Pethokoukis

Why America is much worse off than it was 4 years ago

Image credit: Prof. John Taylor

Image credit: Prof. John Taylor

Democratic National Convention – Charlotte, North Carolina

The Romney-Ryan campaign is now explicitly comparing President Obama to former President Carter. Paul Ryan yesterday: “You see, the president has no record to run on. In fact, every president since the Great Depression who asked Americans to send them into a second term could say that you are better off today than you were four years ago, except for Jimmy Carter and for President Barack Obama.”

So are Americans better off today than they were when Obama took office in 2009 — or not?

The superficial answer is “Yes, Americans are better off.” In January 2009, America was in a recession; today, the economy is slowly growing. In January 2009, America was losing jobs; today, it is adding them.

But that is setting the bar pretty low and framing the question absurdly narrowly. It also completely ignores the historically-anemic nature of the current economic recovery.

I would ask the question in a different way: “Is America better positioned to compete, prosper, and innovate today than it was four years ago?”

And the answer to that question is, unfortunately, a decisive “No, America is not better off.”

1. The weak recovery and continued high unemployment is permanently hurting the American jobs machine. As Citigroup said in a recent research note: “Long bouts of higher unemployment are empirically linked to losses of human capital, raising structural unemployment. The OECD estimates that a rise in the U.S. unemployment rate of one percentage point over a multi-year period has the impact of raising the natural rate of unemployment by about 0.2 percentage point.”

In other words, the productive American workforce is wasting away month by month, year by year. Here are two charts that show how deep the jobs depression is. This first one simply shows how many Americans are working as a share of the available population:

The second chart show what share of the labor force has a job or is looking for work:

2. U.S debt is at a level linked to slower economic growth. As economists Carmen Reinhart, Vincent Reinhart, and Kenneth Rogoff found: “We identify 26 episodes of public debt overhang–where debt to GDP ratios exceed 90% of GDP–since 1800. We find that in 23 of these 26 episodes, individual countries experienced lower growth than the average of other years. Across all 26 episodes, growth is lower by an average of 1.2%.”

By that metric, America is already in the danger zone. Gross U.S. debt  is 107% of GDP. That debt is a heavy chain to keep dragging forward. With the debt burden so large, the U.S. might not be able to grow as fast it used to.

3. America has incurred huge opportunity costs for failing to reform the tax code and to put entitlements (Medicare, Medicaid, and Social Security) on a sustainable fiscal path. Each year without pro-growth tax reform is a year where incomes are far lower and jobs far fewer than they need be. And every year we don’t fix entitlements increases the need for even more dramatic and costly changes.

4. In 2009, America needed fundamental health care reform. In 2012, America still needs fundamental health care reform — and Obamacare makes that more difficult. The president’s health care reform and its reliance on government planners moved the U.S. away from the consumer-driven, choice-centered reform it needs.

Bottom line: President Obama gives himself an “incomplete” grade on the economy. I would give him a “W” — for wasting four years that America didn’t have to waste.

39 thoughts on “Why America is much worse off than it was 4 years ago

  1. What exactly is President Obama supposed to do about the output gap? Just as importantly, what would a President Romney do about it? Having been attacking demand-side policy for four years, it’s hard to imagine Republicans taking concrete steps towards closing it – which leaves the onus on the Fed, also much-maligned by the right.

    • Theo,

      Mr. Romney has been saying the right things. Cutting impediments for investment, in both red tape and taxation, developing resources, holding down federal spending. But of course the proof is in the pudding and we have no idea if he would indeed follow through on the promises.

      • On the other hand, we do know that Obama won’t even consider trying any of those solutions (because he’s said as much), so then why not give Romney the chance to do them?

      • I don’t believe taxes are the real barrier to investment currently. If a business does not believe that there will be enough demand to pay back an investment, even a zero tax rate will not coax it into going forward. I see a gridlock condition where businesses have been slow to invest and hire until they see some sign of demand recovery, but people have been slow to increase spending because of the lack of job recovery. (This is due to both the unemployed who haven’t the money, and employed people who are worried about their jobs and cut back spending to build up savings.)

