We can blame him for weak recovery
- Last Updated: 5:02 AM, March 30, 2012
- Posted: 10:52 PM, March 29, 2012
Not even the most die-hard, partisan Democrats would dare argue that the Obama recovery has been especially vigorous. Instead, they argue that the new president was dealt an impossible hand.
But was he?
Nearly three years after the Great Recession officially ended, the jobless rate is still above 8 percent — the longest stretch of such high unemployment since the Great Depression. Add back in all the discouraged job seekers and the part-timers who wished they had full-time gigs, and the unemployment rate is just shy of 15 percent.
While the economy is growing, it’s not growing rapidly. At this point in the typical post-World War II recovery, the economy was growing at an average pace of nearly 5 percent. The Obama recovery has managed just over 2 percent average annual GDP growth.
Indeed, take-home pay for US workers, adjusted for rising prices, has actually fallen over the last year.
Then there’s the moribund housing market. This week’s data show home prices still falling; nationwide, they’re off a third from their 2006 peak — all the way back to levels last seen in 2003. Economic consulting firm IHS Global Insight concludes that “signs of a turnaround are nowhere in sight.”
All in all, Obama’s economic rebound kind of feels more like a bust than a boom.
His defenders insist that’s not his fault — that the Great Recession was not only nastier than any other economic downturn since the 1930s but also different; it wasn’t caused by an oil shock or a sharp spike in interest rates. Economic downturns caused by a financial collapse, they argue, are typically followed by lackluster recoveries.
So cut Obama a break, America. Judge Obamanomics on a sliding scale, because the president was dealt such an awful hand coming into office. Give him another four years to show what miracles the wonder-working power of more government spending, regulation and taxes can conjure.
But this excuse doesn’t quite make it off the runway. A Federal Reserve study from late last year looked at the behavior of recoveries from recessions across 59 advanced and emerging market economies during the last 40 years. The Fed found, to no great surprise, that recoveries “tend to be faster” after severe recessions, such as the one we just had.
It’s the “rubber-band effect”: The deeper the downturn, the more robust the rebound — unless government messes things up.
For example, during the 1981-82 recession, output fell by 2.7 percent and then rose by 15.9 percent over the next 10 quarters (at an average pace of 6.0 percent). During the Great Recession, output fell even more, by 5.1 percent. But during the 10 quarters since, total economic output is up only a paltry 6.2 percent. Score one for Reaganomics.
But what about the depressing effect of Wall Street’s near-death experience back in 2008 and 2009? Well, that same Fed study found that bank or other financial crises “do not affect the strength” of subsequent recoveries.
Yes, the collapsed housing market is another fly in the ointment. But a recent analysis from JP Morgan suggests that housing might explain half of the Obama recovery’s underperformance versus the Reagan recovery.
The other half? Maybe we can attribute that to policy differences.
While one president cut long-term marginal tax rates, the other tried a massive burst of federal spending. One empowered private enterprise; the other empowered government.
Of course, economies will eventually recover on their own, as this one seems finally to be doing. But Obamanomics shouldn’t get much credit for it.
James Pethokoukis is editor of The American Enterprise Institute’s Enterprise blog.Follow @NYPostOpinion