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| At this year's State of the Union Address Barack Obama, after years of being a punching bag, took glee in taking credit for a reviving economy. |
Note: I
began drafting this piece for Presidents Day, but it got bumped for the more timely obituary for poet Philip Levine
and then for Mardi Gras. No matter, the
question remains relevant.
Presidents Day, a gift of Congress to avoid having two expensive legal holidays days apart—Washington’s and Lincoln’s Birthdays—came around the other day. The current holiday rolls the original two
worthies in with all of the rest of
the guys who sat in the White House
for common homage. There is a kind of
grand leveling to the holiday—William Henry Harrison, Franklin Pierce, Millard Fillmore, and James
Buchannan equally honored with the guys who got carved into Mount Rushmore. Sort of like the little Participation Trophies given to every member of the Little League regardless of winning or
losing or playing ability.
Such
equality, of course, sets some people’s teeth on edge. To hell with “honoring the office”, they want
to examine and approve each one’s personal record. And in today’s hyper polarized political
atmosphere some Democrats choke on
honoring Richard Nixon, Ronald Regan, and especially George Bush the Younger. A lot of Republicans
get apoplectic thinking about Franklin
Roosevelt—a very old grudge—Jimmy
Carter, Bill Clinton, and most
especially the current occupant Barack
Obama.
One
reason, although certainly not the only one, for this mutual contempt, is the very different
economic and social philosophies,
within the confines of a capitalist system,
of the two parties these Presidents represent.
Each claims that the policies they advance will work wonders to grow the
economy and that those of the other party are one way paths to ruin.
Presidents,
quite naturally, like to take credit
when things are humming along or improving or blame the last guy if times are
bad. At this year’s State of the Union Address President Obama crowed about a sharply
improved economy—and took credit for it.
The question is how much can a President actually impact economic
performance for good or ill?
Did
Obama save the economy?
First,
on the face of it, the President could point to impressive numbers. He came into office coincidental with the
most disastrous economic collapse
since the Great Depression. Recovery was long, slow, and painful—much
more drawn out than the typical year and a half to two years to bounce back
from most recessions of the last 70
years. But things seem to have finally
dramatically turned the corner. By most traditional markers—Gross Domestic Product, stock market prices, employment, balance of trade, and the deficit—we
are not only fully recovered from our losses but booming.
Yet
unique among post-World War II
recoveries, the financial health of many Americans has not recovered along with
the general economy. While employment is
up, many people were driven out of the work
force during the lean years and have either never returned or been able to
find only part time work or jobs well below their previous earnings. Wages have remained not only stagnant but by some measures actually
fallen over these years. A large chunk
of people may have fallen permanently
out of the middle class. Meanwhile much discussed income inequality grows as the very wealthiest harvest ever greater
percentages of the national earnings.
How
much of this can be credited or blamed on the President? Some, not as much as he claims or his enemies
believe. He was limited by a divided Congress on what he could
do. First, he allowed the controversial
and reviled bail-out of the failing big banks initiated by President Bush
to continue. It was a sloppy, wasteful
program that shoveled money to the very people and institutions blamed for the
collapse. So much so that billions still
seem to be unaccounted for. But despite
these flaws, it may indeed be true that the bail-out prevented an even more catastrophic
general economic collapse.
Previous
Democratic Presidents would have
employed significant economic stimulation to get the economy moving again, a cornerstone
of the Keynesian economics model
that the party has internalized since the Depression. But a rising bi-partisan consensus now held
that deficit reduction was more
important than stimulus. After the House of Representatives went over the Republicans in 2010 and
Democrats clung desperately to a one vote margin in the Senate, a major stimulus package was out of the question.
Obama
only got two, relatively small sized
programs through before that door shut—an auto industry bail-out authorized by Bush that Obama got to
administer along with his own Cash for Clunkers
program that boosted desperately needed auto
sales, and a relatively modest public
works program funding mostly already approved shovel ready road and infrastructure projects. These proved to be little more than temporary
slaves, although the auto bailout did save two of the Big Three manufactures and was eventually repaid in full with a
profit to the Treasury something
that the bank bailout has never accomplished.
