Niall Ferguson asks the right question in his controversial Newsweek cover story: Has President Obama delivered on his promises?
Ferguson writes that Obama has not delivered, and then marshals the evidence supporting his conclusion. But many liberals have taken issue with Ferguson’s evidence. One frequently cited bit of supposed fact checking comes from my friend Matthew O’Brien of The Atlantic in his piece, “A Full Fact-Check of Niall Ferguson’s Very Bad Argument Against Obama.”
Well, let’s take an initial stroll through the Ferguson story and O’Brien’s replay and see what we find.
• Ferguson: In an unguarded moment earlier this year, the president commented that the private sector of the economy was “doing fine.” Certainly, the stock market is well up (by 74 percent) relative to the close on Inauguration Day 2009. But the total number of private-sector jobs is still 4.3 million below the January 2008 peak. Meanwhile, since 2008, a staggering 3.6 million Americans have been added to Social Security’s disability insurance program. This is one of many ways unemployment is being concealed.”
O’Brien’s fact check:
Did you catch that little switcheroo? Ferguson concedes that stocks have done very well since January 2009, but then says that private sector payrolls have not since January 2008. Notice now? Ferguson blames Obama for job losses that happened a full year before he took office. The private sector has actually added jobs since Obama was sworn in — 427,000 of them, to be exact. For context, remember that the private sector lost 170,000 jobs during George W. Bush’s eight years.
Me: I read that as Ferguson showing the disconnect between the state of the stock market and the anemic recovery. Wall Street versus Main Street. Ferguson isn’t blaming Obama for the job losses in 2008 but rather for the failure of the anemic recovery to generate very many jobs and close the jobs gap between where private-sector employment was at its peak in 2008 and where it is now in 2012.
And Ferguson is correct: There are 4.3 million fewer private sector jobs now than in January 2008 when private sector employment was 115,647,000. And since Obama took office? Well, private-sector employment was 110,985,000 in January 2009. In July of this year, it was 111,317,000 — an increase of 332,000.
That’s terribly few jobs. Nothing to boast about, certainly. But the numbers for the Obama recovery are every bit as lackluster. Since June 2009, the private sector has added 3.3 million net new jobs, or roughly 90,000 jobs a months. At that pace, private-sector employment won’t hit the old high for private-sector employment for another four years, for a total of seven years since the start of the supposed recovery. After the severe 1981-82 recession, by contrast, private-sector jobs returned to their old highs just 10 months after the start of the recovery.
• Ferguson: In his fiscal year 2010 budget—the first he presented—the president envisaged growth of 3.2 percent in 2010, 4.0 percent in 2011, 4.6 percent in 2012. The actual numbers were 2.4 percent in 2010 and 1.8 percent in 2011; few forecasters now expect it to be much above 2.3 percent this year.
Me: Ferguson is right. The economic forecasts from the Obama White House have consistently overestimated economic growth, assuming the stimulus would kick off a mini-boom which has never materialized.
• Ferguson: Unemployment was supposed to be 6 percent by now. It has averaged 8.2 percent this year so far. Meanwhile real median annual household income has dropped more than 5 percent since June 2009. Nearly 110 million individuals received a welfare benefit in 2011, mostly Medicaid or food stamps.
O’Brien’s fact check:
I can’t replicate this result. It’s difficult, because Ferguson does not cite his source. The Census Bureau only has data on real median household incomes through 2010 — and it shows them falling 2.28 percent from 2009. The Bureau of Labor Statistics has numbers on real median weekly earnings that go through 2012, but those only show a 3.7 percent decrease from June 2009.
Me: Again, Ferguson is correct that unemployment was supposed to be 6% by now — actually, below 6%. And as far as the income numbers go, O’Brien shows that any way you slice them, they’re pretty bad. Here’s another way of looking at incomes: Per capita GDP during the three-year Obama recovery is up just 1.4%. During the Reagan recovery, per capita GDP rose 12.6% over its first three years.
• Ferguson: Welcome to Obama’s America: nearly half the population is not represented on a taxable return—almost exactly the same proportion that lives in a household where at least one member receives some type of government benefit. We are becoming the 50–50 nation—half of us paying the taxes, the other half receiving the benefits.
O’Brien’s fact check:
It is true that 46 percent of households did not pay federal income tax in 2011. It is not true that they pay no taxes. Federal income taxes account barely account for half of federal taxes, and much less of total taxes, if you count the state and local level. Many of those other taxes can be regressive. If you take all taxes into account, our system is barely progressive at all.
