8 Years Later: Evaluating Obama’s Economy

The 44th President of the United States. Barack Obama. The first black president of the country. Regardless of what the man achieved in office, his presidency made history all by itself. While that racial achievement will impact the future of this nation forever, his policies will as well. That is why it is crucial to analyze his main policy feats and how they have shaped the United States and its citizens. Perhaps the most important issue to analyze regarding any President’s performance is:

The Economy

“It’s the economy, stupid!” That is the ever-repeating reminder of any adviser to a president. The economy matters most to people’s lives. If people have employment and money in their pockets, only then can they go on to be successful, invest in their own futures, and stimulate the economy further. Therefore, perhaps the most important issue on which to analyze Barack Obama’s presidency is the economy.

Now, this reality does bring up an important discussion of just how much a president can be responsible for economic growth. This is of course up for debate as Congress must first invest in the economy for a president to have economic bills to sign. Perhaps the economy would be even stronger if Congress had passed more economic bills after the 2009 American Recovery and Reinvestment Act. However, if we are to evaluate all other president’s on their economic records, then we shall stay true to that method for Barack Obama as well.

As I argued in Recession & Recovery: How America Bounced Back, there are numerous metrics to evaluate the strength of an economy. Also important is the time frame we are to analyze. We can be strict in evaluating President Obama on the metrics of today compared to his first day in office, but that day was in the depths of the Great Recession. Thus, it may be more wise to evaluate President Obama on whether the economy has fully recovered from that recession he was handed. For context, the recession officially began in December of 2007.

A popular place to begin in this analysis is the unemployment rate.

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The various unemployment rates–some including discouraged or part-time workers looking for full-time work–have all essentially returned to pre-recession levels. Remember that U-5 unemployment measures discouraged workers who have given up on the pursuit of finding a job but would like one, and U-6 includes workers who have settled for part-time employment when they would prefer full-time work instead. U-6 is the one metric a little stuck at a higher value from the beginning of the recession.

Another unemployment measure to consider in economic health is the median amount of weeks that Americans are unemployed.


As the graph above shows, the median has returned to near pre-recession levels. Americans are now finding work after a median of ten weeks unemployed compared to twenty-five at the height of the recession.

In addition to unemployment rates, the labor force participation rate is important to analyze as it measures the amount of eligible Americans in the labor force either working or looking for work.


As the graph shows, this is a number that has not significantly improved over the past eight years. However, when put into a larger timescale and into societal context, this data is less egregious in terms of blaming President Obama. The rate has been in decline since the early 2000’s likely due to Baby Boomers retiring and more young people staying in school rather than beginning to work immediately after high school. However, including these factors may not remove all the blame from President Obama.

Related to unemployment and the labor force is also the amount of jobs created per month. Since the end of the recession, there have been 78 straight months of job creation–the longest streak in history.

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On top of that job growth, the economy as a whole has grown since the end of the recession. The U.S. gross domestic product (value of all products produced) has expanded up to 4% in some quarters since the recession.

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Thus, the evidence is clear that many more people are back to work now than at the beginning of Obama’s first term and that the economy has grown. The U.S. now has one of the strongest economies in the world growing faster than most of its peers. However, something to also analyze is the rate at which wages are rising each year. This is an area which has still not fully recuperated from the deepest recession since the Great Depression.

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Wages are indeed rising faster than inflation for the average worker–just not as quickly as before the recession.

However, this raises an important discussion on why wages typically rise especially at relatively high rates. Employers will naturally increase wages to employees in order to reward productivity, ensure pay beats out inflation, and reward seniority. For this reason, wages typically rise throughout all economic cycles. It is simply to what degree that matters for this analysis.

Wages tend to rise more quickly only when an economy begins to experience labor scarcity. When most able and willing citizens are employed, employers will have to incentivize the very few applicants left in the unemployed pool. This lack of a large pool of applicants naturally leads employers to raise wages in order to ensure that those applicants choose to work at their business rather than elsewhere. This reality often occurs as an economy begins to reach the peak of the business cycle; full employment is near and the economy may be close to overheating.

That reasoning explains why wages were growing at up to 3.5% in 2007 just before the recession struck. Therefore, the current rate of growth may be that full employment has not yet been reached and the peak of the business cycle is not yet very close. However, the last few quarters have provided higher than previous growth rates for wages possibly signaling that journey to full employment.

Thus, wage growth may or may not be attributed directly to the president’s actions. A slow and steady recovery may last longer and provide more stability than a fast and volatile recovery, but that may also mean more time to wait for high wage growth.

Another metric somewhat connected to wages is the real median income for workers. This measurement displays just how much the average American makes with inflation in mind.

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Especially within the last year, real median household income has fully dug itself out of the hole left by the Great Recession. Compared to 2008 when the recession began, households are now making an average of $1,140 more in income. This may be due to recent movements for a higher minimum wage and also the aforementioned uptick in wage growth.

In addition to income growth for the median worker, many Americans are now escaping poverty.

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As can be seen from the graphs, the amount of persons in poverty spiked even before the recession officially began. That growth immediately tapered off after the end of the recession, and now the real number and the rate have fallen. The poverty rate has now almost returned to pre-recession levels.

