As an Ann Arbor native and Michigan football fanatic, I’m one of hundreds of thousands who deeply appreciate coach Jim Harbaugh. In his two years, Michigan has gone from having a 5-7 record, with no national ranking and no bowl appearance, to two 10-3 seasons, a top 10 national power, and one of the best class of recruits for 2017. At the same time no Michigan fan—including Harbaugh—thinks this is good enough: Michigan lost to Ohio State twice. Enough said.
This simple concept of both appreciating that someone’s performance can be excellent even if things could still be better is not hard for any Michigan football fan—or, really, any football fan of any improving team—to grasp. Yet, when it comes to judging the performance of the economy under President Obama, this concept seems to be lost. Way too much political dialogue is forced into an absurd dichotomy that either the economy is flawless or Obama’s economic policies failed miserably. For instance, when I argued on a cable news show a year-and-a-half ago against the Federal Reserve raising rates because labor markets were still not tight enough, it was treated as a gotcha moment by one of my questioners. “It sounds like you’re saying that Obamanomics continues to fail the average American.” Really?
Now that the Obama presidency has come to an end, it’s important to judge his economic stewardship without falling into this trap, and, instead, to examine where things were when his administration started, the external constraints and obstacles it faced, and how much things got better or worse. I can hardly claim to be an independent observer: I was Obama’s National Economic Advisor from 2011 to 2014, and was part of the team at Treasury during the worst of the financial crisis. But, I believe the facts speak for themselves.
To be fair to President Obama, what he inherited in 2008 was less like Michigan’s 5-7 season in 2014 and more like my Detroit Lions’ historically miserable 0-16 record in 2008. For instance, while some analysts now consider it a disappointment if the economy gains only 150,000 jobs in a month, Obama inherited a labor market that was losing 750,000 jobs each and every month on average.
And while no one knew the true depth of the recession at the time, it has since been calculated that the economy was contracting at a stunning 6.8 percent in the six months making up the fourth quarter of 2008 and first quarter of 2009. The Dow had fallen over 40 percent before Obama took the oath of office, and deficits were rising to nearly 10 percent of GDP—even excluding the fiscal costs of the Recovery Act. Worse still, there was little certainty of rising demand that could potentially jumpstart a recovery anywhere in the global economy.
While the $800 billion American Recovery Act—and the financial and auto rescue—are often criticized from both right and left, what is not disputable is the speed and force with which the President acted. The American Recovery Act was signed into law on February 17th—less than one month after the inauguration. The fact that the economy rose out of recession by June 2009, and returned to job growth by March 2010, was far from automatic. Had Obama not pushed for such substantial policies, the Great Recession he inherited could easily have become a second Depression.
Few who remember those scary economic times of early 2009 can suggest with a straight face that they would not have been greatly relieved to learn that the economy would create nearly 16 million private-sector jobs in the less than seven years since March 2010, and that the unemployment rate would drop to 4.7 percent by 2016. Mitt Romney, admired for his skills as a businessman, made getting the unemployment rate down to just 6 percent by the end of 2016 his most ambitious economic goal of the 2012 campaign.
And while sustained and shared income growth for all income quintiles has been elusive over the last several decades (with the exception of the Clinton years), income growth has strengthened as the recovery progressed, despite the serious scarring of the labor market due to the depth of the recession. Since October of 2012, real wages for workers have grown over 5 percent cumulatively. Impressively, the last Census report showed real median household income rising a record 5.2 percent in 2015, with the highest growth among the bottom 20 percent.
Republican critics avoid recognizing these positive job developments by emphasizing that GDP growth has been hovering around 2 percent. But they rarely recognize how growth has been affected not only the by the nature of the recession Obama inherited and demography, but also by their own role in blocking his efforts to boost GDP.
From the beginning of the financial crisis, leading economists like Carmen Reinhart and Ken Rogoff wrote that growth in recoveries following major financial crises is always more difficult because deleveraging—paying down debt—keeps demand low. When Obama tried repeatedly—especially through his 2011 American Jobs Act—to push through additional demand-oriented policies, Republicans stood in the way. While some measures like his payroll tax cuts, veterans’ jobs tax credits, and extended unemployment benefits did pass, the major bulk of investment priorities in the American Jobs Act—such as a robust infrastructure, school modernization and anti-blight package together with aid for teachers and police officers—were thwarted by the Republican-controlled House of Representatives, even though outside experts found it could have boosted growth by 2 percentage points.
This resistance helped lead to the nearly unprecedented occurrence of a contraction of state and local government spending in the heart of a recovery—reducing economic growth. Such government spending had been major contributors to growth under Ronald Reagan and George W Bush. Indeed, if you look only at private sector GDP during the Obama recovery, growth was 2.9 percent per year under Obama—a rate more than 70 percent faster than that during the Bush Administration.
Rather than acknowledge that the economy President Trump has inherited improved dramatically under President Obama—showing renewed strength, even when it could still be stronger—the Trump team seems to feel the need to play down or even disparage the progress that has been made. While in my last piece, I mulled over the possibility of Trump interfering with economic announcements not to his liking, according to a couple of recent news reports, Trump’s team seems more interested in simply changing which labor market numbers economists and journalists look at in order to suggest Trump inherited a less-improved economy. The headline unemployment rate, known as U-3, is now an impressive 4.8 percent. Yet, these reports suggest that the administration may change the official rate to the U-5 measurement, which includes discouraged workers and other workers marginally attached to the labor force, and thus is a point higher at 5.8 percent.
There is nothing wrong, and a lot right, with looking not only at the traditional U-3 number, but also the broader U-5 and U-6 measurements, as well as other non-headline indicators such as involuntary part-time workers and long-term unemployment. (U-6 is similar to U-5 but additionally includes people who are working part-time not out of preference.) Indeed, I have specifically relied on these other numbers to argue over the last two years against the Federal Reserve hiking rates, and former Obama Council of Economic Advisers Chair Jason Furman routinely mentioned the U-6 numbers in his read out of the monthly unemployment reports.
What would be a problem, however, is using a broader definition of unemployment as a strategy for misleading the public into thinking the economy hasn’t really improved all that much. If the Trump team wants to be serious about officially or unofficially focusing on one of the broader unemployment surveys, they need to be clear that this measure would have led to a higher monthly unemployment number going back decades. An honest and transparent administration making such a change would make clear that the U-5 is on average a percentage point higher than the traditional unemployment numbers, and in no way diminishes the improvement the economy has undergone over the last eight years. Indeed, under the U-5 survey, the unemployment rate fell a record amount from 11.4 percent in December 2009 to 5.7 percent in December 2016. Under the U-6 measure, it also fell a record amount—from 17.1 percent to 9.2 percent—during the same time period.
Does taking stock of the strong progress on the economy under President Obama mean the U.S. economy is good enough? Of course not. No one should be shy in pointing out that America needs more sustained shared income growth, with far bolder policies to address serious income and wealth inequality and long-term unemployment caused both by structural challenges and the legacy of the Great Recession. There is too much poverty—particularly for minority children—too little economic mobility, and too much economic insecurity, especially for hard hit communities and families who suffer dislocation and job loss.
Yet, Michigan football fans can suffer over losses to Ohio State and still appreciate the fine job Jim Harbaugh has done bringing Michigan football back to national strength with a very promising future. Similarly, it should not be hard for pundits and the public to recognize that while there is still much further to go, Obama leaves his successor with a dramatically improved economy—with strong job growth and incomes on the rise.
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