But why do almost half of all households pay no federal income tax? Because they don’t have much money to tax. Here’s the breakdown from the nonpartisan Tax Policy Center. Half of these households are simply too poor — they make under $20,000 — to have any liability. Another quarter are retirees on tax-exempt Social Security benefits. The remaining households have no liability because of tax expenditures like the earned-income tax credit or the child credit.
Me: Not only is the U.S. tax code progressive, but it has become more so over the past generation. According to the Tax Policy Center, the top 20% paid 55.2% of all federal taxes in 1981 vs. 68.9% in the 2007, the last year the TPC studied. The middle fifth of households, by contrast, paid 13.6% of federal taxes in 1981 vs.9.2% today.
And the income tax vs. payroll tax distinction is important since Obama wants to raise income taxes on upper-income Americans and small business. But there is no way to raise enough revenue from wealthier Americans to pay for the future levels of spending that liberals anticipate and desire. Even former Obama economic adviser Jared Bernstein has conceded this: ” … there needs to be a more robust plan to return to fiscal health. That plan will have to include tax increases beyond just the wealthiest households, although that is the right place to start.”
Ferguson: And all this despite a far bigger hike in the federal debt than we were promised. According to the 2010 budget, the debt in public hands was supposed to fall in relation to GDP from 67 percent in 2010 to less than 66 percent this year. If only. By the end of this year, according to the Congressional Budget Office (CBO), it will reach 70 percent of GDP. These figures significantly understate the debt problem, however. The ratio that matters is debt to revenue. That number has leapt upward from 165 percent in 2008 to 262 percent this year, according to figures from the International Monetary Fund. Among developed economies, only Ireland and Spain have seen a bigger deterioration.
Me: Ferguson let Obama off easy here. Again, here is the budget forecast chart from the president’s 2013 budget:
As Treasury Secretary Timothy Geithner said to Paul Ryan: “We’re not coming before you to say we have a definitive solution to that long-term problem. What we do know is we don’t like yours.”
• Ferguson: Not only did the initial fiscal stimulus fade after the sugar rush of 2009, but the president has done absolutely nothing to close the long-term gap between spending and revenue.
O’Briens’ fact check:
Ferguson wasn’t always a critic of the stimulus. Back in August 2009, he wrote that “the stimulus clearly made a significant contribution to stabilizing the U.S. economy.” Perhaps he thinks the stimulus should have been bigger so the “sugar rush” would last lasted longer? It’s not clear. What is clear is that Obama has tried to close long-term deficits — several times!
Me: See previous chart regarding the president’s efforts to close long-term deficits.
• The most recent estimate for the difference between the net present value of federal government liabilities and the net present value of future federal revenues–what economist Larry Kotlikoff calls the true “fiscal gap”–is $222 trillion.
That’s a lot of trillions! But if our fiscal gap is “really” this many trillions, why can we borrow for 30 years for a real rate of 0.64 percent? It’s because this number is meaningless. First of all, it seems to project many decades of growth figures and budget decisions that we simply don’t know will happen. It assumes the Bush tax cuts never ever expire and that the healthcare cost curve never ever bends. This is like projecting, in 1942, that the Empire of Japan will rule the entire Asian continent for 70 years based on a few years of battle outcomes. It’s an interesting prediction, but it’s not an empirical vision of the future.
Me: As I have written:
As economists Carmen Reinhart, Vincent Reinhart, and Kenneth Rogoff warn in a recent debt study, governments shouldn’t wait for financial markets to freak out before cutting debt. It’s an observation fits well with one now being made by Eurasia Group. As the consulting firm sees things, the U.S. will continue to be able to finance its deficit and debt cheaply in part because of continued global safe haven status. “But while this is a benefit, it also ‘curses’ the U.S. into a period of fiscal complacency.”
O”Brien sounds pretty complacent to me. And we are not talking about what the debt will be in the far flung future. Under the CBO’s alternative fiscal scenario—the one which is politically more likely and assumes current tax and spending policies are extended—federal debt would be 93% of GDP in 2022 vs. 73% today. After that, “the growing imbalance between revenues and spending, combined with spiraling interest payments, would swiftly push debt to higher and higher levels.” Debt as a share of GDP would exceed its historical peak of 109% by 2026, and it would approach 200% in 2037.
But the above forecasts actually understate the severity of the long-term budget problem “because they do not incorporate the negative effects that additional federal debt would have on the economy. In particular, large budget deficits and growing debt would reduce national saving, leading to higher interest rates, more borrowing from abroad, and less domestic investment—which in turn would lower the growth of incomes in the United States.”
Accounting for that stuff, debt as a share of GDP could hit 250% in 2035—and then the CBO models break down: “Debt would reach 250% of GDP by 2035 under the assumptions leading to these estimates. CBO’s model cannot reliably estimate output after debt reaches that amount, in the agency’s judgment.”