Nor did its expansion in the 1950s. Nor did the creation of Medicare, Medicaid, Title I federal aid to schools or the War On Poverty. The Clean Air Act didn’t do it. Nor did the Clean Water Act or the Americans With Disabilities Act. George W Bush’s expansion of Medicare didn’t do it. Nothing about the growth of the welfare state in postwar America was able to jar America off the American-style growth path and put it on the European path. And then along came Barack Obama, the Affordable Care Act and a few other bills, and like magic we’re Sweden. Forget the economic implications of this. Think about the history! Think about all the unfair knocks Obama’s gotten from the left. A leading economic scholar thinks Obama’s domestic agenda has been far-and-away the most consequential in American history. It’s kind of a big deal.
On a more petty economic note, if America’s recession is explained by our transformation into a European-style welfare state then what explains the recession in Spain? Or the United Kingdom?