The economy is limping along. Everyone agrees with that. The consensus is that over the last 80 years, the Great Recession is second only to the Great Depression as an economic downturn. The consensus is also that Barack Obama didn’t cause this. The dispute begins between those who think he should have done more and those who think he did all he could.
Personally, my thoughts have fallen between those two camps. I felt Obama averted a complete collapse of the economy but the recovery was a bit lackluster from a combination of missteps from Congress and Obama. Then I came across these charts, scanned the global economy and put a little history into today’s perspective. The results suggest something different from my original thoughts.
First, here’s a glimpse at the Great Depression on economic growth and unemployment.
It is clear that during the period from 1929 to 1933, Herbert Hoover’s presidency, the GDP fell by a quarter and unemployment nearly quintupled. Little wonder that FDR slaughtered Hoover in the 1932 election. The next chart on per capita income breaks down the economic fluctuations by major events. It shows that FDR’s policies had an immediate although not a major impact.
The argument can be made that the Depression was bottoming out just as the election of 1932 hit. However, that and FDR’s policies began to stir some life into the economy. Change was slow. It continued until about 1937 when things again slowed until World War II would jump-start the economy. FDR easily won reelection in 1936 because the economy had been on a trajectory of improvement since his election.
As the following charts will show, the economy has also been on a trajectory of improvement with Barack Obama. The reason it has not paid off in political support for Obama is that the fallout of the economic collapse had not hit bottom until his first year in office. If Roosevelt had taken office in 1931 instead of 1933, his recovery would look similar to Obama’s. Conversely, if Obama had taken office in 2010 instead of 2009, his recovery would look a lot more like Roosevelt’s.
As both charts show, the economy has improved significantly under Obama. It is true that in comparisons with other recessions, Obama’s recovery has not been as robust. But let’s not forget that this is the Great Recession. This was the worst economic downturn since the Great Depression. If the Great Recession’s recovery is compared with the Great Repression, the recovery was just as strong, if not stronger.
Considering that the world is more of a global economy than during the 1930s, the policies of any president are going to be less effective than 80 years ago. What happens in Europe and China have a much larger impact on the American economy than in the 1930s. Obama and any president are very limited in how they can influence those foreign actors.
When it comes to the presidency and economics, it is a lot about luck. Herbert Hoover had the misfortune of an economy that sank six months into his presidency. Widely blamed for the Great Depression, Hoover was not responsible for it. While Hoover could have been more creative and proactive in dealing with its collapse, the economic thinking of the day was to let things run its course. The fall was far greater than anyone anticipated. What little Hoover did had a minor affect. Then, just as the 1932 election rolled in, things started to level off. Unfortunately for Hoover, it was too late and unnoticeable to most Americans.
Roosevelt assumed office at the time when active government involvement in the economy could make a noticeable difference. The collapse had run its course, just as Hoover’s economists said it would. It just took longer than they thought. The recovery was far slower too, but Roosevelt was lucky again. Because all the recovery came during Roosevelt’s administration, he received all the credit. He was also lucky that when a recession would hit the recovery in the late 1930s. It came after the 1936 election, which Roosevelt won easily over Alf Landon.
The misfortune for Obama is that he was burdened with the collapse that started in the last months of the Bush administration. He doesn’t get the blame for the recession, but he doesn’t get full credit either. Critics point out that gas less than $2 a gallon when Obama took office and unemployment at 7.8%. Nearly four years later, gas is $4 a gallon and unemployment is still at 7.8%. It makes it look like Obama has done nothing. What is not addressed is that gas was $4 a gallon in the summer before Obama took office and prices fell because the economy had its legs kicked out from underneath it. At the time Obama took office, unemployment was skyrocketing and would not top off until late 2009. The unemployment rate decline is much more impressive for Obama if the end of the recession is used as a marker than when he took office.
What all this means is that whether Obama or Romney is in office for the next four years, there will probably be a slow and steady recovery. At this point, it isn’t so much what a president can do to make things better but what a president will not do to make things worse.
Massive tax increases, massive cuts or a default on the debt could once again kick the legs out from underneath the economy. A collapse of the European economies or slowdown of the Chinese economy could also impact that. Of course, running trillion dollar deficits is a mistake as well. The budget may not need to be balanced but the deficit must be slashed to at least half its current level. Some of the proposals out there suggest doing a lot more than that. It is questionable that the dramatic proposals being presented can do that without hurting the economy.
Obama may not be as lucky as FDR, but he is not as unlucky as Hoover. That is why a close election is set for November 6. It is supposed to be a referendum on Obama, but it is more one about luck.