Grading President Obama on the Economy
09/13/2012 12:23 pm EST
Many commentators have joked that the president's campaign strategy sounds like, "it could have been worse." But that's actually a pretty good description of his record, especially on economic issues, writes MoneyShow's Howard R. Gold.
The conventions are over and the fall presidential campaign has begun. The big issue, of course, is the economy, and Republican presidential candidate Mitt Romney hopes to ride dissatisfaction with President Obama’s performance to victory in November.
There’s ample reason for dissatisfaction—unemployment has remained over 8% for 43 months, while unemployment and underemployment together are above 14%. The workforce participation rate is at its lowest in 31 years, while personal income is back to the same level it was in 1995.
That’s enough for many to declare this president a failure. But is he? He inherited the worst economic crisis since the Great Depression, with job losses of 800,000 a month when he took office and a Dow Jones Industrial Average that fell below 7,000. So, he was dealt a very bad hand. But how well did he play it?
Here’s my report card on the president’s economic performance. I’ve tried hard to be thorough and fair, but I’m sure I’ll annoy supporters and critics alike. That comes with the territory, so here goes:
In early 2009, the administration put General Motors (GM) and Chrysler through a managed bankruptcy, using funds from the Troubled Asset Relief Program. Fiat bought Chrysler and GM got new management. (The Bush administration gave the two $17.6 billion in bridge loans to keep them afloat.)
Now, at an estimated net cost of $25 billion to taxpayers (after sales of stock the government held in the two companies), some 1.4 million jobs were saved in the auto industry and its suppliers, according to the nonpartisan Center for Automotive Research. Both companies are profitable, sales have grown nicely over the last couple of years, and they’re creating jobs in the US.
Manufacturing has been one of the few bright spots in the economy, and that wouldn’t have happened if GM and Chrysler were liquidated, which was a real possibility. Grade: A
The Obama administration’s efforts to turn around the moribund housing market had only a modest effect. The Home Affordable Modification Program (HAMP) and the Home Affordable Refinance Program (HARP) together helped 1.9 million homeowners out of 9 million who were eligible.
We’ll never know if that was because the administration was too cautious or the problems of the housing market were too deep—or both—but the results were subpar. Grade: D...and would be F if not for the 1.9 million who were helped.
- Read Howard’s take on whether Fed Chairman Ben Bernanke has lost his mind at The Independent Agenda.
The president didn’t have to deal with the crisis President Bush faced, but Treasury Secretary Tim Geithner had to nurse the big banks back to health and rebuild confidence in the financial system. His chosen vehicle: stress tests, which measured banks’ capacity to withstand very bad (if not the absolute worst) economic scenarios.
Once the banks passed, they raised $150 billion in fresh capital in the bull market that began in 2009. That helped them repay taxpayers and meet stricter capital requirements. Many European banks didn’t do that—a big reason ours are in better shape now. Total estimated cost of TARP, as of March: $32.1 billion (not including Fannie Mae and Freddie Mac).
The administration also championed the Dodd-Frank Act, an unwieldy 2,000-page hodgepodge. Though it contained some good things (higher capital requirements, greater ability to liquidate troubled financial institutions, tighter regulation on derivatives), it also missed an opportunity to streamline the government’s financial regulation, and some of its provisions may have deterred lending.
Grades: TARP A, Dodd-Frank C-, and I take some points off for lack of prosecution of bankers. Total Banking Grade: C
NEXT: Stimulus and Spending|pagebreak|
The centerpiece of the president’s policy was the American Recovery and Reinvestment Act. It was priced at $787 billion when it passed, but about $70 billion of that was thrown in to prevent middle-class families from paying the alternative minimum tax, a fix Congress makes every year. So, the actual total was closer to $700 billion.
Of that, tax cuts and credits for individuals and businesses comprised $218 billion. Aid to states—mostly for Medicaid and preventing police and teacher layoffs—came in at $144 billion, and $111 billion went into infrastructure.
