There is much conflicting information about how well Obama has done with the economy. Partly because those in the media are typically biased Democratically and/or do not understand economics very well.
It is important to judge Obama’s economic record accurately. So as to determine whether to continue following this course with Hillary. Or choose another direction in Trump.
This is an important consideration for anyone eligible to vote. Our prosperity and the prosperity of people we care about will be determined to some degree by who sits in the oval office. It is important.
We can evaluate the specific actions President Obama has taken and determine how they have effected the economy. We can also evaluate other things that have happened during the last 8 years and determine how those things have effected the economy. We will do so here:
– The first thing Obama did was support a very large stimulus plan. The largest in history, almost 1 trillion dollars.
The designers of the plan said this stimulus would keep unemployment from climbing over 8%. Did it work?
No, unemployment went above 8% for 4 straight years (In fact is still above 8%, if calculated the same way they did in 2008, more on that later).
But there was a stimulative effect. How could there not be with such a large investment? The CBO (congressional budget office) estimated that between 200,000 – 1.5 million jobs were saved or created by the stimulus package. That means that each of those jobs cost the government between $540,000 – $4.1 million dollars. It would have been more cost-effective to cut people a check.
So the stimulus did not harm the economy. It did stimulate. But not nearly as much as advertised. It didn’t come close to reaching its stated objective of keeping unemployment below 8%. And it added almost a trillion dollars to the national debt. Which does not hurt the economy short-term. But will hurt the economy long-term when money is taken from future taxpayers to pay the debt created by the stimulus.
– Obamacare. This put strain on businesses to comply with new Obamacare regulations and costs. This was a drag on the economy.
– Obama implemented climate change regulations. Experts estimate these regulations have taken 15% off America’s GDP each year.
– The Obama administration was not a friend to the coal, nuclear, gas and oil industries.
– Overall Obama has implemented more regulations in general and raised taxes. These also negatively affect the economy.
The major policies Obama has advocated for have been a wet blanket. Except for the stimulus package that helped minimally short-term at the expense of the economy long-term.
So what are the results of all these policies?
Unemployment: 2008: 7.9%. 2016: 5%.
Obama and some media outlets like to tout this as a great success. But this leaves out the context. Many people have dropped out of the labor force or given up looking for work altogether. This is reflected in the labor participation rate:
Labor Participation rate: 2008: 65.7% 2016: 62.9%.
If the unemployment rate was calculated today based on the 65.7% labor participation rate as when Obama took office? Unemployment would be higher today than when Obama started. That is not a success.
This is also reflected in the number of jobs created during Obama’s term: 9 million. Again, Obama and some media outlets like to celebrate this as a success. But 9 million barely keeps up with population growth.
Population: 2008: 305 million. 2016: 325 million. 20 million more people, but only 9 million more jobs.
Not all 20 million are working age. But the increase in population was 6.5%. The increase the number of jobs was about 7.5%.
So that’s a 1% increase. And many of these new jobs are not good jobs. As Democrat Donna Brazile put it in a leaked e-mail: “yes new jobs but they are low wage jobs” While tweeting out publicly “Humming and Rising, US economy is a ‘world-beater'” and “under president Obama, the economy has set a record of 70 straight months of job growth”. Just an example of some of the media’s spin.
When full-time jobs are considered, it’s worse. According to Statista.com:
Full time workers: 2008: 120 million 2016: 124 million
That is an increase of only 3.3%. Much lower than the population increase of 6.5%.
Also the median income hasn’t been strong under Obama:
2008: $55,300 2016: $56,500.
That’s an increase of only 2.17%. Barely keeping up with inflation.
And certainly not keeping up with the cost of healthcare, the average household now pays almost $5000 more in healthcare costs since Obamacare.
Consider now one of the most widely used statistic to determine the health of the economy: Gross Domestic Product. This is the total cost of all goods and services produced in a given year.
Obama has averaged a GDP rate of 1.55%. 4th worst of all time. Obama will be the only president in history to never have a yearly GDP above 3%. Not good.
Consider this against the jobs number. Total jobs increase of 7.5%. Full time job increase of 3.3%. Yet productivity/output as measured by GDP only up 1.55%? Adjusting for inflation, GDP/productivity is basically up 0%.
