Weighing Obama’s Economic Legacy—With a Thumb on the Scale

Andrew Ross Sorkin (New York Times, 4/28/16) presented a confused account of the state of the economy and economic policy under President Barack Obama. The account repeats many self-serving comments from Obama without comment and offers little useful context to readers.

The confusion starts early, when he reports Obama’s complaint that he doesn’t get sufficient credit for the economy’s strength, pointing out:

His economy has certainly come further than most people recognize. The private sector has added jobs for 73 consecutive months — some 14.4 million new jobs in all — the longest period of sustained job growth on record. Unemployment, which peaked at 10 percent the year Obama took office, the highest it had been since 1983, under Ronald Reagan, is now 5 percent, lower than when Reagan left office.

The economy has also seen close to 3 million prime-age workers (ages 25–54) drop out of the labor force. No one had predicted this back in 2009 when President Obama took office. The number of people who are working part-time involuntarily is still close to 1.7 million above its pre-recession level. No one had expected this back in 2009, either.

The 73 consecutive months of private-sector job growth, “the longest period of sustained job growth on record,” is kind of a joke. This is sort of like a weak-scoring basketball player telling a reporter about the number of consecutive games in which he scored points; it is an utterly meaningless statistic. It is the average job growth, GDP growth and improvement in living standards that matter, not the monthly job creation streak. (And President Obama wonders why people don’t feel better.)

Sorkin then turns to mind-reading on the Wall Street bailout, telling readers: “But Obama, convinced that anything short of a major bailout could lead to economic catastrophe, said Democrats should back Paulson’s plan. They did.”

Sorkin doesn’t indicate how he knows that Obama was “convinced.” No one has ever given an argument as to why the government could not have boosted the economy with massive spending after the market had been allowed to work its magic in putting Citigroup, Goldman Sachs and the rest out of business. Elite types call people names who raise this point, but that doesn’t mean it is not valid.

The piece then turns to the stimulus, but the discussion is very badly confused. It tells readers:

A January 2009 report from the president’s Council of Economic Advisers projected that the stimulus would keep unemployment below 8 percent. Instead, it climbed to 10 percent in 2009 and only fell back below 8 percent in 2012, leading to criticism that the stimulus was ineffective.

Actually, the problem with this report was not the projected impact of the stimulus, but rather in underestimating the impact of the recession. It projected that the unemployment rate would not cross 10.0 percent even without any stimulus, not recognizing the full severity of the downturn.

The piece then justifies the limited stimulus that President Obama was able to get, saying: “In truth, of course, the political headwinds against stimulus were extraordinary.” While there were extraordinary political headwinds, President Obama encouraged them. In early April of 2009 he began talking about the “green shoots of recovery.” He also spoke of the need to “pivot to deficit reduction,” and appointed the Bowles/Simpson commission for this purpose. This is an important part of the story of the lack of political support for further stimulus.

Sorkin gets the whole issue enormously confused:

If you add up all of his administration’s classic stimulus measures, including the many tax breaks the administration extended, you get $1.4 trillion, a figure that is nearly twice the original figure. The anti-stimulus, then, was counteracted by a stealth stimulus.

What matters on stimulus is not just the total, but the time-frame. Spending $1.4 trillion over eight years comes to less than 1 percent of GDP annually. This is not much stimulus for an economy that has faced the collapse of an enormous asset bubble.

The piece also bizarrely tells readers: “Slowing the growth of an industry that accounts for nearly a fifth of the US economy is inevitably going to mean slowing the growth of the economy as a whole.” Actually, this is completely untrue. Slowing the growth of the healthcare sector should mean that people have more money to spend in other areas. It also completely misrepresents the debate on the Affordable Care Act.

In 2014, the Congressional Budget Office released a report estimating that the Affordable Care Act would “reduce the total number of hours worked, on net, by about 1.5 percent to 2.0 percent during the period from 2017 to 2024”— a seemingly disastrous outcome for the economy. But, the director of the office, Doug Elmendorf, later wrote, “The reason for the reduction in the supply of labor is that the provisions of the ACA reduce the incentive to work for certain subsets of the population.” In other words, a lot of people worked because they had to, in order to keep their insurance. Now they could quit, even if they were sick; a positive development for them, but with a perverse effect on the economy.

This was not a “disastrous outcome” to anyone who knows economics. There is no reason why we should consider it a good thing that we force people to work more to get healthcare insurance. There is no reason to prefer that people work more hours rather than less, if they choose. In fact one of the big (and almost completely unreported) dividends of the ACA was a surge in the number of young parents who are choosing to work part-time. This is exactly what the ACA was intended to do.

The piece also includes some silliness on technology and inequality:

It was a scene that underscored a challenge facing the US economy and one that may be the driving factor behind greater inequality: We’re not only losing jobs to overseas competition, we’re losing them to technology. Obama noted the robots, too. “We just saw here those robots were pretty impressive, but also pointed to the direction the economy is going,” he said.

We’re actually losing very few jobs to technology and robots, as productivity growth has fallen to near zero in recent years. It would helpful if the New York Times would assign lengthy pieces on the economy to people who are more familiar with the data and economics.

Economist Dean Baker is co-director of the Center for Economic and Policy Research in Washington, DC. A version of this post originally appeared on CEPR’s blog Beat the Press (4/28/16).

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