        IMO, a more intelligent way to encourage investment using the tax code would be to do away with depreciation, and allow immediate expensing. For investments that require multi-year accumulation of capital for a business that does not want to finance it by borrowing or selling shares, allow for “Capital Accumulation Accounts” similar to IRAs. A business could shelter from tax income it intends to use for investment within a reasonable time frame (say, 5-7 years). Like people who fail to start IRA withdrawals at age 70-1/2, the business would be subject to taxes, interest and penalties if it failed to use the money for investment at the end of the period.

  2. To assign absolutely no responsibility to those in the GOP whose goal in early 2009 and ever since is to oppose every Obama proposal no matter their personal view, the needs of their constituents or the overall good for America is pretty outrageous. They are there to govern, not obstruct.
    My view of GOP Plan: You busted your budget buying a new Mercedes so now your power is cut off. TO fix the problem, you go out and buy another Mercedes and cut back on your food budget.
    An aging population with more health needs. A less educated younger generation. People with more non productive years (financially) than high yielding ones. INFRASTRUCTURE! The Romney plan: go to war with Russia and cut taxes.

    • Linda,

      I am not sure your analogy is correct. You surely have been following the reports here and you probably saw the reports about the sputtering Chinese economy that invested heavily in INFRASTRUCTURE. Infrastructure is only a good investment if it gets in the way of other productive endeavors. Build just to build causes misallocation of resources, the definition of the causes of recessions.

      • Yes, I cut back on my food budget. And the Democrat who went and bought a Cadillac didn’t cut their food budget. You know why? Because we are paying for their food stamps.

    • Ok. Let’s pretend that all of the Republicans in the House and Senate voted for PPACA, for Cash for Clunkers, for the stimulus, for Dodd-Frank — all of them. How would the Republican votes have changed any of those — in Obama’s mind — “legislative accomplishments?” On the other hand, let’s pretend that Obama actually listened to some of the ideas Republicans brought to his attention regarding PPACA. (You remember — when he sat down and had a conference with all those Republicans, just before totally blowing them off.) Had he (or Pelosi and Reid) actually engaged in an exchange of ideas with them, it might have had some effect on the final bill, correct?

      He got what he wanted for 2 years. Stop whining about it.

    • This is such a tired talking point. And, so easy to dismantle.

      The GOP had no power in early 2009, and for 2 years thereafter, to stop ANYTHING.

      Obama enjoyed a one-party rule that few presidents have ever seen: The Democrats has a filibuster proof majority in the Senate, a large majority in the House, and obviously the White House.

      The only check on the Democrats’ power came with the Scott Brown special election, and even then, Obama needed only 1 single liberal Republican vote to move things in the Senate to a floor vote.

      The great irony, too, is that Obama is supposedly a unifier. Hardly.

      • @schmidtyfi – While in theory the Democrats had a filibuster-proof majority in the Senate, the reality is that they did not. It is very strange that you recognize that after Scott Brown, _if_ the Democrats voted as a solid bloc _and_ persuaded one liberal Republican to side with them, they still could gain cloture – yet you completely fail to see that the opposite is even more likely. Even prior to the election of Scott Brown, one conservative Democratic defection out of 60 gave the Republicans the ability to block legislation despite the supposed veto-proof majority.

        First, you ignore the fact that Joe Lieberman is a Democrat in name only. Remember, he lost his party primary and had to run as an independent. Furthermore, a number of Democratic senators were either genuinely more conservative than Obama and agreed with the Republicans about an issue, or were feeling political pressure from the right and felt it necessary to break ranks to cater to their state constituency.

        The Republicans have been much more disciplined. With only 40 members to hold together, they had a 33% lower chance of a defection. Moreover, liberal Republican Senators (really, only Olympia Snowe and Susan Collins) know they face the threat of heavy outside support for a primary challenge by a far more conservative Republican if they fail to toe the line.

        • Michael,

          I think you are making the point that the policies proposed by the president could not even be approved by the Democrats, let alone Republicans. Is that the gist of your comment? That is how it reads to me.

          • @OJFL – If that’s how it reads to you, then you need some serious lessons in reading comprehension.

            We say that the Senate approved a bill even if only 51 out of 100 voted for it. Intelligent and unbiased speakers of the English language would agree that if 59 out of 60 Democrats voted in favor of a bill, then it is fair to say that “the Democrats” did indeed approve the bill.

