By Phillip Mann, International Banker
With the dust now settling on the Obama presidency, a spate of post-mortem literature continues to surface in droves, rating the now-former US president across several of his policy initiatives. Not least among these are his economic policies. Indeed, in evaluating the overall economic record of the Obama Administration, the consensus opinion thus far appears to have landed on variations of the description “middling”, especially when taking into account the performance of previous US presidents. Of course, very few presidents came into office facing a near-insurmountable economic crisis, as the one that presented itself to Obama back in early 2009; nevertheless, his impact over the following eight years is increasingly viewed at present as being neither spectacularly successful nor disastrously incompetent. Whether such an assessment is accurate can only be more firmly concluded with further passage of time, and perhaps also with analytical comparisons to Obama’s successor, Donald Trump. Given the initial turbulence and the eventual recovery that spanned the Obama years, however, an evaluation of Obama’s economic impact remains a worthwhile endeavour at this stage.
Perhaps the most effective way to judge Obama’s overall economic legacy “at a glance” is to compare his results with other presidents from America’s recent history. While each president faced sharply contrasting situations, a comparison of Obama’s performance across a range of relevant metrics provides a modicum of historical context to his efforts. Indeed, according to just such an analysis that was recently carried out by Bloomberg, Obama ranks in second position among the six most recent presidents dating back to 1977:
As per the table, Obama ended his term scoring several top-ranking marks across several economic indicators, which include overseeing the largest annual gain in the value of the dollar; the largest annual decline in household debt in relation to disposable income; the largest growth in car sales; and the largest increase in hourly wages. Only Jimmy Carter achieved greater gains in home equity, while Bill Clinton is the only recent president to reduce the deficit more than Obama, as a percentage of gross domestic product (GDP). But GDP itself remains the glaring weak point on the Obama report card, with below-average gains being posted consistently across his eight years at the helm.
While the debate will continue to rage for some time over just how positive Obama’s economic impact has been, however, there is little doubt that the US is in distinctly ruder health than it was when he took over in January 2009. Indeed, his handling of the global economic crisis is very likely to go down as his greatest achievement—economic or otherwise. At the time, the country was enduring its worst downturn since the 1930s, but many now believe that the swift actions taken by Obama prevented the economy from eclipsing those infamously dark days of the 1930s. The chairman of the White House Council of Economic Advisers, Jason Furman, recently noted that by “a number of macroeconomic measures—including household wealth, employment and trade flows—the first year of the Great Recession…saw declines that were as large as or larger than at the outset of the Great Depression”. Although 2009’s Great Recession caused untold damage on both the US and global economies, the rescue plan that Obama implemented in conjunction with Congress, the Federal Reserve and the Treasury turned the country’s fortunes around quickly.
The slew of measures taken by authorities included lowering interest rates to near-zero, enacting comprehensive regulatory reform and injecting hundreds of billions of dollars through bailouts and quantitative easing. However, it is perhaps the fiscal stimulus that was injected by Obama in 2009 that had the greatest initial impact in reversing an economy that was in virtual freefall, especially in light of the fact that the Federal Reserve had little room to loosen monetary policy any further.
Approved in February 2009, the American Recovery and Reinvestment Act was a $787 billion stimulus package that aimed to jumpstart the US economy by splitting the package into three roughly equal allocations of tax cuts, unemployment benefits, and federal employment contracts and grants. As such, the overall stimulus induced consumers to begin spending once more; it saved millions of American jobs and played a lead role in reversing the US’s negative-growth trajectory. In the words of Bill Clinton, “No president… not me, not any of my predecessors, no one could have fully repaired all the damage that he found in just four years”.
Closely following the economic recovery in terms of the biggest Obama accomplishments is his record on job creation. Indeed, Obama is among the biggest job creators of all US presidents. During his eight-year presidential term, Obama oversaw the creation of 11.3 million new jobs in total, while December—his final full month in office—saw 156,000 jobs added to mark an astounding 75th consecutive month of job additions, an all-time record. When one considers that the US economy was hemorrhaging 800,000 jobs per month back in January 2009, the Obama Administration’s labour-market achievements are even more laudable. Obama eventually left Washington with unemployment at a near full-employment level of 4.7 percent, meaning that he managed to cut the rate by more than half from the 10 percent level at which it was running in late 2009.
One of Obama’s most decisive specific victories was his rescue of the US auto industry. Costing $80 billion, the bailout mostly involved taking over the beleaguered General Motors (GM) and Chrysler and providing enough liquidity for them to remain afloat. In return, the nationalised car companies promised to improve their efficiency standards to increase their international competitiveness, while Chrysler was required to merge with Italian car firm Fiat. As a result of the bailout, the companies were able to create close to 350,000 jobs, and by mid-2009, they had both emerged from bankruptcy. Ford’s CEO Alan Mulally also admitted that Obama’s bailout was the most appropriate solution, for both his company and the entire industry, and acknowledged that had GM and Chrysler gone into freefall, “they could’ve taken the entire supply base into freefall also, and taken the US from a recession into a depression”. Ultimately, intervention by the government facilitated improved efficiency and greater flexibility among US automakers, whilst being able to generate profit; as such, the rescue is widely considered to have been a success.
