The American economic and political climate currently feels like a partisan adaptation of the Kevin Bacon classic “He Said – She Said.” Just as men and women tended to walk away from that movie with a dramatically different perception and recollection of ‘reality,’ our political and economic landscape is now largely one of partisan interpretation. In other words, it is a blame game, pure and simple.
As we count down to the 2012 election, which will surely be a referendum on the American economy more than any other single factor, I believe it is important to look at some actual numbers to answer the question of whether the current administration has been ‘good’ or ‘bad’ for America.
lies,damn lies, and statistics…
Setting the political stage
Before we begin, it is important to remember that numbers do not lie, people lie. But of course, people generate numbers, leaving us with quite a conundrum. I am not an economist, nor a historian per se. I will do my best to remain impartial and take a hard look at where we are today, where we were recently, and where we might be headed.
As we do so, it is equally important to remember that inertia is a function of mass. The American economy, as vast as it is, can be ‘steered,’ we can apply ‘brakes’ and ‘acceleration,’ but the vehicle reacts much more like a boat than a car. We cannot stop on a dime, or accelerate rapidly. We do not have the ability to navigate hair-pin turns. If you have ever captained a boat, you surely understand my point. Even so, however, very few of us have captained a supertanker, which is the closest analogous experience given our metaphor. Simply put, it can take years for the full impact of any policy to be perceptible, let alone recognized.
Why does inertia matter for this discussion? Well, that is fairly easy to understand, despite being commonly overlooked (generally not due to ignorance of the observer, but rather due to partisan incentives to overlook the obvious. This inertia based understanding of economics applies to many policy areas. It is completely unfair, for example, to blame the horrific events of 9/11 on President George W. Bush. While it appears true that his administration overlooked, perhaps willfully, the numerous warnings that they were given regarding the intentions and capabilities of Al Qaeda, the reality is that the administration inherited these realities and had precious little time, and too few options, to do much about them.
Obama politics have destroyed our economy…
Where are we really, and how did we get here?
I hear very strange things being said about our current president. To be clear, I am neither a Republican nor a Democrat. I would like to think of myself as an impartial observer, to the extent that such a thing is possible. As such, I follow the rantings and ravings of the people on the far left, and far right of the political spectrum, and regard them both with what I regard as healthy skepticism. But the mutterings from the far edge of the spectrums have a way of making their way towards the middle, especially in times of crisis.
Times are tough, there is no doubt about that. But when I hear ‘Obama politics have destroyed our economy’ I am forced to start asking some simple questions. Wasn’t it just 3 years ago when the GOP nominee for president said on one day ‘the fundamentals of our economy are strong,’ and then less than 10 days later suspended his campaign so he could return to Washington to help avert the meltdown of the western economic system?
Looking at the numbers
So what do the raw numbers show? Where were we towards the end of the Bush presidency, and where are we today, towards the end of President Obama’s first term?
First, let’s take a look at GDP. This graph shows real numbers through 2009, and projections out until 2014. Even if we discount the projections, the real numbers only show a slight leveling during the meltdown of 2008-2009. America’s economy may be fundamentally damaged due to an overemphasis on consumerism, but that is certainly not something the current administration created, and in reality the numbers seem to show that GDP proceeds on much the same trajectory as it did in the years before Obama took office.
Using another independent source, we can visualize GDP in a more tightly focused time frame, from 2006 until the present. It certainly looks to my eyes that while we took a hit in productivity as we adapted to the recession in 2010, we bounced back admirably in 2011. Sure, we spent our way out of the recession in part, but that TARP policy and the spending spree was initiated under the previous administration.
Of course, not being an economist, GDP doesn’t really mean that much to me. What does matter is whether I have a job. Whether my family and friends have jobs. This is almost certainly the most tangible, most important single metric of any economy. But here too, we can see that joblessness was already climbing dramatically during the 2008 calendar year. In case there is any confusion here, the election which sent Obama to the white house occurred in November of 2008, and he was not sworn into office until early 2009.
