Political Spin in Full Spin on the Obama Economy

Real Clear Markets ^ | December 6, 2016 | Ray Keating 

As their time in office winds down, U.S. presidents and their supporters tend to focus on legacy: What will history say about them? Unfortunately, on the economy, the Obama crowd has a lot of work to do in the hopes that political spin will cloud or even overrule economic reality. The effort is well under way.
It's not like this hasn't happened before. Franklin Delano Roosevelt's New Dealers successfully spun the idea that Herbert Hoover was a laissez-faire president, unwilling to use the tools of government to fight off the Great Depression, and it took FDR and his government programs to end the depression and save capitalism from itself. Of course, a cursory review of the facts shows that Hoover was anything but a free-market advocate. Instead, he signed the protectionist Smoot-Hawley Tariff Act, jacked up government spending and intrusiveness in unprecedented ways, and hiked taxes dramatically. FDR built and drastically expanded on such measures, including ramping up federal regulation like never before. Hoover and FDR were alike in imposing burdensome costs and uncertainties on the private sector. Hence, we experienced the Great Depression.
It took decades for the real history of the era to begin to get more widely reported, by historians, economists and authors like Paul Johnson, Amity Shlaes, Larry Schweikart, Burt Folsom, and Robert Higgs.
Like FDR, Obama was dealt a very bad hand on the economy. However, he largely followed the Roosevelt prescription of government activism. Obama imposed more spending, hyper-regulation, and tax increases, while also threatening throughout his two terms to inflict even more tax hikes, regulations and spending. The results of increased costs and uncertainty on the private sector were predictable, that is, fewer resources and diminished incentives for starting up, expanding and investing in businesses.
Obama supporters apparently will have plenty of help in spinning the Obama economy, as a December 2 article in The New York Times carried the title "President Obama Is Handing a Strong Economy to His Successor." Really? The article basically highlighted an unemployment rate of 4.6 percent in November, and served up assorted quotes from the Obama crowd, which included Jason Furman, chairman of Obama's Council of Economic Advisers, offering the typical declaration from Obama circles that his policies saved us from another Great Depression.
But putting aside the spin and just looking at the numbers, it's unmistakable that Mr. Obama is handing over a badly under-performing economy to his successor. Consider economic growth and employment.
Real annual GDP growth since the end of the recession in mid-2009 has grown at less than half the rate it should during periods of recovery and expansion (averaging a mere 2.1 percent during this recovery compared to the historic average of 4.3 percent). If growth during this recovery had matched the historical average, GDP this year would approximately $2.5 trillion larger.
As for the recent drop in the unemployment rate, from 5.0 percent in September to 4.6 percent in November, it turns out that 78 percent of that reduction was due to people leaving the labor force altogether, rather than new jobs being created. Indeed, labor force participation and job creation have been woeful. Employment as a share of the population in November registered 59.7 percent. If this employment-population ratio registered a more typical level prevailing before the recession (for example, 63 percent), we'd have 8.3 million more people working today.
In the end, the additional costs and uncertainties courtesy of government policies under Obama have discouraged private investment and entrepreneurship (both also down markedly from where they should be), and resulted in less growth and diminished job creation.
Through costly, wrongheaded policymaking, Hoover in effect created a recession, and both he and FDR turned it into the Great Depression. Similarly, President Obama took a bad economy, turned it into a deeper recession, and generated one of the worst recoveries on record.
Given his dismal performance in office, in order to polish up his legacy, President Obama will have to rely on his own delusional declarations, the work of his political spin-meisters, and the complicity or ignorance of some in the media. Let's hope that historians look at the actual record.
Ray Keating is an economist and a novelist. His latest thriller is Wine Into Water: A Pastor Stephen Grant Novel.