Encouraging innovation
Government funding has long been critical to basic research that lacks commercial appeal. In the 1950s, Eisenhower’s Pentagon created the Defense Advanced Research Projects Agency, which funded the development of network technology that later became the Internet. Gerald Ford’s Energy Department funded demonstration projects and research into technology for extracting natural gas from dense shale rock; decades later, abundant shale gas has revolutionized America’s energy supply.
Obama has emulated those examples, creating a DARPA clone to fund hundreds of small, early-stage energy projects. His stimulus package lavished loans and grants to companies and labs working on alternative energy.
Every venture capitalist knows that for every big success, there are many failures. Unfortunately for presidents, that means the failures are early and high-profile (think Solyndra), while the successes may not show up for years — and may be utterly unrecognizable when they do. Shane Greenstein, a Northwestern University business professor who has traced the history of the Internet, notes that the creators of DARPA never saw it as an incubator of commercial technologies; it was “motivated by a desire to do innovative military work outside the structure of the existing military units.”
Someday, one of the projects the Obama administration has backed is going to produce a breakthrough — probably long after this president has left office.
Boosting human capital
While the biggest problem in the job market today is the lack of demand for employees, in the long run it’s the mismatch between the growing demand for college-educated workers and the slower-growing supply. Three decades ago, the share of Americans who had graduated from college was the second highest among advanced countries; now, it ranks 15th.
That’s starting to change. In 2009, a record 70 percent of high school graduates went on to college that fall. Though the rate has slipped slightly since, it remains high by historical standards. Most of the credit goes to simple incentives: College graduates earn far more than high school graduates, and high unemployment has diminished the options for those without a degree. But Obama has done his part by significantly increasing the size and number of Pell grants for low-income students, enriching the tax credit for college education, overhauling federal student aid and seeking to crack down on for-profit colleges that saddle their students with too much debt and not enough employment success.
This won’t make a difference to the economy anytime soon, but if enrollment stays high, it will in the years to come ease the shortage of skilled labor that hobbles so many American companies.
Keeping calm on China
The final part of Obama’s term for which future presidents may be grateful is that he didn’t start a trade war with China. Ordinarily, you wouldn’t thank a president just for avoiding stupid things. Yet all the ingredients were there: a decade of rising Chinese trade surpluses and shrinking American factory employment, a devastating recession, a protectionist Congress and electorate, a Democratic president indebted to organized labor, and a Chinese leadership fearful of appearing weak to its people.
Yet Obama initiated only one serious, unilateral action against China: a tariff on tires in 2009. Other moves were either made by apolitical trade bureaucrats responding to private complaints or initiated through the World Trade Organization, a neutral forum that China and the United States scrupulously respect. A study by Chad Bown of the World Bank and Meredith Crowley of the Federal Reserve Bank of Chicago found that protectionism during the last recession was far lower than what previous patterns predicted.
Obama has faced frequent pressure from many in Congress to label China a currency manipulator and impose compensating tariffs — a development that could trigger a cycle of retaliation between Beijing and Washington that would damage trade and raise geopolitical tensions. With the help of House Speaker John Boehner, Obama has sidestepped those pressures. His administration, like Bush’s before it, has instead used the threat of congressional action as leverage in back-channel negotiations with the Chinese. And indeed, the yuan has steadily risen and is no longer seriously undervalued — one reason U.S. exports to China have soared and manufacturing employment is on the mend.
No one knows whether China’s rise will remain peaceful, as that of the United States was in the 1800s, or not, like Germany’s a century ago. Either way, how an American president handles China is one of the few things that, a century from now, will really make a difference. Depending on how it ends, both Obama and Bush stand to get plenty of credit — or blame.
It is ironic that presidents are so often accused of short-term thinking when so much of what they do shows results, for better or for worse, only in the very long run. If a few years from now Romney finds himself presiding over an economic boom, he should remember that and offer a quiet word of thanks to his predecessors, including the man he defeated in November.
Greg Ip is the U.S. economics editor of the Economist and the author of “The Little Book of Economics: How the Economy Works in the Real World.”
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