That’s not a good track record when you have 20 million more people who need goods and services, but you are producing basically 0% more.
So if it’s so bad, how come it doesn’t SEEM worse? Yes maybe it feels tepid. It doesn’t feel like a boom or roaring. But it doesn’t seem horrible either.
It’s partly because of debt spending. The number of people on welfare has dramatically increased:
Welfare 2008: 32 million 2016: 43 million.
Other social assistance has also increased.
So people receive money as if they were working. So it seems like more people have jobs, even though they don’t.
The problem is that the government has to pay for it.
The government debt spending makes things seems better than the real health of the economy.
It’s like a family that makes $30,000 a year. That doesn’t seem like a robust amount to support a family, but now consider if this family also spends $15,000 on their credit cards a year. Now they enjoy $45,000 worth of goods and services. That’s a lot better than $30,000.
But is their financial health that of a family that makes $45,000? No. Even though they might FEEL like it. And live like it. It isn’t. And worse, the credit card spending actually makes their financial situation worse.
Same as America. We are experiencing mediocre – below average economic results. However that is in part because we have been charging up the nation’s credit card:
National debt: 2008: 10.6 trillion. 2016: $19.8 trillion.
Which is one of 3 major helps that make Obama’s policy performance seem better than they are:
1. Debt spending It has taken Obama 9.2 trillion dollars in debt spending just to get the economy to feel like it’s mediocre/below average?
This debt spending is not a good thing. This debt will need to be paid back at some point. All this debt spending does is take future prosperity and cash it in now. Future fiscal years will suffer because of this overspending. It matters. Obama criticized Bush in 2008 for racking up 5 trillion dollars in debt. Obama was right. But Obama has piled on another 9 trillion.
2. But debt spending is not the only big crutch Obama has benefited from. Another important factor aiding the short-term economy is the Federal Reserve bank.
Most people do not understand the Federal Reserve bank or even know what it is.
The Federal Reserve bank, or Fed, for short, is basically a large central government bank. It’s purpose is to stabilize the banking industry and the economy. It is charged with keeping unemployment low and inflation stable.
The Fed has used a variety of tools to meet these objectives. Their favorite tool is setting interest rates. The interest rate the Fed charges other banks to borrow money.
Banks don’t have the money to lend you for your home or car. At least not most of it. The Fed lends banks the money to lend to you. The Fed may charge the bank 3% interest for example. Then the bank charges you 6% interest. That’s how banks make money.
The Federal Reserve bank lowers interest rates when they want to stimulate the economy. This causes more people to want to borrow from banks at now lower interest rates. More borrowing and spending stimulates the economy and employment.
When the recession happened, the Federal Reserve bank went into action lowering interest rates.
But this time there was a problem. Lowering interest rates, even down to 0% did not work. The economy was still unstable and unemployment was still high.
Obama’s stimulus helped very little and his other policies actually hurt the economy. So the Federal Reserve bank started a new policy they called “quantitative easing”. Which basically means they printed money. At extraordinary rates, see chart below:
As can be seen, the amount of money in circulation has dramatically increased since the recession of 2008. That is because the Federal Reserve almost quadrupled the money supply with money printing from 2008 – 2014.
This is unprecedented in American history.
The money printing did have a strong effect. Foremost was on the stock market:
S&P500: 2008: 800 2016: 2100.
That is a sharp rise. It has risen steadily with the money printing. The sharp rises in the stock market have caused a trickle down effect that also helped improve the economy. (short-term, longer term this money printing has dangers).
So this has been an enormous aid to economic numbers under President Obama, much more impactful than the relatively small impact of Obama’s stimulus.
But even with this unprecedented help, Obama’s numbers STILL are mediocre/below average.
3. The third major help also had very little to do with Obama. The oil and gas industry experienced boom periods under Obama.
“I thought you said Obama was not a friend of the oil and gas industry”
He hasn’t been. But that is on public land. Obama stifled the oil industry on public land and off shore drilling. But new innovations in drilling on private land allowed oil companies to extract much more oil increasing output. Obama has no control over this private land.
This boom in the oil industry accounts for HALF of the new jobs created in Obama’s term. These are in spite of Obama, not because of him.