            My point is that this was not enough. The President’s policies could only defeat a disciplined Republican filibuster and come to a floor vote (where just 51 Democrats would be necessary to approve it) if it was approved UNANIMOUSLY by Democrats during a cloture vote. This would have to include the DINO Joe Lieberman.

            If you need further help in understanding the difference between “approved” and “approved unanimously”, I’m sure I can find any number of fifth-graders who have no trouble with the concepts and could help you out.

        • Michael,

          I insist that you seem to be making the point the policies could not be approved by Democrats. If they were unanimously behind those policies they would have the 59 votes. Also considering that many Democrats represented red states it stands to reason some of those policies would also appeal to moderate Republicans, some representing blue states, of which there were many at the time. But they did not. Another point to consider is that if all Democrats were in favor of those significant policies it seem unreasonable that a large number of Republicans would approve of them. Recall that Democrats come in different shades. They come in the Ben Nelson shade but also in the Patty Murray shade. Certainly something that appeals a lot to the latter cannot appeal too much to Republicans. Something that appeals to the former may gather non unanimous Republican support. I hope I made myself clearer now. And please refrain from demeaning remarks the next time you post.

          • @OFJC – You have indeed made it clear that you don’t understand standard English usage indicating the difference between approval, with no qualifier (standard meaning = majority approval) and unanimous approval. When you leave out the word “unanimous”, the standard meaning of your claim is that not even a majority of Senate Democrats approved. That’s clearly false. Unless you are admitting to deliberately making a false statement, you must not understand the standard English usage.

            By the way, 59 votes is not enough to break a filibuster – it takes 60. He really only had 58 actual Democrats. There were two independents who caucused with them. One was Bernie Sanders, who is to the left of the President. But the other was the much more conservative Joe Lieberman, who lost his primary in 2006 and had to run as an independent.

            The rest of your post seems to be arguing that if Obama had been more moderate, he would have gotten not only all the Democrats, but more liberal/moderate Republicans as well. That may be true, though you fail to consider that he might have lost the support of the most liberal Democrats who wanted something even more radical. This could still leave him short of a 60-vote supermajority. For the stimulus he did compromise. He really wanted more money, but he took what he could get. He also had to make some compromises on health care, including caving to some special-favor-to-Nebraska extortion by Ben Nelson. The Republicans were unified in opposition to _any_ universal health care bill whatsoever.

            However, that’s a different point than @schmidyfi, who seems to think that both parties act as a monolithic bloc, and in lockstep with a President of their own party (“Obama enjoyed a one-party rule…”). That’s never been true of either party, though it seems far closer to true of Republicans today than it’s ever been for Democrats.

        • Michael,

          it seems you finally got my comment, albeit you still sound a bit condescending, when you state “The rest of your post seems to be arguing that if Obama had been more moderate, he would have gotten not only all the Democrats, but more liberal/moderate Republicans as well. That may be true, though you fail to consider that he might have lost the support of the most liberal Democrats who wanted something even more radical.” That is precisely what I am arguing, even though I never said he would get all Democrats. As you state following the comment, all he needed was 60 votes. One can target the legislation to “shave off” the two extremes, the too conservative Republicans and the too liberal Democrats. That leaves a “sliding” window that because of the Democratic majority would still fall to the left of the political spectrum. But the window has to have a width of 60 Senators, as you well point out. The effort that takes to increase a 59 Senator window to 60 should not be that big so I still believe for many of his policies the president could not get the 59 Democrats lined up and if he did the probability that Republicans would sign up would be very small. As you state the stimulus is a typical case. Even if at the time the Democrats only had 57 Senators, if the president had demanded a much bigger stimulus, say for instance 1.5 trillion dollars, I assume the window of 57 would close somewhat, irrespective of Republicans.

          • You do recognize _my_ point, that “Democrats” are not clones (nor are Republicans, for that matter). There’s a huge difference between Bernie Sanders and Joe Lieberman – neither of whom are officially Democrats, though they caucus with them. Unanimity is hard to come by with either party. @schmidtify was being both unrealistic in expecting it to be easy to hold all 60 Democrats together, and inconsistent in expecting it to be easier for the Democrats to achieve 60 out of 60 before Scott Brown than for the Republicans to hold together 41 out of 41 in opposition after Scott Brown.