It wasn’t until last year when
his controversial Health Care plan
finally kicked in that another program turned out to stimulate economic growth.
Not
only were Obama’s options limited, Congressional emphasis on deficit reduction
meant cuts in discretionary domestic spending which often translated to layoffs at the Federal, state, and local levels as well a ripple effect on suppliers. The President’s remaining arsenal was reduced
to regulatory action and executive orders with limited direct
effect on the economy.
Not
to be discounted, however, was his role as a national consoler and cheerleader. Even symbolic
statements and actions by a President can have positive effects on such
intangibles as confidence which can
move the needle upon occasion. But
almost half of the population was disposed to discount anything this President
said.
If the President
couldn’t do much, what did affect the economy?
Congressional
Republicans can and do argue that their aggressive budget cutting and restraint
of new taxes allowed private enterprise to step up to new
opportunities and kept spending and investment money in people’s pockets. If not thwarted by the White House, they
argue, deeper savings would have led to real tax reductions which would have
stimulated the economy and raised all boats.
It is hard to prove that would have been the case.
For
the first years of the recession little, if any, tax savings that were realized
were invested in new domestic economic opportunity. Instead it went mostly to raising cash reserves and swelling the
incomes of a paper thin layer of the economic
elite. Republicans also argue that their intransience prevented the
President and his party from enacting broader job killing tax and spend programs
and stiffening regulations—just the
kind of prescription Democrats believe would have accelerated recovery and
growth.
In
the end the standoff between the branches of government meant that neither had
the impact it hoped for.
As
is almost always the case, events outside the control of either the President
or Congress had greater effects on either retarding recovery or growth or
spurring it. High energy prices crippled the discretionary spending power of both
industry and individuals for the first five years after the crash. Rapidly falling
world oil prices over the last year, conversely, have put money back in
consumer pockets and have allowed the auto industry, for instance, to take
advantage of long pent-up demand and sell cars and trucks in record
numbers.
Wars, revolutions, and terror have
disrupted regional and national economies.
A nuclear plant disaster in Japan was a crippling blow to one of the world’s most dominant
economies. Natural disasters disrupt trade or like the epic snowy winter of 2013-14 significantly reduce economic activity
just as signs of recovery seemed to be on the horizon. Second
and Third World currency crises send
world markets into near panic.
Governments
can only react to these things. They can
do it well or poorly, alleviate a crisis or worsen it, but it is mostly a
matter of degree.
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| I am sure this audience liked what it heard from George W. Bush, who was in office during the Great Collapse which Democrats were eager to pin on him. |
With
few exceptions anything that moves the economy in either direction takes a long
gestation period. Even when an event seems sudden and
catastrophic like the 2008 collapse the conditions that made it possible were
working for a very long time. George W.
Bush was probably no more personally responsible for the crash than Obama may
be for the recovery. Banking deregulation was a movement
going back to the Carter Administration
and the expectations that home prices and real estate would continue their decades long upward spiral in
value indefinitely was an almost universally held cultural belief.
Events
which caused lasting economic damage—think of the almost national shutdown after 9-11 and the months or years it took the airline and travel industries to recover—were discounted as having long-range
effects. In some ways that, along with a
string of hugely destructive Florida
and Gulf Coast hurricanes, was what
helped pop the rivet and split the seams on the wings of our economic juggernaught.
The
decision to enter into an open-ended,
multi-front war without seeking to pay for it either by increasing revenues
or by significantly reducing other spending, of course, did for our national
credit what bad mortgages did to banks. But the cumulative effects took years and
neither party in Congress nor the President was ready to risk unpopularity by
addressing it. These things fester
until the body of the country falls gravely ill.
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| FDR held office long enough to see his help, but WWII pulled us out. |
If
we are now, as seems to be the case, actually coming around to real recovery,
it is because the seeds were planted, were sometimes nurtured, and sometimes
simply were lucky to have escaped destruction over the last few years.
Presidents,
love ‘em or loathe ‘em can be part of the solutions and part of the problem,
but they are only players in a much bigger game.
