The best perspective on the presidency of Barack Obama will come decades from now when the seeds that he has sown have flourished or withered, but for those of us who live in the "here and now", and for those who contemplate the implications for the 2016 presidential election, it is worth some ruminations. When Obama came into office with control of both houses of Congress in January 2009, Hope and Change had four major faces: recovery from the deep financial hole which he inherited; implementation of universal health care; ushering in an international period worthy of the Nobel Peace Prize; and cementing America's commitment to racial equality. Each deserves discussion - this week let's focus on the first.
There is no denying that George W Bush left Barack Obama with a financial mess - the Great Recession from December 2007 to June 2009, punctuated by the housing-induced financial crash of September 2008, saw a 5.1 % drop in US GDP, and a loss of 8.7 million jobs. The response of financial industry bail-outs, a trillion dollars of stimulus spending, and unprecedented Federal Reserve monetary policies was largely a bi-partisan effort, initially led by Republican appointees Treasury Secretary Hank Paulson and Federal Reserve Chair Ben Bernanke. The judging of Obama's contribution should really begin a year or two later.
By many standard measures the economy has performed reasonably well under Obama. GDP has grown each year of his presidency; 9 million jobs have been added to reduce the unemployment rate from 7.8 % to 5.0 %; the Dow which was at 7949 when Obama took office is now at 18,450; inflation has been unusually tame. But the headlines tell a misleading story: the unemployment rate went down in significant part because 94 million people were not looking for work - the highest rate in 38 years; the average GDP growth rate of 1.5% is among the worst in US history, well below the average of 3.8%; and the average household income has decreased 2.3 %. The number on disability as opposed to being counted in the unemployed has exploded. Food stamps are up 40%; home ownership is down 5.6%; households below the poverty line is up 3.5%. The trend away from higher-paying, full time industrial jobs toward lower-paying service jobs has continued while average weekly hours worked has decreased. Political populism from the left (growing income inequality) and the right (foreign trade and immigration) is rampant.
The longer term impact of near-zero interest rates (which have been in effect throughout Obama's two terms) is more troubling to those who think beyond the current election cycle.
- With the transition from company pensions to self-directed IRAs and 401(k) plans in the 70's, 80's and '90's individuals now manage their own retirement incomes and have long been encouraged to devote half or more of their discretionary financial assets to bonds as they age. With bonds paying little, the equation doesn't work for many.
- Public employee pension plans (which still generally follow the "guaranteed payment" model) have a similar problem, except that the risk is borne by the taxpayers. According to the Actuarial Standards Board, state and local pension plans are underfunded by some $5 trillion, using an assumed rate of return of about 7.5%. And that is before Social Security and Medicare. When this blows up, taxes will shoot up, other government spending will be squeezed out, or retirees will be stiffed.
- The third leg of this stool is the federal debt which has been doubled under Obama - now $19.4 trillion, or 105% of GDP. At these levels the ability to respond to another crisis is greatly compromised, and when rates do return to the "normal" 3 to 5 %, other budget requirements will be forced out.
From a "legacy perspective", it is not particularly relevant whether the president's policies caused the result, or whether he just was unable to correct problems that were foisted upon him. In the case of Barack Obama there are elements of both. There are direct and pronounced links to policies which have done great damage to the energy and healthcare industries; the financial industry is more concentrated than it was in 2008; and no political capital has been expended to correct dysfunctional incentives in the tax code such as high corporate rates with many loopholes, incentives to locate off-shore, and special benefits for hedge fund managers. Immigrants (legal and illegal) add pressure to the job market. A major fiscal disconnect has existed between the Republican House and the Obama administration since the passage of the Stimulus plan in 2009.
There is a lot of meat here for Donald Trump, particularly as Hillary represents a third Obama term with strong Wall Street ties. Pundits looking back from 2030 will wonder why the voters did not revolt.
This week's video is an introduction to KellyAnne Conway, Donald Trump's new (third) campaign manager, as she jousts with CNN's Dana Bash.
bill bowen - 8/26/16