            If Republicans take both the White House and the Senate this year, I think President Romney is going to face the same issue. Even with 60 Republicans in the Senate, his budget proposals could fail due to a coalition of Democrats objecting on fairness grounds and Republican deficit hawks who want even more spending cuts. But catering to the deficit hawks would risk losing the most liberal Republicans, while trying to pull in more Democrats would lose additional conservative Republicans. I wonder if @schmidtyfi would be as quick to blame Romney for the resulting gridlock as he or she is to blame Obama. Somehow I doubt it.

            I still think they should go back to the rules that required a true filibuster, where you actually had to hold the floor in a marathon speaking session in order to avoid having the question come to an up-or-down vote.

    • Not sure I should even bother to respond to this, but I’ll try. Democrats controlled the House, Senate, and Presidency from 1/09 to 1/11. Please explain how Republicans obstructed anything. While you’re at it, please explain why, with such an overwhelming majority in both houses, Obama chose to enact Obamacare, which nobody wanted, instead of focusing on the economy completely. He needs to be held accountable for this, and take the blame for where we try. Try as hard as you like, you cannot spin your way out of this.

  3. President Obama made a fatal judgement error in his first term. He estimated that with a fat fiscal stimulus and easy monetary policy, the economy would recover rapidly. He misjudged the combined effects (on animal spirits) of a near death experience suffered by businesses in 2008 2009 and a government that seemed unsympathetic to their plight. A government that rapidly increased their regulatory burden, and in their rhetoric appeared likely to continue adding to that burden. This produced a capital strike (this also happened in 1937 for the same reasons). Growth would be far higher than it is today if business felt confident enought to invest the trillions on their balance sheets. The Obama administration has mismanaged the economic recovery and deserves to be turned out at the polls.

    • Your saying that Obama “misjudged” the effects of his policies gives him more credit than he deserves. I’m pretty sure that the Chicago machine saw an unprecedented opportunity to make countless numbers of businesses and individuals beholden to them, and they jumped at the chance, knowing full well that the rest of us would pay dearly for their power grab.

      • Squid,

        I am sure they are also true believers in these economic policies. They really thought the economy would soar. They wanted to prove their case. And failed.

  4. Instead of going back four years, we should track back to January 2007 when Obama and the democrats took over the nation’s checkbook. Remember when Henry Paulson was the only guy they would accept as Treasury Secretary. Why not track by strong policy setting President and weak lame-duck President where the opposition party has both chambers and sets policy? I think that would give the public a much better picture of responsability.

  5. Is the first chart right? The Real GDP seems to bottom-out in Q1-2009 when Obama took office and starts going up from there? It seems the growth (slope) of real GDP since Obama took office is pretty consistent with the “Potential GDP” curve. That chart suggests that at least Real GDP growth was pretty good under Obama. This also suggests that the issue is that this growth in real GDP benefited few and did not trickle-down to the average person out there.

  6. A significant difference between Carter and Obama is that Carter was in some respects in the mainstream, following Nixon’s wage and price control policies. He understood that the business of business was capital formation.

    Obama is both opposed and does not believe in capital formation and a proponent of capital distribution because, in a statist world view, the economy is a zero-sum game. The rules of Malthusian economics and Marx must apply to achieve “fairness”.

    Fairness in this model is implemented through individual subsidy programs (aka “entitlement” programs).

    That is the real point of the remarks on “not building”.

    For most people, life is not a zero-sum game, and it is both possible and necessary to grow capital. Capital growth requires both non-hedonistic accumulation (saving) and labor-equity (investing).

    In Obamaland, there is only borrowing (a redistributionist strategy) and taxation, and directed spending. Obama-government call directed spending “investing.”

    The essence of taxation is the notion that government has an inherent right to private estate. Essentially, workers are, at best, semi-autonomous vassals or surfs of the state.

    Obama’s view of investing is not aimed at creating capital but at redistributing work in order to implement policies. The economic impact of policies is offset by work/taxation because, circular argument, the economy is a zero-sum game.

    Carter never once suggested such stupidity. Obama sincerely believes it. Most Americans cannot comprehend it — Romney and Ryan need to be explicit.

