WASHINGTON ¨C The strongest case against the Obama administration¡¯s economic policy goes something like this:
Early on, the Obama administration misunderstood the unusual nature of the crisis. You can see it in its forecasts, which predicted a rapid, ¡°V¡°-shaped recovery even if Congress didn¡¯t pass a stimulus bill. And you can see it in the administration¡¯s policies, which focused on supporting the financial system while it kick-started growth by putting people back to work, handing out tax cuts and stopping state and local governments from laying people off.
The precise nature of the administration¡¯s misunderstanding was that the key problem was household debt, and until that problem was solved the economy couldn¡¯t recover. But while it had a clear strategy for attacking bad debt in the banking system, and a clear strategy for attacking the fall in consumer spending, it never had a clear strategy for reducing housing debt.
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