As an economist who’s mixed it up in the D.C. hurly-burly for decades by now, I’m pretty inured to the foolishness you read on a daily basis. So when something tweaks my outrage sensors, I tend to perk up and pay attention. What’s gnawing at me is this throwaway line in an editorial from the Economist about the very real problem of slower macroeconomic growth. In reference to an alleged spate of “anticompetitive regulations,” the magazine labeled President Obama “…the least business-friendly president for decades.”
It’s a silly, thoughtless thing to write, with little substantiation in the piece beyond red-meat talking points about “the endless sprawl of job-destroying regulations,” a line that makes sense at a Tea Party party, not a supposed piece of economic analysis.
It’s not worth picking apart some random op-ed (if you start shooting anything that moves in that jungle, you’ll never stop), but it is worth diving into this claim about the president being so mean to business. This is a real, and pervasive, theme: that policies under this president have been demonstrably bad for business. And if it’s true, then maybe in the name of stronger growth the president should back off when it comes to implementing the Affordable Care Act and Dodd-Frank financial market reform. If it’s false, he shouldn’t.
Before getting into the metrics, let’s be clear: I’m not arguing that businesses do or should love everything Obama has done, including the two (congressionally passed) laws mentioned above. I’m asking the much more direct question: has the Obama presidency been bad for businesses’ bottom line?
No. Actually, hell no.
In fact, with annual data all the way back to 1929, corporate profitability as a share of national income was higher in 2013 than any other year on record. Think about that for a minute. This meme is out there—the fact that the Economist insouciantly throws it out tells you I’m not making this up, and by this widely accepted measure, businesses just had their best year ever.
But that’s before tax. Did the mean old president whack them on the tax side? Nope. That same all-time record holds for after-tax profits.
Since I’ve got before-tax profits and taxes paid, I can roughly back out an effective tax rate for the corporate sector, i.e., share of profits paid in federal taxes. That’s averaged 20 percent over Obama, compared to 26 percent over George W. Bush, and 31 percent over Bill Clinton.
OK, but what about the stock market? Well, the economic recovery that started under Obama in the second half of 2009 is now five years old. Over that period, adjusting for inflation, the S&P 500 has doubled in value.
It’s worth noting here that the income of the typical, or median household, is down 3.7 percent in real terms over the recovery.
So, let’s collect facts. The business sector, writ large (we’re talking averages here; these statistics don’t describe every business’ experience), has not only recovered ahead of the middle-class, but it has also surpassed their pre-recession levels of profitability and its pre-Great-Depression historical levels. Relatedly, the stock market, 80 percent of which is held by the richest 10 percent of households, has doubled.
Real median income, on the other hand, like many workers’ paychecks, are still climbing out of the hole.
Neither is it incidental that the hole was dug (in part) by a reckless financial sector, a sub-group within the corporate sector that not only got bailed out by government, but is doing particularly well on the metrics posted above.
Did the president say mean things about banks back then? No question. I worked for the White House in those days and I vividly recall how angry the president got when he was told about post-crash, post-bailout bonuses being handed out at AIG. To which I’d say: if you’re president and that doesn’t piss you off, you’re not paying attention.
The Economist piece gets some other big things wrong too, e.g., asserting that America hasn’t raised the retirement age when in fact the age for collecting full Social Security benefits is currently in the process of rising from 65 to 67.
Some of the magazine’s ideas about accelerating growth are good ones, including comprehensive immigration reform and measures to get the long-term unemployed back to work. But besides being factually wrong, it is deeply counterproductive to assert that our growth problems derive from being “unfriendly” to business. In fact, there is a serious danger born of that misleading trope: that we fail to take the necessary steps to enforce the financial oversight so essential to getting out of the economic shampoo cycle (“bubble, bust, repeat”).
Like most people, I don’t want a president who harbors deep emotional love or antipathy toward businesses. I couldn’t care less if he or she woos them with sweet talk. That’s all a distraction. I want a president who understands the role of the business sector in creating growth, American jobs, tax revenues, and of course, profits. And not just profits that slosh about at the top, but incomes that reach the bottom.
How do we create that business climate? Now there’s the economic policy discussion we need to have.