    Not only are we worse off, but Obama does not believe it can get any better.

    “The private sector is doing just fine, it is the government sector that is falling behind”

    Because the class of government workers is not growing, the state is not growing… and government workers are the real citizens… their unions have rigged the game so that they have unlimited right to the capital not otherwise held by the government (your money).

      • Politicalpost,

        how can you be sure the downgrade would not have come anyway? In the downgrade statement it was clearly stated the result of the deal was not good enough. If we had not had the fight we had the result would have been even worse from the rating agencies perspective. So again I ask, how can you state that?

    • You do realize that the downgrade came because the GOP members of Congress were holding the raising of the debt ceiling hostage, right?! And you do realize that raising the debt ceiling meant that we were ensuring that we were going to pay our bills (that we have already spent) on time, and not increasing the deficit, right?! If not, you should go learn a bit more about the subject before you rattle off more FOX News garbage.

      • I believe this is a misconception NSfromIndiana. When one reads the report that issued the downgrade the clear impression is that what cause the downgrade was not the battle for the increase of the debt ceiling but the result of said battle. The report explicitly mentions the inability of the federal government to control its long term debt. That inability could only have been averted with a much more aggressive plan. The absence of said plan is what caused the downgrade. Also the plan would necessarily involve large cuts and reforms, that the Democrats were unwilling to debate or accept. Large tax increases would not cut it. So I still believe this idea the downgrade was caused by Republicans is a misconception and misreading of the report.

        • The biggest misconception is that Obama is responsible for all this debt. Firstly, the only significant new spending that Obama championed that was not already law is the stimulus.

          Most of the additional deficits were caused by:
          1) Big drop in revenue because of incomes going down
          2) Additional tax cuts
          3) Spike in unemployment claims

          • LK,

            I give 1 and 3 but not 2. What tax cuts? Or are you calling the tax rebates tax cuts? Also the discretionary spending has increased during the president’s watch by a non-trivial amount.

          • Tax holiday on payroll tax is what I was talking about. It is temporary and targeted. It is not very visible and most people don’t recognize it. Never the less adds to the deficit.

  7. To Obama supporters:
    Some of you NEED to take your anti-hallucinogen medication. If you don’t have, see a good doctor; there are STILL some good ones left, but not for long.
    This sob and his puppeteers increased the debt per household (yours and mine included) by about $51,000 to $136,000 in less than 4 years, kept the unemployment above 8%, downgraded the US, and put a thousand other plagues on Americans…
    Four more years of this foreigner and we may witness the break-up of the US ala USSR. Same may happen if Romney is elected and he takes us to war with Iran for Israel.
    WAKE UP!!!

  8. I won’t even try to argue the data points in either direction. I judge whether I am better off by my individual reality. 4 years ago I was looking forward to retirement but in this time I spent 27 months without work. As a result I dug deep into my retirement to ensure I did not lose my home. I saw my networth decline by 40%. While I am now working, I was forced to look outside of the US to find employment (Chile). I now do not expect to retire until I am 70 and am quite certain that if Obama is elected I will not be able to retire at all.

    • So close to retirement, why were you desperate for a new job? Didn’t you have most of your savings outside the stock-market? Did you net worth go down 40% from Jan 2009? What are you invested in? S&P 500 is up 77.9% since Jan 20, 2009 when Obama too the oath.

  9. Tax holiday on payroll tax is what I was talking about. It is temporary and targeted. It is not very visible and most people don’t recognize it. Never the less adds to the deficit.

  10. In answer to the question, you initially said: “yes, Americans are better off.” This was not superficial, as you stated, but statistically and in all ways correct. The contortions you go through to try and prove otherwise are silly and without real merit. If you go by statistics from September, October and November 2008 and compare them directly to today’s stats (and forecast stats for the months until the election), there is no way around it — Americans are much better off than 4 years ago. We were accelerating toward a near catastrophic fall in 2008 and 2009, now we are stabilized and gradually getting better.

    • Bob,

      You are certainly aware the recession technically ended in June of 2009, are you not? That means the economy had already stopped “accelerating toward a near catastrophic fall” before the president started doing anything. Those are also statistics. Why ignore those?

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