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The Obama Economic Miracle

October 7, 2014

In the wake of September's strong jobs report, Megan Thee-Brenan and E.J. Dionne (among others) have concluded "Obama is unlikely to get credit for falling unemployment rate" and "Democrats aren't getting credit for the economy." The question is why. After all, when it comes to cutting unemployment, spurring investment and driving economic growth, Barack Obama is out-Reaganing Reagan at the same point in his presidency. (If Barack Obama was named Ronald Reagan, cities and towns across America would be renaming their airports, main streets, parks and libraries after him right now.) To put it another way, what do you call it when the President and his party save the U.S. economy and no one seems to notice?
I propose the "Obama Economic Miracle."
After all, President Obama and his Democratic allies in Congress didn't just bring the nation back from the greatest financial crisis since the Great Depression. He rescued the American economy despite unprecedented Republican opposition on Capitol Hill and draconian austerity policies in the states. And Obama achieved all this in the face of an-going conservative disinformation campaign propagating the myth that he "made the economy worse."

The numbers--unemployment down to 5.9%, a record 55 straight months of private sector job creation, the second-quarter posting the highest rate of GDP expansion since 2007--tell the tale of the rebound from what almost became Great Depression 2.0. While George W. Bush shed over 400,000 private sector jobs as part of what even the Wall Street Journal called "the worst track record on record," President Obama has added 6 million so far. Doomsday right-wing warnings about the "Obama bear market" have disappeared as the Dow Jones doubled since he entered the Oval Office. (Helping Americans' financial prospects further is the fact that at least 13 million more of us now have health insurance, thanks to Obamacare.) Even with his $800 billion stimulus program and the launch of the Affordable Care Act, the annual budget deficit has been cut in half since Barack Obama first took the oath of office. Contrary to Republican myth-making, federal spending has hardly budged during Obama's tenure. Meanwhile, with the exception of Germany, the United States has outperformed every other country in Europe.

Those numbers make a mockery of the GOP's never-ending falsehoods that "Obama made the economy worse" and his stimulus program "did not create a single job." Nevertheless, as recently as February 2014, Florida Senator and 2016 White House hopeful Marco Rubio declared:

"If you recall five years ago, the notion was that if the government spent all this money--that, by the way, was borrowed--that somehow the economy would begin to grow and create jobs. Well, of course, it clearly failed."

Not according to the overwhelming consensus of economists, including the nonpartisan Congressional Budget Office (CBO). At its peak in 2010, the American Recovery and Reinvestment Act (ARRA) added up to 3.3 million jobs, cut unemployment by as much as 1.8 percent and boosted GDP by up to 4.1 percent. (It's also worth pointing out that the CBO once again confirmed that aid to the states and purchases by the federal government delivers the biggest bang for the buck, while upper income tax cuts provide the least.) And as I noted earlier this year, you don't have to take CBO's word for it:

Douglas Holtz-Eakin, a former CBO director who later served as an economic adviser to John McCain in 2008, agreed with his successor. "The argument that the stimulus had zero impact and we shouldn't have done it is intellectually dishonest or wrong," he explained in August 2011. "If you throw a trillion dollars at the economy it has an impact, and we needed to do something." (That "something", by the way, was over 40 percent tax cuts, making the Obama stimulus the largest two-year tax cut in American history.) Mark Zandi, also an adviser to McCain's 2008 campaign was adamant on positive role of the stimulus. Federal intervention, he and Princeton economist Alan Blinder argued in August 2010, literally saved the United States from a second Great Depression. In "How the Great Recession Was Brought to an End," Blinder and Zandi's models confirmed the impact of the Obama recovery program and concluded that "laissez faire was not an option."

"We find that its effects on real GDP, jobs, and inflation are huge, and probably averted what could have been called Great Depression 2.0." Blinder and Zandi concluded of federal intervention to save the economy. "For example, we estimate that, without the government's response, GDP in 2010 would be about 11.5% lower, payroll employment would be less by some 8½ million jobs, and the nation would now be experiencing deflation."

The tragedy is that the Obama Economic Miracle could have been even more miraculous if Republicans on Capitol Hill and in state and local governments hadn't stood in his way. DC Republicans didn't just block Obama initiatives like the American Jobs Act and infrastructure investment that could have boosted employment when unemployment was mired at 9 percent and strangle job creation and consumer confidence with their debt ceiling hostage-taking. The draconian austerity policies of state and local governments created an "anti-stimulus," with layoffs of public sector workers and cuts to spending that only served to undermine the gains from ARRA. By May 2013, the Hamilton Institute estimated those austerity policies cost 2.2 American million jobs and resulted in the slowest recovery since World War II. In April 2012, the Economic Policy Institute explained:

The current recovery is the only one that has seen public-sector losses over its first 31 months...If public-sector employment had grown since June 2009 by the average amount it grew in the three previous recoveries (2.8 percent) instead of shrinking by 2.5 percent, there would be 1.2 million more public-sector jobs in the U.S. economy today. In addition, these extra public-sector jobs would have helped preserve about 500,000 private-sector jobs.

That March, Paul Krugman expressed the same point, but with some inconvenient historical context for the Party of Reagan. "In fact, if it weren't for this destructive fiscal austerity," Krugman explained, "Our unemployment rate would almost certainly be lower now than it was at a comparable stage of the 'Morning in America' recovery during the Reagan era."

We're talking big numbers here. If government employment under Mr. Obama had grown at Reagan-era rates, 1.3 million more Americans would be working as schoolteachers, firefighters, police officers, etc., than are currently employed in such jobs.
And once you take the effects of public spending on private employment into account, a rough estimate is that the unemployment rate would be 1.5 percentage points lower than it is, or below 7 percent -- significantly better than the Reagan economy at this stage.

Yet even with all those barriers erected by his political opponents, Barack Obama is still "out-Reaganing Reagan." And Obama didn't triple the national debt while doing it.
This is not to say that all Americans are experiencing the recovery in their lives. Far from it. The richest Americans have appropriated virtually all of the incomes gains since the recovery began in 2009, while real median income is lower now than in 1989. Despite the 4.1 point reduction in the unemployment rate since its 10 percent peak, Americans have yet to see a corresponding improvement in their wages. E.J. Dionne was certainly right when he lamented:

This tension is far more difficult for Democrats to deal with than it would be for Republicans, were they presiding over exactly the same recovery. Democrats, going back to those happy Roosevelt days, have made their living as the party that lifts up the many and not just the privileged few. Republicans have traditionally said that growth is everything and if the rich get richer, their success will eventually work its way down to everyone else.
Democrats can't (and shouldn't) echo conservative bromides.

But Democrats can and should claim credit for more than reversing the Bush recession that began in late 2007. To have done so while navigating the land mines Republicans planted in hopes of blowing up the Obama recovery is nothing short of miraculous.
Of course, saying that credit should go where credit is due doesn't mean it will happen. After all, the Tea Party movement that dominated the airwaves in 2009 and 2010 by claiming Americans are "Taxed Enough Already." That came after President Obama's stimulus delivered--as promised--tax relief to 95 percent of working households. As the New York Times asked just two weeks before the 2010 midterm elections that swept the Democrats out of their House majority:

"What if a president cut Americans' income taxes by $116 billion and nobody noticed?"

The lesson now as then seems pretty clear. If he and allies want their due, Barack Obama should change his name to Ronald Reagan.


Jon Perr
Jon Perr is a technology marketing consultant and product strategist who writes about American politics and public policy.

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