Jan 14th 2017

Looking Back on Barack

by Jeffrey Frankel

Jeffrey Frankel is Professor of Capital Formation and Growth at Harvard University.

BASEL – Any assessment of Barack Obama’s eight-year US presidency should start at the beginning: his first inauguration, on January 20, 2009. The US economy was in free-fall: financial markets had seized up, GDP was shrinking, and employment was plummeting, with some 800,000 jobs being lost each month. And two ill-conceived and badly executed foreign wars were underway.

In short, upon entering office, Obama confronted conditions more adverse than any incoming president had faced in many decades. True, Franklin D. Roosevelt inherited the Great Depression and Abraham Lincoln took office as the Civil War erupted. But who else entered the White House facing both an economic and a national-security crisis?

To tackle the economic crisis, Obama launched a fiscal stimulus and rescue programs for the financial system and the auto industry – policies that complemented and reinforced the US Federal Reserve’s aggressive and innovative monetary easing. Republicans nearly unanimously opposed the stimulus. And almost everybody was critical of the rescue programs, urging Obama either to nationalize the banks and auto companies or let them collapse.

Against all odds, the Obama administration made the middle path work. The recession ended in June 2009 – an achievement for which the administration did not get enough credit, despite the clarity of the turnaround. In the last quarter of 2008, economic output had declined by an astonishing 8.2% per annum. Yet, almost immediately after the stimulus program was implemented, the output decline and employment losses slowed sharply. The bottom came in June 2009, with output growth turning positive in the next quarter.

Net job creation followed early in 2010. Employment growth persisted for the remainder of Obama’s time in office, reaching record-breaking levels: the US economy added more than 15 million jobs during Obama’s remaining years. By the latter part of Obama’s second term, unemployment had fallen by half, to below 5%; wages were rising; and real median family incomes were finally increasing, by a record-high 5.2% in the most recently reported year, with lower-income groups benefiting from even higher gains.

True, the recovery was disappointingly long and slow. One reason was the depth and financial origins of the 2007-2008 crash. Another was the efforts of the Republicans, who secured a majority in Congress in 2010, to block further stimulus, even though more infrastructure spending and well-designed tax cuts were precisely what the US economy needed in 2011-2014. Republicans, it seems, support fiscal expansion only when they control the White House.

Obama managed two other major achievements before Republican obstructionism took hold: the Dodd-Frank financial reform bill and the Affordable Care Act (ACA, also known as “Obamacare”). Despite Republicans’ subsequent steps to weaken Dodd-Frank and the ACA, both reforms did much more good than most people realize. Dodd-Frank helped make a repeat of the 2007-2008 financial crisis less likely, and the ACA has given more than 20 million Americans access to health insurance while slowing the rise in overall health-care costs.

The two wars that Obama inherited were intractable. But he made the difficult decisions that led to the elimination of the instigator of the September 11, 2001, terrorist attacks, Osama bin Laden – a goal that his predecessor, George W. Bush, in his eagerness to invade Iraq, had lost interest in pursuing.

Moreover, in 2015, just as the press began labeling him a lame duck, Obama achieved a string of foreign-policy successes – namely, a much-needed nuclear agreement with Iran, normalization of relations with Cuba, and agreement on the Trans-Pacific Partnership (TPP). He also helped to secure a global deal to fight climate change, particularly by first achieving a breakthrough with China.

President-elect Donald Trump, who takes over the presidency this month, faces far easier conditions than Obama. Nevertheless, he has announced plans to reverse most, if not all, of Obama’s achievements. The TPP, for example, is dead. And four years from now will probably be too late to revive it, because by then East Asian countries may have been drawn into a China-led trade grouping instead.

In some cases, however, Trump will run into obstacles in translating his crowd-pleasing sound bites into reality. In repealing Obamacare, for example, Republicans are likely to be stymied by the absence of an alternative that does not take away the health insurance of 20 million Americans or raise health-care costs. Given this, they may end up making only minor substantive changes to the ACA and then slapping a new name on it – the analog of building a “beautiful” quarter-mile wall along the Mexican border to serve as a backdrop for photo opportunities.

Trump’s promise to tear up the nuclear agreement with Iran is similarly out of touch with reality. Without the participation of America’s allies, re-imposing sanctions will have little impact, beyond spurring Iran to restart and even accelerate its nuclear program. That’s what North Korea did when Bush, upon taking office, essentially tore up the “agreed framework” with that country.

With Trump poised to make such imprudent decisions, will US voters hold him accountable? Bush made serious economic- and foreign-policy mistakes during his presidency, beginning in its early years, with predictable consequences for the economy, the federal budget, and national security. Although his poll numbers soared in his first term, they were far lower by the time he left office.

Conversely, Obama’s popularity sagged during much of his eight-year presidency. Yet he leaves office with substantially higher approval ratings than most presidents achieve – and far higher than Trump’s. The American public does, eventually, recognize the successes and failures of their leaders. Unfortunately, it sometimes takes a while.


Jeffrey Frankel is Professor of Capital Formation and Growth at Harvard University.

Copyright: Project Syndicate, 2017.
www.project-syndicate.org

 


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