The preponderance of blame for the current anemic economy does not lie with the Obama administration. Its origins actually are to be found in a process of deregulation that extends back at least to the administration of President Reagan.
Starting in the early 1980s, legislative and regulatory action dismantled much of the financial structure erected in the New Deal in response to the financial crises that marked 1929-1933. The consequence was an economy that became increasingly financially fragile.
For roughly half a century, banking was boring, and the country avoided financial crises. Banks and other intermediaries, however, chafed at restrictions and pushed hard for relaxation.
Deregulation opened the door to greatly increased profits made possible by investments in riskier assets financed with greater leverage -- namely more borrowing. The financial sector's share of domestic corporate profits rose to exceed 40 percent in 2001-03, and remained over a third in 2004-07 inclusive. This from a sector that employs about 6 percent of full-time equivalent workers.
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High levels of borrowing made the sector vulnerable when the prices of what they had invested in began to decline. When financial institutions are large, and hold each other's liabilities, their interconnectedness creates potential for crises in which lending freezes and the real economy goes into a tailspin.
A government bailout avoided such an outcome in the late 1980s with the savings and loan crisis. The chairman of the New York Fed organized private intervention to deal with the risk presented by the failure of Long Term Capital Management in 1998.
These threats paled in comparison with the developing crisis that came to a head in the fall of 2008. As the housing bubble continued to deflate, hundreds of the country's financial institutions, including many of its largest investment and commercial banks, AIG, the largest insurance company; and the government sponsored enterprises Fannie Mae and Freddie Mac, were effectively insolvent -- owing more than their assets were worth.
So what needed to be done? There are two textbook responses to a financial crisis. The first is to inject liquidity to satisfy the public's suddenly increased demand to hold safe assets such as money or Treasury securities.
Such intervention began under President Bush and continued under President Obama. Presidents do not, however, have direct responsibility for monetary policy, except insofar as they nominate the Fed's chairman and its Board of Governors.
The Fed for years lacked interest in or commitment to its responsibilities for financial regulation, which it shared with other organizations. Nevertheless it fought the fire appropriately, and Obama did the right thing in re-nominating Chairman Ben Bernanke.
The second remedy is to use fiscal policy to encourage the revival of private spending. The stimulus bill provided temporary tax cuts, extensions of benefits, spending on infrastructure, and direct aid to states -- which can't run deficits like the federal government.
Combined with monetary policy, this staved off what could have been a disaster.
The Obama administration deserves credit for championing the stimulus bill even if it widened the deficit. The time to pay down the federal debt is when the economy is strong, not when it is weak. Indeed, if the Obama administration is to be criticized, it should be for not having pushed to make the stimulus larger.
It is important, however, not to limit discussion to how good the firefighting has been. It is better to prevent a fire than to have to put it out. That is why strong financial re-regulation legislation is so important for the future.
Contact Field, the Michel and Mary Orradre professor of economics at Santa Clara University, and executive director of the Economic History Association, at Santa Clara University, Economics Department, 500 El Camino Real, Santa Clara, CA 95053; e-mail: firstname.lastname@example.org.