Maybe 2008 was the wrong year to look at. So let us look at the last 3 years running, beginning 1 year before Obama was sworn into office. Hmm. actually, what I see here is that there was an explosion of jobless claims in 2008 and then into early 2009. These new claims begin to drop dramatically around July of 2009, about 3 months after Obama began his first term. They do not, unfortunately, descend down to the levels that the were before 2008, but that is a well known economic trait – jobs growth will lag at least 12 months behind the real recovery.
Of course, there are all sort of ways to cook numbers. Maybe jobless claims is illusory. So let’s look at the actual unemployment rate. Here again, we will look first at the calendar year of 2008, well before Obama took office. Yikes. Doesn’t look good. I sure wouldn’t want to try to take charge of the nation at the end of this graph, which is of course exactly what Obama did.
The simple fact that these charts show, whether new jobless claims or the overall unemployment rate, is that the US economy was headed for rocky shores starting well before 2008. Nothing could have changed that inertia without tremendous foresight and immense application of force.
So now let’s take a look at the numbers for unemployment rate in not just the year before Obama took office, but extending also to the present. Granted, this is not pretty. And it is important to note that a number of unfortunate people simply stopped looking for work altogether, so the unemployment rate is actually probably a good 3-5% higher than charted here. But even so, a 10 year old child can recognize that the problems began well before 2009, and that the explosion of unemployment had significant momentum behind it, and was only slowed with great effort late in 2009/early in 2010. We can hope that the tail end of this chart is not deceiving us, and that the recovery we have been waiting for is actually already under our feet, and corporate hiring is starting to follow.
Not fair you say… I am cooking the numbers, you say. Ok, let’s ask the American people as we take a look at consumer confidence? We hear this one every month, right after we hear the latest job figures it seems. Here too, we see a (now predictable) massive drop in consumer confidence beginning in late 2007, and bottoming out in mid 2009. We already know that jobs, and confidence, lag behind the actual working guts of the economy, so we can be hopeful that the small upturn that we see at the end of this chart means that confidence, and the spending/borrowing which accompanies it, is on the rise.
Just so that we leave no doubt, here is a close up look at the consumer confidence index from 2008 to present. Please note, the very lowest trough, the worst of the worst levels of consumer confidence, happened just before and during the inauguration of Obama. Cynics will say that the country was preparing for a rocky road under his leadership – that is nonsense. What we are seeing here is the momentum of a lot of people, including the John McCains of the world, realizing that the fundamentals of our economy were not strong. In fact, a whole lot of smart folks right around this time were scratching their heads, asking themselves exactly what the fundamentals of the US economy were!
Still eager to blame this drop in confidence on Obama? Well, by this time I would suggest that your opinion is hard coded, and no amount of evidence will sway your opinion. But let’s look at one last set of confidence charts. First, the calendar year 2007, before most folks knew who Obama was at all, and most folks were still presuming Hillary Clinton would be our next president.
And then finally, starting in 2009 when Obama took office. Looks like we are swinging back to the right direction to me. It is rocky terrain, to be sure. But the damage was done years before, and we are simply watching that toxic harvest being reaped by this time.
What’s that, you don’t are about confidence and all that psychological mumbo jumbo? Ok, let’s get back to hard economic numbers. US industrial production – that is people actually making product for sale – began to tank, in a big way, in 2008. Before Obama took office. See that great big dip below the line starting in February of 2008? See how it reaches rock bottom in mid 2009 (~4 months after Obama took office) and reaches positive territory again in January of 2010? The most cynical of readers will say ‘well yeah, we spent our way out of recession.’ Of course we did. How do you think Reagan did things in the 80’s? And whose administration kicked off the latest spending spree? TARP was formed under Bush, and everyone agreed, we needed that stimulus.
Here is an up close and personal view of the 2008 production numbers in the last year of the last Bush presidency. Fun thing to inherit for the guy coming in, regardless of whether he/she wears an elephant or a donkey on their lapel.
And finally, industrial production charted from the beginning of 2008 until ‘present.’
