Barack Obama served as President from Jan 2009 – Jan 2017. When Obama came to office in Jan 2009, the US economy was in a deep recession, with falling real GDP, high unemployment and rising levels of government borrowing.
As President, Obama oversaw a moderate fiscal expansion which helped to promote economic recovery and falling unemployment. Given the depth of the 2009 recession, some argue the recovery was relatively weak. But, compared to the Eurozone, the US economy performed relatively well, with unemployment falling to pre-recession levels. However, despite a prolonged economic recovery, the US recovery was unevenly distributed. Median wages barely rose, and this compares to a booming stock market and rising corporate profit levels.
In evaluating the economic success of a president, it is worth bearing in mind many factors influence the economy beyond a President’s control. These include; trends in the global economy, long-term structural changes, Monetary Policy by the Federal Reserve and investment by private enterprise.
Economic statistics of Obama years
In 2009, shortly after coming to office, Obama passed a bill American Recovery and Reinvestment Act of 2009 – which involved $831 billion of economic stimulus – including tax cuts, unemployment benefits and infrastructure spending.
This recovery package played a role in boosting economic growth, though it also coincided with a global economic recovery and a loosening of monetary policy. Still, the OECD credits faster growth in the US compared to Europe was due to US stimulus and European austerity. (CNN link)
The stimulus bill was criticised by some for increasing the budget deficit. Others, such as Paul Krugman criticised the stimulus bill for being inadequate and too small – given the level of spare capacity in the US economy.
The stimulus of 2009 contributed to high levels of Federal borrowing, though, it is worth bearing in mind, the borrowing was also significantly increased by cyclical factors – e.g. lower tax revenues in the recession.
However, economic growth during 2010-16 helped the Federal deficit to shrink to 3% of GDP by 2016.
Public sector debt has been stabilised
Some analysts feared that the stimulus package and higher borrowing would increase borrowing costs and lead to rising bond yields. However, bond yields fell during the period 2010-16, suggesting there was no crowding out, but, in fact, there was a high demand for buying US government bonds.
US bond yields declined to record levels; this reduced the cost of financing Federal borrowing.
One of the strongest features of the US economy in 2010-16 was the relatively rapid decline in unemployment and the corresponding rise in employment levels. This mirrors a similar employment pattern in the UK, which also saw rapid fall in unemployment; however, it contrasts to the Eurozone where unemployment stayed stubbornly high.
US unemployment fell quicker than Eurozone unemployment. This suggests the US responded more effectively to the Great Recession of 2009. Though, at least partly, it may be due to more flexible labour markets in US and UK – than in the Eurozone.
Despite the relatively rapid decline in unemployment, there has been concern about the quality of new jobs. (another feature of the UK recovery) In particular, median wages have been relatively stagnant in the period 2007-16. In other words, ordinary workers have not benefitted from the economic growth as much as companies and the higher paid.
Since the Minimum Wage was last set in July 2009, at $7.25 per hour, the US federal minimum wage has declined in real terms. The US minimum wage is relatively low compared to median wages.
There are many reasons for this low wage growth – factors, such as automation, increased competitiveness due to globalisation, a decline in trades unions and a rise in monopsony power of employers.
There has been increased scrutiny of the US manufacturing sector in recent years. Since 2009, US manufacturing saw a sharp rebound (from a very deep recession) However, since 2012, manufacturing output has stagnated, struggling to transcend the previous peak of 2007.
Manufacturing employment staged a small recovery from 11 million to over 12 million employed at the start of 2016. However, this graph illustrates the long-term decline of US manufacturing employment, which has occurred over the past couple of decades.
A signature policy of Obama was the automobile bailout package. Controversially, he authorised a major bailout of GM and Chrysler who were at risk of bankruptcy. The automobile bailout has generally been considered a success with both companies successfully turning around their business. Without the bailout, there would have been significant job losses in the automobile and related industries.
US inflation has remained low, with some periods of cost-push inflation in 2011.
Given the state of the economy in 2009, the economic performance of the Obama years could easily have been worse. Compared to similar economies, the US economy was relatively strong – with an impressive decline in unemployment and reasonably strong economic growth. Despite fears over the economic stimulus package, there were no adverse consequences – there was no inflationary impact or rising bond yields. It compares well compared the relative austerity of Europe.
Despite the impressive figures of GDP and unemployment, many workers have not felt much of a recovery in their wages and job security. New jobs are increasingly in the new flexible ‘gig economy’ which give firms greater flexibility but offers lower wages and greater insecurity to workers. Also, the challenges of rapid technological change and increased automation of manufacturing processes have led to profound changes in the US labour market, which have led to higher inequality and insecurity.
In Obama’s defence, it is difficult for a President to overcome these global technological and structural developments, which are almost unstoppable. Given low wage growth and greater job insecurity, the most effective way to improve living standards for the low paid is probably to extend welfare support – such as free health care – rather than try to return to the days of 17 million people working in US manufacturing. In this regard, Obama health care offers some improved living standards for the previously uninsured.