There are two hypotheses, at least. One is the standard story of the government-as-savior crowd. TARP and other bailouts fixed the financial crisis and Obama’s stimulus stopped the economic recession that resulted. Without either one, things would have been worse, much worse.
Here is another hypothesis. We had a recession, just like the other ten times since World War II. As in every other such case, this recession would have ended in about a year if government had done nothing in particular. But this time, the extra costs and uncertainties caused by government “fixes” in fact prolonged and deepened this recession and threatened a double dip or stalling out of economic activity.
Neither hypothesis can be “proved,” since all we know is what government did and what happened. We do not know what might have happened had we done something else.
But here is my take. The times we let government do the most to “fix” a recession, meaning the Great Depression and our current Great Recession, were the very times the economy did the worst. When government let things more or less alone, the economy recovered fairly quickly and with minimal damage.
We also have the academic studies by, of all people, Christina Romer, Obama’s initial chair of the Council of Economic Advisers, that say fiscal policies (e.g. government spending or “stimuli”) did not get us out of the Great Depression or any of our postwar recessions.
The analogy is bleeding a patient. If the doctors bleed a patient and he gets better, they take credit. If the patient gets worse, the doctors say he was not bled enough.
I think, at this point, we have enough evidence for both bleeding as a medical cure and fiscal stimulus as an economic cure that we can stop killing patients by bleeding them to death.
We have two good pieces of advice in such matters, one from Hippocrates and the other from our space program. Hippocrates said, “First, do no harm.” Our space program’s rule of flight control was “If you don’t know what to, don’t do anything.”
I think we need people in Washington, DC, who follow the advice in that last paragraph. Lots of them.