Finally, let’s take a hard look at one of the more tangible ways that many Americans have ‘felt’ this downturn – in the savaging of their 401k retirement savings. It is important to remember that the stock markets are undoubtedly our best leading indicators of change. By the time that the average person on main street hears that a company is poised for a big breakthrough, or about to experience very hard times, the stock market has almost already priced this news into that stocks trading price. While certainly not prescient or perfect, the collective wisdom of millions of investors, all looking out for their pocket books, offers a great deal of insight into where a company, a market, and entire economies are headed.
Because of this ‘forward looking’ aspect to the markets, we actually have good reason to be optimistic. While the weight of global credit and liquidity problems will be dragging us down for a few years to come, the markets have rebounded dramatically from the dizzying days at the end of 2008 and their lows in early 2009. We can see that trend just as clearly as we can see how it is leading consumer confidence.
So if things are getting better, and consumer confidence is even starting to recognize that fact, then why all the doom and gloom surrounding this presidency? Well, the answer to that question is fairly obvious. First, and foremost, times are still extremely difficult for so many American families. Too many people have simply stopped looking for work altogether, too many families are struggling to keep food on the table, and this leads to frustration and eventually anger. Anger has to be placed somewhere, and it is much easier to simply point our finger at the person currently in charge than to try to understand the fundamentals of how we got here.
Obama is Carter part II
Given the eventual status to Jimmy Carter rose to as a statesman, this is an interesting one. But I certainly understand what people like James F. Conroy are implying when they say that Obama’s presidency is tracking like Jimmy Carter’s did.
Jimmy Carter was an easy target for the frustration of long gas lines, insane inflation and interest rates, etc., when in reality his administration was doomed by Johnson era policies and spending on a immensely costly foreign war fighting the wrong enemy. The Obama administration inherited a very similar set of economic factors. Obama inherited an economy already over the precipice, and on its way down a steep slope of unsustainable spending on a foreign war facing the wrong enemy (note – I was not a fan of the late Saddam Hussein, but anyone who claims that he or his nation had anything significant to do with or culpability in the events of 9/11 is completely ignorant of the facts, let alone Middle Eastern politics. The simple truth here is that we fought a war that we did not need to fight, at a cost of tens of thousand of American lives and over a trillion dollars in American treasure).
The irrelevant but tragic and expensive war in Iraq was far from the only structural problem that conspired to melt down the American and global economies in 2008. But the intricacies of that event are beyond our scope here. The numbers show, both in the case of Carter and Obama, that structural corrections were going to play out.
Our economic house is under water
I am far from President Obama’s biggest supporter. I feel that he has had a mediocre first term from a policy perspective, at best. His administrations weathering of the financial crisis that exploded while he and John McCain slugged it out on the campaign trail, however, has been nothing short of impressive. You might even call it miraculous if things continue to improve over the next 12 months as they have over the last 12.
Why are you not hearing this sort of commentary from analysts and pundits? Well, for the Obama administration, it is very difficult to walk the tightrope required to continue to say that this was all inherited. It was, and that is the truth – but a President must be presidential, and that means not shifting the blame.
Of course, on the other side of the spectrum, there is the GOP machine, whose ‘job’ it is to try to cast the current administration in the worst light possible. There are even those, many of them Republicans, who say that there is a concerted effort to prevent the economy from improving during Obama’s watch. I hope and pray that this is not the case, that no person or politician could be so cold and calculating. In either case, I hope that we have shown, using reliable numbers and a balanced approach, that this administration has done far more for the economy than could easily be predicted, based on where they were handed the political football.
No matter who you are, or what side of the political divide you are on, it feels like our economic house is ‘under water.’ In reality, it was. It is my belief that we have now suffered through the correction that was inevitable, and we will start to feel (have already started to feel) the resurgence of the American economy. I hope that we emerge from this downturn leaner, stronger, and in a perfect world, wiser.
I researched many sources in writing this post. During the process, I stumbled across a very balanced, detailed blog at Martaw.com. I highly recommend reading this impartial analysis: http://www.marktaw.com/culture_and_media/politics/USA_debt_2009.html