It was a big mishmash of Democratic wish lists that had been gathering dust in House Speaker Nancy Pelosi’s drawer for years. The president had his own pet projects, like renewable energy, electric batteries, high speed rail, and solar (some of which blew up in disasters like Solyndra).
- Read Howard’s critique of Paul Krugman’s Keynesianism.
The tax cuts were invisible and mostly useless. Much of the other stuff just kept our heads above water. And the infrastructure spending wasn’t nearly enough. Had more been devoted to that, we could have employed laid-off construction and manufacturing workers and made much-needed repair and replacement of vital facilities.
Still, the timing was good—it passed in early 2009 and started going into effect that year. This crude Keynesian pump-priming boosted spending just as the economy was hitting bottom. It wasn’t enough to offset the 9% drop in output we suffered, but several independent studies estimated the ARRA created or saved roughly 2 to 3 million jobs during that time.
In the 2010 lame-duck session of Congress, the president agreed to preserve the Bush tax cuts in exchange for extended unemployment benefits and a one-year payroll tax cut. Total cost: $200 billion-plus. In February, Congress voted to extend the payroll tax cut and unemployment insurance through the end of this year, when we all go over the fiscal cliff. Grade: C-
While the national debt has grown by more in absolute dollars under President Obama than it did under President Bush, most of the additional $5 trillion was not due to new initiatives by his administration, but to continuing policies and automatic increases in entitlements like food stamps and disability payments as more people became eligible.
Still, as Glenn Kessler of the Washington Post pointed out, under President Obama there has been “a sustained higher level of spending.”
Last year, Republicans pressured the president to accept $1 trillion in spending cuts to extend the debt ceiling, but he also agreed to another $1 trillion or so in automatic cuts if Congress couldn’t agree on more. They couldn’t, of course, so those automatic cuts will kick in if Congress doesn’t rescind them.
That came, of course, at the loss of the US’s AAA rating, a major economic and psychological blow. Grade: D, mainly because of the spending cuts the GOP pushed him to make.
During his first two years, President Obama had a big majority in the Senate. He got the stimulus enacted quickly, helped stabilize financial markets, moved on financial reform, and pushed through health-care reform even when it looked like it was in trouble.
You might not like these things, but the president is, after all, a Democrat, and he campaigned on these very issues when he ran and won by a comfortable majority. In fact, he went big for health-care reform even when several advisors urged him to stay focused on the economy.
But from the beginning, he had poor relations with Congress. He gave Nancy Pelosi and the Democratic Congress too much say over his programs, and made too many bad deals to win over conservative Democrats.
When the debt-ceiling crisis broke last summer, as Bob Woodward writes in his new book, the president didn’t have the relationships with Republicans necessary to bridge the gap, and he showed poor judgment in his negotiations with House Speaker John Boehner.
Some of this reflected the president’s inexperience and aloofness. But overshadowing everything, I think, was the depth of a financial crisis and deleveraging that’s shaken the world, not just the US. The government, the banks, and the American people all accumulated far too much debt over the last 30 years, and now we’re paying the price as households continue to deleverage.
Read John Mauldin’s take on why debt is such a threat to the US economy.
The depth of the housing bust was particularly damaging. Instead of powering the recovery, as housing usually does, it been a huge drag, depressing consumer demand immeasurably. Some structural changes in the labor market also have taken their toll. And Reinhart and Rogoff have shown that GDP growth is depressed for years after financial crises.
The president made mistakes—I think he should have gone for more limited health-care reform, simpler banking reform, and a stimulus that focused more on infrastructure. He has done a poor job of instilling confidence in the public and, especially, business.
But for me the bottom line is what former President Clinton said at the DNC in Charlotte last week: “No president, no president—not me, not any of my predecessors—could have fully repaired all the damage that he found in just four years.”
That doesn’t mean he deserves another four years. He helped avert the very worst, but could have done much better. So, for me, his final grade is C-. But definitely not an F.
Howard R. Gold is editor at large for MoneyShow.com and a columnist at MarketWatch. Follow him on Twitter @howardrgold and catch his coverage of the economy and the 2012 presidential campaign at www.independentagenda.com.