Obama’s economic millstone
When historians look back at how Barack Obama lost the 2012 election - or won it only because the Republicans nominated a certifiable space case - they will doubtless focus on his first few months in office and ponder why he didn’t do more to stanch the recession and arrest the downward mobility of the American people.
Of course, by the standards of a conventional recession and conventional American politics, Obama did a lot. He sent an $800 billion stimulus package to the Hill, where it encountered rocky going from Republicans and center-right Democrats who thought it too large. It did look large at the time, even though critics pointed out that its chief features — an incremental payroll tax cut, aid to state governments, and funds for infrastructure projects that trickled painfully slowly through the normal state and local bidding and approval processes — might halt the economy’s slide but were hardly sufficient to turn it around. And by opting for barely perceptible tax cuts, preserving public services and a glacial rollout of public works, the Obama administration had devised a stimulus whose price tag was apparent to all but whose achievements were all but invisible.
By mid-2011, it was clear that Obama had done little to address the nation’s fundamental economic problems. As had not been the case during previous recoveries, America’s major corporations and banks were investing abroad rather than at home. Unemployment still exceeded 9 percent. Almost all the growth the nation had experienced since the economy bottomed out in mid-2009 had gone to profits; wages during that time actually declined. Their incomes diminished and mired in debt, Americans were unable to purchase enough to get the economy going. Even if their purchases had increased, a lot of their funds would simply have flowed to the nations that made the things they purchased.
So, the historians will surely ponder, how did Obama’s economic and political aides not see this coming? They were famously brilliant — chief economic guru Larry Summers intimidatingly so. Yet they devised a recovery plan that failed to account for the radical changes that had swept the American economy during the previous decade, even though the evidence of those changes was increasingly apparent.
To be sure, the recovery program that the president proposed and Congress enacted would have worked in any previous post-World War II recession — just not in the economy of 2009. With Asian markets accounting for more and more of American companies’ revenue (between 2001 and 2008, the share of revenue of the Standard & Poor’s 500 coming from abroad rose from 32 percent to 48 percent) and Asian labor accounting for more and more of American companies’ production, it should have been clear that when these companies regained their footing, they would hire abroad rather than at home. With 93 percent of the private-sector workforce not represented by unions, and with unemployment still high, it should have been clear that American employees had no power to increase their wages or dig out of the debt they had incurred as their incomes stagnated.
In short, the virtuous circle that had worked during previous recessions — a stimulus or lower interest rates leading to more hiring, which leads to higher incomes, which leads to more purchasing — no longer existed. This recession required — and very much still requires - a massive public employment program to fill the hole created by our offshoring private sector and Americans families’ towering debt. Such a program would have required a massive and brilliant sales job from Obama at the outset of his presidency, given the decades of the American right’s delegitimization of government. Obama’s political aides dismissed this option out of hand; his economic aides failed to insist on it. And by 2011, historians will note, no such sales job was possible: By then, it was clear that the public deemed the 2009 stimulus a failure and was unwilling to entertain the thought of a repeat performance. But polling (including a recent survey by Democratic pollster Stan Greenberg) also showed that favoring domestic private-sector job creation (a little nationalism in our trade policy, anyone?) and upgrading America’s education and infrastructure retained substantial public support.
We don’t know what historians will say of those policies, of course, because we don’t know if Obama will embrace them sufficiently or at all (particularly on trade). We do know that if he doesn’t, historians will be more likely to be telling the story of his political demise.
HAROLD MEYERSON is editor-at-large of American Prospect.