Epilogue: Economic Progress Under Obama
Barack Obama is now in his second term so his first term data has been added to the statistics presented in the other pages of this website. Still, we'll have to wait until after his second term is done before we can fully assess the overall effects of his economic policies. A few specific points about the unique challenges Obama faced during his first term will be discussed here to provide some context to his overall performance during his first term.
First, the total number of jobs lost durring the recession of 2008-2009 was somewhat unprecedented for the post World War II era. More jobs were lost between January 2008 and January 2010 than in any other period since the end of 1945 (Source: http://bls.gov).
In January of 2008 there were just over 138 million people employed. By December of 2009, that number dropped 6.3 percent to less than 130 million. A total of nearly 8.7 million people lost their jobs in just two years! For comparison, in the previous four economic downturns:
-1.2 million people lost their jobs between March and July of 1980 (a 1.3% drop).
-2.8 million people lost their jobs between July of 1981 and December of 1982 (a 3.2% drop).
-1.6 million people lost their jobs between June of 1990 and May of 1991 (a 1.5% drop).
-2.7 million people lost their jobs between February of 2001and August of 2003 (a 2.1% drop)
As you can see from the figure below, more people lost their jobs from 2008-2009 than in the previous four downturns combined!
You have to go all the way back to the end of World War II, when 4.3 million people lost their jobs (an 11.2% drop) because the war ended, for a comparable downturn. In the last 66 years no other recession has come close!
The majority of job losses occurred between September of 2008 and June of 2009 when almost 6.3 million jobs were shed (4.8%). 3.5 million jobs were lost in Obama’s first six months alone! Clearly, Obama was thrown into a very deep hole the day he entered the oval office.
So how have we done since then?
Between January 2010 and May 2014 (the month prior to when this is updated) a total of just over 8.7 million jobs were added to non-farm payrolls with nearly 9.4 million jobs having been added to the private sector. Even though more than 500,000 government jobs have been lost due to State and Local budget cuts, the number of employed finally exceeded the number they were when the recession began in January 2008. the economy was falling into a deep pit when Obama began his presidency; deeper than any President since Truman has faced and we've finally crawled out of it.
For comparison, George HW Bush netted only 1.2 million total jobs (265 thousand in the private sector) in his only term and George W Bush lost a total of 13,000 jobs his first term (13,000 fewer people were working at the end of his first term than in the beginning). In fact, 549 thousand fewer people were working in the private sector in January 2009 than January 2001 (See Jobs). And neither Bush began their presidencies with nearly as many job losses.
More people have already been employed in the private sector during Obama's presidency than during the entire eight years under George W Bush. This in spite of the huge recession Obama was handed in the beginning of his Presidency!
The trend in the unemployment rate under Obama so far bears an eerie resemblance to that of Ronald Reagan’s first term (see Unemployment). Both Presidents started with a rather high unemployment rate (7.4% in February, 1981, 8.3% in February, 2009). For both Presidents the rate rose substantially in the beginning of their first terms only to drop back down by the end. For Reagan it rose to 10.8% by November, 1982 and then dropped back to 7.3% by the end of his first term. For Obama, it rose to 10.0% in October of 2009, leveled off, then dropped substantially in the last four years half to where it is now at 6.3%. (see graph)
Figure 2: Comparison of the Unemployment Rates Under Reagan and Obama
The Peak under Obama isn’t as high or as sharp as it was under Reagan but the overall trend is very similar. In both cases, the unemployment rate rose sharply in the beginning then dropped later in the terms.
Gross Domestic Product (GDP)
The drop in the GDP From the second quarter of 2008 until the second quarter of 2009 was about as unprecedented as the job losses that occurred at that time. The GDP dropped about $670 billion or just over five percent over four consecutive quarters (source: bea.gov). Again, for comparison:
-The GDP lost 1.4% in the recession of 90-91.
-It dropped 2.7% in the recession of 81-82.
-It dropped 2.2% in the recession from Q1-Q3 of 1980.
-It dropped 3.2% in the recession of 73-75
-In 2000-2001 there wasn’t even a recession (technically). The GDP went down in two nonconsecutive quarters but the drop was only 0.33% for the first quarter of 2001 and 0.28% in the third quarter that same year. (See Graph)
The National debt rose 45% during Obama's first term. This was a bit less than it rose during George W. Bush's second term and far less than the proportion it rose under either Reagan or George Bush Sr. (see Debt).
