Obama’s Economic Record: An Assessment
This seems like a good time to review President Obama’s economic record. On Tuesday, Obama will deliver a farewell address in Chicago. Last Friday, the Labor Department released its final employment update of his Administration.
It was another fairly strong report: a hundred and fifty-six thousand jobs were created in December, the unemployment rate was 4.7 per cent, and average hourly wages were almost three per cent higher than they had been a year earlier. As the President’s supporters were quick to point out, this was the seventy-fifth consecutive month of job growth, which is a record for the modern era. Since early 2010, 15.8 million jobs have been created.
How much credit does Obama deserve for all this? It is a truism among economists that Presidents get too much blame when the economy is doing badly and too much credit when it is doing well. Factors outside the White House’s control, such as global and financial shocks, Federal Reserve policy, and demographic and technological trends, often play a big role in determining things like the level of unemployment and the growth rate of the gross domestic product.
But Presidents aren’t mere bystanders. The policies they carry out, in conjunction with Congress, matter a great deal. In times of acute danger, Presidents can give the economy a much-needed boost. Or they can prolong the agony. In the longer term, policies such as new spending programs, changes to the tax laws, and reforms of the regulatory code can have a major effect. Anybody who doubts this needs to read up on the legacy of Franklin Roosevelt or of Ronald Reagan.
Obama’s policies helped lift the economy out of a frightening slump and set it on a path to steady, if unspectacular, growth. In fact, I’d call this his biggest achievement. The scale of the financial panic of 2008 and the extent of the job losses that occurred in the first months of 2009 should never be forgotten. By “a number of macroeconomic measures—including household wealth, employment and trade flows—the first year of the Great Recession in the United States saw declines that were as large or larger than at the outset of the Great Depression in 1929-30,” Jason Furman, the chairman of the White House Council of Economic Advisers, recounted in an exit memo that he posted online this week.
The Federal Reserve, the Federal Deposit Insurance Corporation, and Hank Paulson, President Bush’s Treasury Secretary, all played key roles in quelling the panic. But the Obama Administration finished the job, continuing the crisis measures that had been introduced, pushing through the rescue of the auto industry that Paulson had set in motion, and carrying out a set of stress tests that restored confidence in the big banks. The new Administration also boosted the over-all level of demand in the economy with an eight-hundred-and-forty-billion-dollar stimulus package, which featured temporary tax cuts and more federal spending. By the second half of 2009, the gross domestic product was growing again. By October, 2009, the unemployment rate had peaked, at ten per cent. If other policy decisions had been made, things could have been very different, and much worse.
At seven and a half years long, the Obama recovery now is one of the longest on record. In terms of annual G.D.P. growth, the rate of expansion has been relatively modest: since 2010, G.D.P. has risen by about 2.1 per cent a year. During the Bill Clinton recovery (1992-2000), G.D.P. growth averaged 3.8 per cent a year, and during the George W. Bush recovery (2002-2007), it averaged 2.7 per cent.
Citing figures like these, Obama’s critics claim that this has been the weakest recovery since the Second World War. But that ignores at least a couple of important measures. As the economists Carmen Reinhart and Kenneth Rogoff have pointed out, “Postwar business cycles are not the right comparator for the severe crises that have swept advanced economies in recent years.” The Great Recession of 2008 and 2009 wasn’t a normal recession. It was an old-fashioned financial bust, and it always takes economies a long time to recover fully from those—if they ever do. Japan took two decades to rebound from a financial bust in the early nineteen-nineties. Much of Europe still hasn’t recovered from the Great Recession.
In addition, if you look at employment rather than at G.D.P., the Obama recovery looks much stronger. Since the start of 2010, the U.S. economy has created about 2.4 million jobs per year. During the Bush recovery of 2002-2007, annual job growth was just 1.2 million. In terms of jobs, the Obama recovery compares with the Clinton recovery, of the nineteen-nineties, when approximately 2.8 million jobs were created each year.
The difference between Obama’s record and Bush’s is even starker if you focus on entire Presidential terms, including periods of recession as well as periods of recovery. Between January, 2001, and December, 2008, 2.1 million jobs were created. Between January, 2009, and December, 2016, 11.3 million jobs were created. The economy created nearly five and a half times more jobs under Obama than it did under Bush.
To be sure, there are legitimate questions to be raised about the quality of these new jobs. Many are either in service industries that pay low wages, such as personal care and hospitality, or they are temporary positions. But that’s not the full story, either. Some parts of the service sector that pay higher wages, such as computer-systems support and management consulting, have also expanded significantly during the Obama years. The manufacturing sector, after shedding 2.2 million jobs between December, 2007, and January, 2010, has since added close to eight hundred thousand positions.
And, regardless of which sectors the new jobs are in, the structural shifts in the economy haven’t prevented over-all wages from rising lately, as employers have been forced to compete for workers—a very welcome development. The latest employment report showed that, in December, people working in the private sector earned, on average, twenty-six dollars an hour, compared to $25.26 an hour in December, 2015. The 2.9-per-cent increase outstripped inflation, which is running at 1.7 per cent.
That means workers’ “real,” or inflation-adjusted, wages are ticking up, too. Since December, 2007, the peak of the last business cycle, real hourly wage growth “has averaged 0.8 percent a year, the fastest growth of any business cycle (measured peak-to-peak) since the 1970s,” according to Furman’s recent memo. Higher wage rates, longer hours, and strong job growth have combined to boost living standards. “From 2014 to 2015, real median household income”—that is, the income of the household bang in the middle of the income distribution—“grew 5.2 per cent, or $2,800, the fastest growth on record,” Furman also noted.