Indeed, by the end of the Obama regime, automobiles were just one of several industries that were significantly prospering, as evidenced by the stellar stock-market gains achieved over the eight years. The day of Obama’s inauguration saw the S&P 500 benchmark US index close at 805 points; by the time Obama exited the White House, it closed at 2,274 points, thus marking a staggering 235-percent surge under his presidency. The statistic falls just shy of the 264 percent achieved by Clinton, but comprehensively beats the 30.6-percent loss realised by Obama’s predecessor, George W. Bush. Consumer discretionaries, information technology and financials were the top industry performers, returning 338, 285 and 261 percent respectively. While the 2014-16 collapse of global commodity prices meant that energy stocks fared the worst; nonetheless, they still delivered a very respectable 53 percent.
Critics of Obama’s economic legacy primarily point to the US’s sluggish growth record during his time in charge. Indeed, the final quarter of 2016—the last under the Obama regime—experienced GDP growth of just 1.9 percent, and thus missed the expectations of most economists. Bloomberg, for instance, was predicting a growth rate of 2.2 percent. Overall, the US economy expanded by a mere 1.6 percent in 2016, its slowest annual rate since 2011, meaning that economic growth remained weak throughout the Obama years. GDP growth averaged a mere 1.6 percent under Obama’s tenure, marking the slowest economic recovery since the Great Depression, as well as confirming Obama as the only US president to hold office for two terms and never achieve an annual growth rate of more than 3 percent. In comparison, the Clinton recovery period of 1992 to 2000 saw GDP growth averaging 3.8 percent per annum, while Bush Jr. managed to average 2.7 percent during the 2002-07 period.
While Obama’s low growth record can partially be attributed to a serious need for calm and stability following the crisis, Obama’s fiscal policy during this period left much to be desired. His budget cuts, according to Washington-based think tank the Brookings Institution, stymied economic growth by between 1 and 2 percentage points every year from 2011 to 2014. The cuts have also worsened the outlook for the US’s long-term debt, with the Congressional Budget Office projecting that debt to GDP will soar, from 75 percent last year to 86 percent in 2026, and to 141 percent in a further 20 years.
In addition, Obama’s labour-market record should not be considered entirely spotless. In spite of the unprecedented job growth and massive fall in unemployment, worker-pay growth remained subdued for the majority of the time. Many believe this anaemic growth to be a pivotal factor in US voters opting for Trump during the recent election, particularly those in the “Rust Belt” areas of the country. Only in Obama’s final month did signs emerge that job growth was pushing wages higher, with December’s average hourly earnings rising by 2.9 percent on an annual basis, the fastest growth since the crisis. Moreover, the proportion of those in the US who are either out of work or only in part-time employment—as calculated by the U6 measure of unemployment—remains at historically high levels, while perhaps most notably, the rate of participation in the labour force is at its lowest in almost 40 years.
The contraction in the number of Americans who consider themselves part of the labour force, especially among working-age men and women between 25 and 54, is of particular concern. However, this decline has been part of a long-term trend that can’t squarely be blamed on Obama.
By his own admission, Obama’s inability to do more to counter the rise in inequality across the nation during his term remains one of his biggest failures. Indeed, widening inequality in recent years has contributed to preventing US median household income from returning to pre-recession peak levels, while the wealthiest Americans now earn more money than ever before. According to data from leading economists, the top 1 percent earn an average of $1.3 million per year, which is triple the amount they earned in the 1980s. Between the 1970s and today, moreover, this same percentile’s share of total income has grown from 10 to more than 20 percent; and during the Obama years they managed to capture 52 percent of economic gains, according to research from the University of California, Berkeley. The other 99 percent, meanwhile, has only been able to recover around two-thirds of the income losses suffered during the Great Recession.
The lack of any meaningful reduction in income inequality was not through a lack of trying from the Obama government, however. Indeed, Obama himself described the issue as “the defining challenge of our time”. Furthermore, analysis from the Council of Economic Advisers suggests Obama did the most of any US president to reduce inequality in half a century, asserting that he had “overseen the largest increase in federal investment to reduce inequality since the Great Society”. The Congressional Budget Office also supported this view last year, concluding that the federal government was doing more to lower inequality than at any time in the last 35 years at a minimum, and that income inequality is no worse than it was in 2000.
Ultimately, the ethos of Obama’s economic outlook during his term seems to have been one of instilling a calm—if unspectacular—steadiness, one upon which new President Donald Trump can build. Indeed, it seems that the economy is the biggest gift that Obama has given Trump on leaving the Oval Office; despite his weak record on growth, Obama’s remarkable repair job on the economy means that Trump begins his tenure ideally positioned to bolster growth rates to historic average levels of around 3.3 percent. Furthermore, while shortfalls do exist on the Obama end-of-term report card, his performance holds up more than adequately against other US leaders of recent history. As such, perhaps history will view the Obama legacy as being one of precisely the steadiness that the country needed following the Great Recession, and as a necessary precursor to the better days that Trump can hopefully deliver to the American people.