A major reason for the increase in debt under Obama was a drop in federal receipts as a result of the recession. When 8.7 million people lose their jobs, that many people won't pay very much in taxes. Add to that the drop in real estate revenue from all of the foreclosures, the drop in capital gains from a stock market crash, etc... you get a substantial drop in revenue at a time when our government truly needs the money.
In 2007 the federal government brought in $2.57 trillion (source: St. Louis Fed). That amount dropped to $2.1 trillion by 2009. In the last three years of Bush’s presidency (2006-2008) the federal government took in $7.5 trillion. In the first three years of Obama’s presidency, that amount dropped to $6.57 trillion (a 14% drop!). When you get a 14% pay cut the same year that your roof starts leaking, you’re going to run up your credit card.(See Graph)
Also, the deficit has been dropping each year Obama has been in office. As the following graph shows, the deficit in 2013 is less than half what it was in 2009.
Figure 5: Deficit
The recent rate of inflation has been negligible. The average annual rate of inflation has been 2.1% per year since 2009 which is the lowest it's been in decades. Since interest rates are near zero now and the most effective way to combat inflation is to raise interest rates, it’s unlikely we will see any significant inflation in the foreseeable future. Historically, neither the debt nor the deficit have ever had any significant impact on the rate of inflation in this Country. (See Inflation).
Conclusion: A Tale of Two Bubbles
People often compare the dot com bubble to the housing bubble as though they were similar events. We find this interesting since, outside of their effects on the stock market, the two events couldn’t have been more different. Certainly there was an irrational exuberance driving both markets to their extremes, but that’s where the similarity ends. The dot com boom emanated from the creation of a very new industry that brought major changes to our entire society in under a decade and is still very much with us today. The housing bubble was based on a completely false assumption that, in the end, brought financial ruin to large segments of the world population whether or not they played any role in the market while it was rising.
Even though the internet has been widely used for less than two decades, it’s already hard to imagine a world without it. In ten short years the internet changed our society about as much as telephones and television combined did in fifty years. It made vast amounts of information easily and instantly available to anyone with a computer and a phone line. It greatly increased both domestic and international commerce and brought the world together as it had never been before. In doing so, it also created about 22 million jobs and spawned whole new industries that wouldn’t have been imagined a few years prior.
When the bubble “burst” in late 2000, the internet didn’t go away. It’s true that the Nasdaq lost about 70% and the Dow about 40% of their peak values over the subsequent two years. Also, a number of people (and a few major corporations) that expected too much too soon from the internet went bankrupt. But apart from people who bet more than they could afford on an industry they didn’t understand, most people outside of the tech industry barely noticed the downturn. Of the 22 million jobs created between 1993 and 2001, a little more than ten percent were lost in the pullback. Afterwards, the internet continued to grow and evolve, but at a more realistic pace. The industry and its advantages never left or even shrank; only the irrational exuberance that drove up the stock prices went away.
The housing bubble was a far more insidious and destructive event in every aspect. It created an economy fueled by the building of houses nobody needed, selling them for money that didn’t exist and leveraging this alleged money for the appearance of incredible wealth that had no basis in reality whatsoever. It was in every way a make believe economy. When it finally collapsed the destruction left in it’s wake permeated nearly every aspect of the world economy and few people could escape its disastrous effects even if they tried to avoid them in advance.
Virtually every job that had been created since the Summer of 2003 (i.e. every job created during Bush’s presidency) had vanished by January 2010! Entire nations went bankrupt and many people who played no part in speculating on housing values found that their houses had lost much of the real value because so many people in their neighborhood did play the market and ended up in foreclosure.
It’s no exaggeration to call 2001-2010 the “lost decade”. It wasn’t just lost because of the economic hardship it brought. A large portion of our society had abandoned all realistic pursuits to chase after illusory wealth they believed could be created out of thin air. In doing so, it led our society to drift sideways for nearly a decade and, when it all finally fell apart, we had little to show for the ten years that had passed. Obama took office in the middle of the greatest economic free fall in about three generations. Whether you believe his policies helped is not important. What matters is the understanding that, by the time he took office, we needed to come back, not just from a financial calamity, but also from being off course for years.
In a sense, Truman had a much easier job. When World War II ended, millions of people in the war industry were suddenly out of work. However, entire Continents had been destroyed by the war and needed rebuilding. At the time, we were the only ones available for the job so redirecting all of those newly unemployed workers was far less difficult. Now, the challenge is to find entirely new and innovative industries in which to branch out in a world that provides very stiff competition at all levels. This after a decade of doing little more than chasing make believe money. Well, at least we still have the internet to help us face this challenge.