More on this oil boom in video below:
In summary, the massive debt spending makes the health of the economy seem better than it is. The Federal Reserve Banks money printing and expansion of the oil industry were the major cause of short-term economic gains that offset the wet blanket policies of Obama and weak impact of his stimulus.
To be fair, Obama did have a difficult starting point. He inherited a hard recession.
“see, that was Republicans fault! No matter how bad Obama was, Bush was worse!”
Not really. I have been approached with that argument probably a hundred times. I’ve asked many people this simple question:
“What did Bush do that led to the recession?”
Most people don’t know or they say tax cuts caused the recession.
“How did tax cuts cause the recession?” I ask.
Nobody can answer that.
Because they don’t cause a recession. And further, in 2010, when Obama extended the Bush tax cuts for another year, Democrats didn’t criticize him for it. Why would Obama do in 2010 what caused the recession in the first place?
Because it didn’t cause the recession, it had nothing to do with it. Tax cuts did not cause a housing bubble and pop.
What caused the housing bubble and pop was a reckless home loan industry.
“See those greedy Republicans!”
Sorry I’m like this guy right now:
It wasn’t Republicans that ruined the home loan industry. The home loan industry has been bolstered over the years mainly by Democratic politicians. First with the creation of the FHA by FDR in the 30’s. The creation of the FHA was to provide government insurance for home loans. To encourage lending so more people could buy homes. Sounds great.
But the unintended chain reaction was: Free government insurance = Banks take on less risk = Banks willing to give more loans = Buyers have more buying power = Demand for housing increases = Housing prices increase.
Before the creation of the FHA, a home loan was typically 3 – 5 years. That was great. Is that imaginable today? No. It is the unintended consequence of government intervention. It affects every American negatively as home and by extension rent prices are much higher than they would have been if government had stayed out of it.
(Same thing happened with Obamacare, government got involved, prices have skyrocketed an average of almost $5000 per family).
Now housing costs and healthcare are the top two expenses for families.
But back to the point: FDR created the FHA. Then he created Fannie Mae, also created to help the home loan industry flourish. Then came Freddie Mac in 1961 for the same purpose. All 3 of these government institutions grew bigger and bigger over the years. Housing prices ballooned. Before the 2008 crisis, Democrats Barney Frank and Chris Dodd actively pushed these institutions to mandate banks to make more loans to poor and minorities.
This may be well-intentioned, but it’s horrible policy. What was the results? A housing bubble and pop that caused a recession.
That had nothing to do with Bush. Nothing to do with Republicans. It had to do with socialist leaning programs created and advanced over the years by Democrats. Some Republicans were likely on board with those things too, to be fair.
But Bush wasn’t. He attempted to enact reforms of the home loan market in his term, but nobody listened.
Yet he is blamed.
Bill Clinton is to blame to some degree. He took off regulations that held the home loan industry in check when he signed the repeal of Glass Steagall in 1999.
But those regulations would not have been necessary in the first place if not for the creation of the FHA, Fannie Mae and Freddie Mac.
If not for those organizations, housing prices would be much cheaper and banks would regulate themselves as they would be on the hook if they made loans that ended in default.
Not Obama’s fault. But it is the fault of people who are like-minded as him. It doesn’t work well.
What works well is the government getting out-of-the-way of private industry. Such as what Reagan did in 1980. He too inherited a difficult financial situation. But he did the opposite of Obama, he cut taxes and regulations (most regulations are useless rules, unlike Glass Steagall that was a check on the original regulations of the FHA, Fannie Mae and Freddie Mac).
The results were great, employment improved during Reagan’s term dramatically AND employment participation improved. Median income went up 10%. The sky-high interest rates when he started in 1980 normalized. GDP was strong compared to historical norms. The business environment dramatically improved making way for the computer and internet booms that started the biggest 25 year boom time in world history.
It worked. This is the direction of Trump. He wants to cut taxes and useless regulation. He wants to open up more oil drilling. He wants to repeal the wet blanket of Obamacare.
This is the road to prosperity. Hillary would be the same as Obama.
This election is much too important to get caught up with partisan games. The financial ramifications of the next president should be considered thoughtfully by each person for their own future and the ones they love.
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