Continuity in Crisis

In many ways, the Obama administration’s response to the Great Recession of 2007 and 2008 was a continuation of, rather than a break from, the conservative consensus that had dominated U.S. economic policy since the 1980s. The crisis did challenge the faith in deregulated markets, and prompted questioning of the idea that markets naturally allocate resources fairly, but the policies put into place by the Obama administration in response did not mark a dramatic shift away from those ideas. In fact, after reading Jonathan Levy’s chapter, I would argue that they reinforced them.

In his book “The Ages of American Capitalism,” Levy writes that the economic crisis of 2007-08 was rooted in a model of growth based on rising asset prices, cheap credit, and increasing inequality. This model didn’t collapse in 2008. Rather, it was temporarily patched up. Levy argues that “the story of the Great Recession is one of economic continuity” (594). Despite campaign promises of change, the actions that the Obama administration took worked to stabilize the existing system rather than reinvent it. Obama’s economic team included key advisors Larry Summers and Tim Geithner, who both previously served under the Clinton administration. In general, their approaches prioritized restoring confidence in the existing financial markets rather than fundamentally reforming them. Levy argues that even in a time when the state needed to “chart a new direction,” “the restoration of the capitalism of asset price appreciation proved to be the limit of [the Obama administration’s] imagination” (717). Even the $800 billion stimulus, while historic in size, was mostly tax cuts and temporary spending. In other words, it was not the kind of long-term public investment that had the potential to reshape the U.S. economy.

The Obama administration’s response to the crisis also highlights how much authority two unelected institutions—the U.S. Treasury and the Federal Reserve—hold over economic policy. During the crisis, the Federal Reserve not only acted as a lender of last resort but also a “dealer of last resort.” This emergency role led the Fed to step in to buy troubled assets to keep markets functioning (709, 715). Through programs like TARP, the Treasury funneled billions of dollars directly into the banking system. As Levy notes, the Fed operated under an expanded interpretation of its powers during this time. In fact, as Levy shares, there are legal scholars that still debate whether or not the Fed “acted within the bounds of its legal mandate” during the 2008 crisis (708). Their outsized role reflects the nature of the economic system itself. In what Levy calls the “Age of Chaos,” markets depended on confidence more than production, and the primary role of institutions like the Fed is to maintain that confidence at all costs (590). This means that in times of crisis (including the Great Recession), decisions are often made by major players behind closed doors rather than through democratic debate.

In the end, it can be argued that the Obama administration did help to prevent a second Great Depression, but it didn’t take advantage of the opportunity to rethink the fundamentals of the U.S. economic system. The recession passed, but many of the problems that caused it—rising inequality, financialization, and political deference to markets—remained intact. In the words of Levy, “No new age of capitalism issued forth from this crisis, even as so many economic dissatisfactions persisted” (705).