How Much Is Obama Really to Blame for the Economy?

There's probably not much the president could have done about the worst economic crisis since the Great Depression--except possibly lead better

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President Obama was eager to meet real, suffering Americans in the troubled Midwest, and when he got there he promised "to do everything" he could to address the economic crisis that he had "inherited," one that he said was "as deep and as dire as any since the Great Depression."

The date was February 9, 2009; the place was Elkhart, Ind. It was the newly inaugurated president's first trip out of Washington. This week, as Obama returns to the Midwest for another attempt at assuaging the nation's economic distress, the issue that he once said he had inherited--and few people disagreed with that assessment then--is seen by more and more people as his own problem.

So a new cynicism greets the president on his bus tour through the heartland. Still, even at this late date it is fair to ask: In purely economic terms, how much of this crisis is really Obama's problem, and how much better might he have done to fix it? The answer is: probably not that much.

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"A long, long period of halting and slow growth was baked in the cake when he took office," said Harvard University economist Kenneth Rogoff, a former adviser to Obama's 2008 GOP opponent, John McCain, and the co-author of an acclaimed 2009 book on the nature of economic crises, This Time is Different: Eight Centuries of Financial Folly. "It's very difficult after such a huge credit bubble and financial collapse to recover all that much faster than we've been doing. It wouldn't have mattered if McCain had won. We would have been in a similar situation."

The traumatic events around the world that have been exacerbating the recovery, especially Europe's debt crisis, are mostly out of Obama's control. That too was more or less predetermined, Rogoff said. "The sovereign debt woes in Europe are prototypical of a financial crisis of this size," he said. The only difference this time is that the new fact of the eurozone might have made things worse, Rogoff added, because it prevented individually troubled nations such as Greece from devaluing their currencies and recovering faster. 

But there is general agreement on both sides of the aisle that Obama could have done a better job of leadership, both at home and globally. That he could have done much more to make Americans and the rest of the world believe he was indeed doing "everything" to tackle the toughest issues and thus restore what JPMorgan Chase Chairman Jamie Dimon, a sometime Obama adviser, last week called the "secret sauce" to any economic recovery: confidence. 

As Obama himself seemed to understand at the outset, the economic devastation he faced was the worst in 80 years. It was far worse, in other words, than anything Jimmy Carter, Ronald Reagan, Richard Nixon, or Gorge H.W. Bush had to overcome. And because this recession was caused by an unprecedented financial collapse, history shows that it was destined to be longer-lived than most.

The numbers tell part of that story. What Rogoff calls the Great Contraction is essentially an inversion of the debt-inflated consumer bubble of the 2000s, a continuing collapse of demand that has lingered longer than many of Obama's top advisers or the Federal Reserve thought would occur. Though the recovery technically began in June 2009, the reason for this "jobless recovery" is pretty straightforward: Consumers aren't buying, stores aren't selling, and as a result companies aren't making--or hiring. That has been exacerbated by a credit crunch that is also historic. Consumer confidence is at the lowest level since 1980, new data show.

Unemployment trends also indicate that it is somewhat unfair to accuse Obama, as his GOP opponents are wont to do, of driving up the jobless rate beyond what it was when he took office. The official recession began in December 2007, more than a year before he became president, and ended in June 2009, some five months into his presidency. But the unemployment rate is a lagging indicator; in November of 2008, the month of Obama's election, it was still only 6.8 percent, though it had slowly climbed from December and it reached a height of 7.8 percent in January, just before Obama was sworn in. Still driven by what began as George W. Bush's recession, it didn't bottom out until nine months into Obama's term, 10.1 percent in October of 2009, and then barely began to decline over the next two years.

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Michael Hirsh is chief correspondent for National Journal.

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