That is all good news, and much of it isn’t properly reflected in popular perceptions. Obama will bequeath to the next President an economy that is growing steadily, with large numbers of jobs being created on a regular basis, and living standards finally edging up. Other economic indicators, such as the size of the budget deficit, the level of consumer confidence, and the leverage ratios in the financial system, are also looking much healthier than they were when Obama took office.
And don’t forget Obamacare. In addition to virtually halving the percentage of Americans who don’t have health coverage, the 2010 health-care reform amounted to perhaps the biggest effort to tackle inequality since the nineteen-sixties. The benefits of the Affordable Care Act were concentrated on low- and middle-income families, and much if its cost was borne by those earning more than two hundred and fifty thousand dollars a year, in the form of a 3.8-per-cent surtax on interest, dividends, royalties, and passive business income. If you place a dollar valuation on health insurance, then, according to the White House’s calculations, the A.C.A. boosted by almost a fifth the share of post-tax income received by the poorest ten per cent of U.S. households. Rich people lost out, which surely helps explain the Republican Party’s animus toward the reform.
Looking at this record, most fair-minded people would surely give Obama a positive report card. But, despite the improvements, the U.S. economy still faces many of the same challenges that it did eight years ago, such as competition from low-wage countries, large numbers of people dropping out of the labor force, a shortfall in productivity growth, and alarmingly high levels of inequality. The Obama Administration made efforts to tackle these problems, but some of them didn’t go far enough, and others were blocked by the Republican-controlled Congress.
Although ordinary Americans are finally getting raises, that hasn’t made much of a dent in the long-term trend of stagnation. In 1972, according to the Bureau of Labor Statistics, the average hourly wage of non-managers and production workers was $9.26, measured in constant (or inflation-adjusted) dollars. In October, 2016, the hourly wage was $9.20. Over forty-four years, the hourly wages of ordinary workers haven’t risen at all—they’ve actually fallen a bit. Even when you allow for the fact that these figures don’t account for the value of non-cash employee benefits, such as health insurance, they can only be described as shocking. (Yes, the numbers are accurate—I rechecked them in the statistical annex of the latest Economic Report to the President.)
On a brighter note, persistent job growth has persuaded some discouraged workers who had stopped looking for work to try again. That’s caused the percentage of working-age people participating in the labor force to rebound a bit. And yet, at 62.7 per cent in December, that figure was still 3.5 percentage points below where it stood eight years ago. Changing demographics can explain only part of this decline. Among “prime age” men—i.e., those aged twenty-five to fifty-four—about one in six potential workers is no longer part of the labor force. In human and economic terms, that’s a huge waste.
Then, there’s the productivity slowdown. This problem goes back decades, but in the past ten years or so it has become more pressing. Between 1995 and 2005, output per worker rose at an annual rate of about 2.5 per cent, which was an improvement on the previous period. Between 2005 and 2015, however, the growth rate fell to less than one per cent. Some economists blame this decline on tepid G.D.P. growth and low levels of capital investment. Others suspect that, despite the impact of computers and the Internet, the underlying rate of technical progress has slowed down—at least as it applies to the production of marketable goods and services. (Quite a bit of what people do online, such as communicating with their friends, isn’t a marketable activity. In the economic statistics, it counts as a leisure activity.)
Whatever the cause of the productivity slowdown, it is hard to sustain wage growth in such an environment. The only way it can happen, in fact, is for workers to take a larger slice of the pie and employers a smaller one. Over the past few decades, though, we’ve seen the opposite trend: labor’s share of the income generated by businesses has fallen, and the proportion going to profits has risen. The past few years have seen a bit of a reversal in this area, too, but labor’s share of over-all income is still well below where it was a generation ago, a fact that may be explained by aggressive management, the threat of foreign competition, and the decline of labor unions. Obama didn’t do much to address any of these things.
The flip side of workers getting less of the pie is that owners of capital—individual proprietors, participants in investment partnerships, holders of stock in public companies—get more of it. And, since the richest one per cent of households own about half the wealth in the country, they are the biggest beneficiaries of all. Although this group suffered big losses during the Great Recession, when the value of stocks, real estate, and other investments fell sharply, it has since enjoyed huge gains as profits and the stock market rebounded to new highs. In 2015, according to an estimate from the Berkeley economist Emmanuel Saez, the top one per cent’s share of over-all income was twenty-two per cent—close to the all-time highs reached in 1929 and 2007.
These figures are for pre-tax income. As I noted above, the Obama Administration’s tax and spending policies, including the passage of the Affordable Care Act and the decision to allow the highly regressive Bush tax cuts to expire, have helped alleviate some of the impact of rising inequality. Many people, myself included, wanted Obama to go further in challenging the privileges of the corporate and financial élites. But now, of course, we are faced with the prospect of a new government with a very different agenda.
In addition to promising to repeal the A.C.A. and the taxes on the rich that went with it, President-elect Trump has promised to slash the top income-tax rate from 43.4 per cent (including the Obamacare tax) to thirty-three per cent, to cut the rate on dividends and capital gains to twenty per cent, and to abolish the inheritance tax, which applies only to estates bigger than $5.45 million. Trump has also stocked his Administration with ideologues hostile to Social Security, Medicare, public schools, regulation, labor unions, affirmative action, and any other efforts to tame the free market.
Such policies aren’t merely a repudiation of Obama. They would amount to a smash-and-grab raid on the social-democratic notion of government that he sought to protect and extend. If Trump and his team’s proposed policies were enacted in their entirety and maintained, we could well come to look back on the last eight years as but a temporary stopping point on the road to full-on plutocracy.