Obama's Bailout

If these were normal times, it would be ludicrous to issue a report card on the Obama administration's economic policies. Only a few weeks have passed since the new president was sworn in, and many important economic positions have yet to be filled. As some wags put it, we're still at the stage when officials are trying to find their way to the bathroom.

But these aren't normal times. Barack Obama took office in the midst of the worst economic crisis since the Great Depression, a crisis requiring immediate action. Indeed, some people, myself included, had hoped that the outgoing Bush administration would work with the incoming team, allowing Obama to take action before moving into the White House. But it soon became clear that as Obama tries to deal with the crisis, he will get no help from Republican leaders. Instead, he'll face obstruction and lies.

So our new president is on his own, scrambling to meet a crisis that is far worse now than it was when he won the 2008 election. How's he doing?

The short answer is, very well by any normal standard — especially when you compare it with what a McCain–Palin administration would have done. Indeed, not since FDR has a new president moved so aggressively on the economic front.

But the current economic disaster demands even more aggressive action than Obama has taken so far. What's truly scary is the breadth of the crisis. What began as a housing bust mutated into an implosion of the entire financial system. What began as a recession centered in the United States has gone global, with industrial production plummeting from Ukraine to Japan. Falling home and stock prices have wiped out a decade of savings, and consumers have slashed spending in a way they didn't in previous recessions. Losses from the housing bust and debt defaults have crippled the banking system; the resulting credit squeeze, in turn, has worsened the housing bust and fueled a sharp fall in business investment. And exports are plunging too, as the slump spreads around the world.

As a result, we're staring into the abyss: Without an effective response by the government, there's no telling how deep this slump might go. To promote more spending, the Federal Reserve has cut interest rates to almost zero and has vastly expanded its activities, financing everything from assets backed by credit-card debt to the operations of insurance companies. But while these efforts may have eased the credit crunch somewhat, they have been nowhere near enough to turn the economy around.

So now it's up to the Obama administration.