Recall that in the first half of 2009, the economy was losing almost 650,000 jobs a month. By March, the Dow was down 25 percent from year-end 2008. You could (and I did) quarrel with details of the stimulus, the auto bailout, the bank “stress test” and the Troubled Asset Relief Program. But these policies, some started under President Bush, were needed. Acting with the Fed, Obama’s responses and confident manner helped stabilize the economy. If this hadn’t happened, who knows where we’d be.
Since then, it’s been another story.
The recovery is subpar. After the economy hit bottom in mid-2009, it has grown at a feeble 2.2 percent annual rate. By contrast, growth in the nine other recoveries since 1950 has averaged 4.2 percent for their first three years. During the slump, the economy lost 8.8 million jobs. Only 4 million, less than 50 percent, have returned. The grim job figures explain “why a great many people don’t believe there’s a recovery,” says economist Nariman Behravesh of IHS.
Obama can’t escape some responsibility for this dismal performance. His mistake was assuming he could pursue his political agenda without compromising the recovery. Passing the Affordable Care Act (a.k.a. Obamacare) weakened the economy. For starters, the complex law discourages job creation by forcing some firms to provide health insurance or pay a fine. If you make hiring harder and costlier, you will get less of it.
The struggle over the ACA also fostered a take-no-prisoners political climate that, by fanning policy uncertainty, further undermined recovery. What followed were stalemates on budget policy, last year’s debt-ceiling brinkmanship and today’s anxiety over the “fiscal cliff.” Uncertainty spawns fear, and fear causes consumers and companies to step back — to postpone purchases, investment projects or hiring.
These unfavorable economics stemmed partly from Obama’s politics. Pursuing “universal health care” was bound to alienate Republicans and polarize politics. This was predictable and knowable in advance. Anger over Obamacare fed tea party turnout in 2010’s elections. Partisan gaps widened; compromise became harder. Perhaps all this would have happened anyway, but Obama’s political choices guaranteed it.
Even some economists highly supportive of Obama’s policies concede that the health plan was poorly timed. “It distracted us from the economy,” says Mark Zandi of Moody’s Analytics. The same mistake occurred for trade, labor and environmental policy. The president subordinated job creation to other goals, says economist Douglas Holtz-Eakin, adviser to John McCain in 2008. “When economic growth is so important,” he argues, “you have to be ruthless in focusing on it. You have to err on the side of growth, and they haven’t done that.” A similar critique applies to Obama’s recurring anti-business rhetoric. Though politically expedient, it cannot have helped job creation.
To be fair, the weak recovery has other, larger causes: the hangover from the financial crisis and Great Recession. The burst real-estate bubble destroyed $6 trillion of housing values. Rebuilding their wealth, many Americans are repaying debt and saving more. This depresses consumer spending — the economy’s main engine — which is growing about 2 percent annually, down from 3 percent before the crisis, notes Behravesh. Likewise, the failure of housing construction to revive has hurt this recovery compared to most others, argue economists Michael Bordo and Joseph Haubrich in a new paper.
But Obama’s missteps have made the situation worse. How much? The honest answer: We don’t know. Economists’ efforts to measure the impact of “policy uncertainty” are primitive. My guess is that Obama’s errors had a modest effect. Suppose they cost 25,000 jobs a month. Beginning in 2010, job growth has averaged about 125,000 a month. The extra 25,000 conceivably might have strengthened confidence and accelerated the recovery.
As it is, Obama faces a tight reelection race. His performance will be judged against Mitt Romney’s promises. He will soon know whether the American people give him a flunking grade.