Obama's Economic Report Card
In a recent Politico playbook posting the following paragraph caught my attention:
"POTUS last night, at an Organizing for Action dinner at the Mandarin Oriental: "Galesburg is where I gave my first big speech [June 2005] after I had been elected to the United States Senate. It was the commencement at Knox College, and it was a speech about the economy. ... And all these trends that had been taking place were visible at the time -- rising inequality, struggles in the middle class -- but they were papered over to some extent by the bubble. And by the time I took office, the bottom had fallen out. ... [O]ver the last five years,... because of the grit and resilience and determination of the American people, we've been able to clear away the rubble and get back to where we were."
First, let me just point out that the President of the United States is not really solely responsible for where we are economically. The condemnation, or praise, must be applied equally to all branches of government responsible for the fiscal and monetary policy decisions made. The problems that exist today were not due to just the last few years of excess but rather come as a result of more than 30 years of fiscal irresponsibility that spans both Republican and Democratic Administrations alike.
However, since President Obama has taken the position of responsibility for "clearing away the rubble and getting us back to where we were", we can review the economic data to see whether, or not, this is indeed the case. Have continued bailouts, financial stimulus and the myriad of other financial supports gotten the U.S. economy back to where it was in 2009? In order to answer this question for yourself, and grade Obama's success relevant to his statement, we will look at major aspects of the economy from full-time employment, incomes, home ownership and household net worth.
Full-Time Employment (Grade D)
Full-time, benefit providing, employment is the only type of employment that matters for the average American. Full-time employment allows for an increasing standard of living, household formation, and higher personal savings rates. The 2-panel chart below shows the total increase in full-time employment relative to the working-age population and the net increases in full-time and temporary employment since 2009.
Since 2009 there has actually been very little increase in full-time employment. What is often overlooked in monthly employment numbers is that the working age population has been growing faster than total employment. This has led to a coincident surge in welfare dependency, as represented by "food stamp" usage, as those they are forced to work part-time, or are just unable to find work, seek alternative measures to make ends meet.
Incomes (Grade C-)
For the average middle-class American that is primarily focused on working, paying their bills and raising their respective families, nothing is more sacred or valued than their paycheck. The problem has been that a weak economic environment, combined with a large and available labor pool, has suppressed wage growth and, ultimately consumption. This has been further fostered by a drive by businesses to boost profitability by suppressing wage growth through increases in productivity.
The failure of wages to keep pace with the real costs of living has put pressure on personal savings rates. Lower savings rates ultimately reduces future productive investments and consumption. The "feedback loop" is critical since the roughly 70% of the U.S. economy is driven by personal consumption. Slower rates of consumption drags on economic growth, which suppresses employment and wages. It is a "virtual cycle" that is very difficult to break. The chart below shows the high correlation between economic growth, savings rates, wages and consumption.
The current trends suggest, despite much commentary to the contrary, that economic growth is beginning to flag. However, as I stated previously, this is not a problem that is specific to the current Administration, but an ongoing deterioration of economic growth caused by the accumulation of debt, and deficit spending, that began in the 1980's.
However, the most important reason why the current Administration fails on incomes is clearly shown in the chart below which shows the amount of social benefits (welfare) as a percentage of real disposable incomes.
Since the onset of the financial crisis government dependency has soared, and remains, near the highest levels on record. Despite the Federal Reserve's artificial inflation of asset prices, which only benefits roughly the top 20% of Americans that have investible assets, the bulk of the America is becoming more dependent on "handouts" to make ends meet. This is not a sign of a return back to where the average American was prior to the onset of the financial crisis.
Home Ownership (Grade F)
One of the signs of economic prosperity is a rise in home ownership. As employment increases, incomes rise and economic growth strengthens; individuals tend to form households, have children and buy homes. The chart below shows the current levels of home ownership in America.
With home ownership now at the lowest levels since the 1980's it is hard to suggest that the economic policies of increasing debt levels, higher levels of government dependency and ongoing bailouts have done much to improve the "American Dream." More importantly, policies to artificially suppress interest rates and encourage housing speculation has led to a nation of renters rather than homeowners. The question becomes who is going to buy homes from the speculators when they all rush to the market to sell?
Household Net Worth (Grade C)
There really is no better measure for grading the success, of failure, of an Administrations economic policies other than household net worth. The following chart shows household net worth which has been inflation adjusted using the consumer price index.
After every previous post-WWII recession household net worth has exceeded its previous peak within 3 years. While household net worth has had a significant recovery it has primarily been contained within the top decile of the population. Despite, the ongoing inflation of both the real estate and financial markets - real household net worth remains significantly below its previous peak. For the average American who struggles with employment, stagnant wages and a home that has little, or no, equity in it - there has been little recovery to speak of.
More Than Just Data
There is no doubt that the current Administration walked into a horrible situation. It is only an assumption that anyone could have handled the situation any better. However, the same can be said for the previous Administration that was served an economy falling into recession, racked by financial scandals and a terrorist attack all of which were fostered by failed policies of previous administrations.
However, a real economic recovery must be more than just a data point. Much ink has been spilled in recent years both praising, and condemning, the current administration for their policies. It will only be in hindsight that we truly know whether the massive increases in government debt, government bailouts, and financial supports, not only domestically but globally, will truly lead to a stronger and more prosperous economic environment. While hopes are high that this will indeed be the case; centuries of history suggest otherwise.