Thursday, March 1, 2012

Using Economic Indicators to Assess Obama on the Economy

It's no secret. I'm not what you would call an Obama fan. I don't like his Keynesian "spend and tax" policies. I don't think he should be bailing out banks or auto companies. It would be nice to objectively quantify what sort of job that Obama has done since in office. That is what the American Enterprise Institute (AEI) endeavored to do in a recently published article, "The economic case against Obamanomics in 13 charts." Although AEI is a right-leaning think-tank, and thus has not been pro-Obama, I think that looking at economic indicators to assess Obama's economic progress is a worthy undertaking.

The first chart that AEI shows is one showing the change in unemployment from the start of recovery. My main issue with their chart they have is when they show the recovery from the 1981 recession. The people at AEI seemed to have forgotten that the 1980 recession was a double-dip recession. Whether it was intentional or not, only including the second dip is misleading. I modified the chart (see below) to reflect the change of the 1980 recession. Not only was the 1980 recession a slow recovery, but heck, even the 2001 recession, which was not that deep in comparison, took a while to recover when considering unemployment.

The second chart used is the U-6 unemployment, which accounts for underemployment in addition to unemployment. In the beginning of 2008, the amount was 9.2%. Currently, it's at 15.1%. However, these numbers do not adjust for the AEI's fifth chart, which is the percentage of citizens in the labor force (see below).

Although some people might have retired, the most probable explanation is that most people have given up on finding employment, which makes sense given the increased average duration of unemployment (see below).

Even if you look back at the beginning of when such data were collected, we are experiencing an unprecedentedly high mean. What has caused people to be unemployed for longer? The most probable answer is that businesses are hesitant to take on new labor. There can be multiple causes of such hesitation: ObamaCare, uncertainties created by the government (e.g., temporary, as opposed to permanent, tax cuts), the unease that business owners feel because the perception that Obama is anti-business, businesses have learned to do more with less, more manufacturing jobs being shipped overseas. Who knows? Causation is not clear here, which means as much as I'd rather not say it, this increased unemployment mean is not automatically Obama's fault.

But let's not just look at unemployment rates. How about GDP growth? It is clear that GDP growth is lower on average in comparison to other recessions in the past sixty-some-odd years. Let's take the data at face value. You still run into the issue that the GDP has enough components to complicate establishing causation. 

Debt as a percent of GDP is another big issue, one that has me worried. White House projections have the debt as percent of GDP rising ever higher (p. 58). As tempting as it might be to "blame Obama first," is that fair to Obama? In this instance, no. The two biggest programs that are only going to grow over time are Social Security and Medicare. These two programs were a well-established part of the American entitlement system long before Obama became president. While it is true that Obama is ideologically disinclined to eliminate or downsize on either program, would it matter even if he were? He'd still have to get past the political obstacles (i.e., the senior citizens that want these programs and the politicians that pander to this ever-growing demographic). 

The final chart, which I can blame on Obama, is the one that shows what would have happened if we hadn't passed the American Recovery and Reinvestment Plan (ARRP), which was Obama's most infamous stimulus package. Didn't he say that if we passed ARRP, unemployment wouldn't exceed 8%? Oh yeah, he did. Whoops! That clearly didn't happen. Keynesian economists will gripe that either the stimulus was not large enough or that it has yet to fully come into fruition. Being a libertarian, it shouldn't be a surprise that I view both of those explanations as lousy excuses to explain failed Keynesian economics. It would be nice for Obama to try something a little more free-market oriented in lieu of stimulus packages, but I won't hold my breath.

Concluding Thoughts: The economy is an extremely complicated organism. So many factors go into it that causation is anything but simple to discern. Let's face it. Obama inherited a mess. To blame Obama for the 2007 recession is like blaming Bush for the 2001 recession or crediting Clinton with the Internet bubble. Obama did not cause the recession to take place, but his policies do affect how quickly of a recovery the economy has. 

We forget all too easily that Congress is the branch that legislates, hence why it's called the legislative branch. Congress enacted ARRP, Dodd-Frank, and unemployment benefits into law. I do also keep in mind that Obama is the head of the executive branch and did sign off on these laws, so it's not as if he's off the hook. 

Obama should be blamed for what he did or didn't do, nothing more and nothing less. And it's hard to quantify the percentage of blame that Obama deserves. There is no doubt in my mind that he has done enough damage to slow down economic growth. However, I ultimately have to conclude that a) some of these indicators have nothing to do with Obama, but b) even the ones in which Obama did play a role, he certainly was not the only actor to impede economic growth.

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