One last important metric of demonstrating how evenly these economic gains are being shared amongst all income groups is the GINI coefficient. This number evaluates how concentrated the total wealth of the nation’s people is–ranging from 0 (perfect equality) and 1 (one person owning all the nation’s wealth). This is the GINI’s trend over the past few decades.

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Sadly since the 1970’s, the U.S. GINI coefficient has seemingly only increased. The last two years have seen a slight decline, but the overall trend is telling of how the economic gains are becoming more and more concentrated at the top of the income brackets.

These different metrics arguably show that average Americans are indeed working again but that there must be some fundamental structural change in order to ensure that all the economic gains of a recovery are shared with the middle class. That may include reinstating higher income tax rates on the rich as I argue in The American Dream: Reality or Just…A Dream?. That may include stronger Wall Street regulations so that the richest few cannot make off with all the profits. That may include raising the minimum wage as I argue in Why Raise the Wage?. More progressive actions may reverse a decades-long trend of economic growth without equal rewards for the middle class.

Government Spending

There is often much misperception about government spending in the minds of the public. Some Americans surely think that the U.S. spends more and more on credit every single year. However, that has not been true in recent years. Spending definitely rose during the Great Recession as the public sector had to step in to save the economy while the private sector was in free fall. The reasoning for this method is discussed in Recession & Recovery: How America Bounced BackHowever, that spending on credit has continued to come down since 2009–about 60% lower than its peak. Government deficits are now around pre-recession levels.

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The goal is to eventually balance the budget as to not have any additions to the debt annually. However, this return to “normal” levels is at least a positive step. Fundamental reform of the major budget areas (Medicare, Social Security, and defense spending) are required to make that goal a reality.

The current path for the overall debt is one that could bring worry in the future, economists say. Some amount of debt is perfectly copacetic for a nation’s economy, but when it becomes so large–some say more than the GDP value of an economy–interest rates could rise and cause deep economic recession. This is the track of the debt to GDP over the years:

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This is arguably one of the most telling metrics for how serious the level of debt is for a country. Comparing the public debt to the GDP, we have a better perspective on what such a potentially large number means to that nation’s economy. Analyzing the graph, it becomes apparent that debt-to-GDP rates are highest during economic recessions. The New Deal caused the debt to exceed 110% of the nation’s economic value. Luckily, all that government spending and the war caused the United States to experience a tremendous economic comeback, which returned the debt to “normal” levels compared to GDP. In recent years, the debt has ticked back up primarily due to recent wars and the government spending done to counteract the Great Recession. Luckily, the ratio is not close to the 100% mark and deficits have been reduced in recent years, but it is on future presidents to reform spending and revenue to actually turn deficits into surpluses or use a combination of both types of reform to cause economic growth to lower the ratio. As for grading President Obama on this metric, he can be blamed for not doing more to reform entitlement spending, but he cannot be held completely responsible for the recession and the wars that necessitated much spending. We can see that President Obama grew the debt to a higher degree than other recent presidents with the exception of President Reagan.

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Wall Street

Another way that economics prefer to measure an economy’s health is through the stock market and corporations’ success. An intuitive place to begin is the value of the Dow Jones Industrial Average:

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The value of this stock market is now approximately 3,000 points higher than before the Great Recession. Thus, stock traders can be satisfied that companies’ values and stock prices have improved since the end of the recession. President Obama can be graded quite highly on this scale.

Now, what about corporate profits? Are businesses doing better under President Obama? Even after taxes, corporate profits as a percent of GDP are now higher than before the recession.

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There are disagreements in the government and the media about just how much in taxes corporations pay. They pay the corporate tax rate, but that excludes write-offs and deductions. That also excludes sales tax and property taxes, which corporations do have to pay. There are some companies that pay 35% in taxes and others that pay 0% even when making a profit. The above metric takes account for taxation and still shows that corporate profits have grown. Under President Obama, corporate profits actually hit a historic all-time high.

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Additionally, businesses are being created at pre-recession levels, and business deaths are lower than before the recession began.

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Taxation

Taxes, while necessary to a functioning government, can stifle economic growth and hinder investment. Now, Americans pay many different forms of taxes from local sales tax to property tax to excise tax, but one of the main taxes President Obama has power over through legislation is the federal income tax.

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As can be seen in the above graph, taxes have largely remained the same under President Obama’s tenure. The only tax bracket to significantly increase since Obama has been president has been for the highest income earners. Besides that, President Obama has largely kept in place the Bush tax cuts.

There are other ways for the federal government to tax citizens, and President Obama has been blamed for enacting such taxes in some instances. However, this deep tax analysis would require much more time and much more knowledge.

Conclusion

By analyzing unemployment, job creation, Wall Street profits, taxes, and more, it is reasonable to come to the conclusion that the economy has steadily improved under President Obama. The economy has at the least dug itself out of the Great Recession’s hole. This can be seen by almost every metric analyzed here. Wages still need to grow more quickly, deficits need to be reduced, and income inequality needs to be fought. However, the U.S. stands on a sound economic footing after the last eight years. The economy is not raging forward with high growth rates, but as noted previously the United States is outgrowing most of its peers. Additionally, stable and steady growth may be preferable to short-lived growth that delivers more frequent and severe recessions.cropped-new-logo.jpeg

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