Redefining Economic Success Down
With the Inauguration just around the corner, it would be wise to take stock of where we are, to better evaluate the performance of Mr. Trump once he takes office. Polls reflect the people’s belief that the country is on the wrong track, in large part because they believe that the economy is not working for them. Undeterred by such opinions, soon to be ex-President Obama has spoken in glowing terms of U.S. economic performance on his watch, selectively pointing to certain favorable economic statistics, but largely ignoring unfavorable statistics, including the ones that are the most important. That Obama, his media allies, and the rest of the political left would push this narrative of economic success should come as no surprise, but based on the actual performance of the economy under Obama, that narrative surely qualifies as “Fake News”.
The single most important economic fact bearing on the health of the economy – and ignored by Obama and his allies – is the real rate of GDP growth. On a long term basis, the real rate of GDP growth is what largely determines the standard of living that we will enjoy – or suffer. During the Obama years (including the Administration’s projections for the current quarter), the economy will grow by less than fifteen percent in real terms. Annualized, the rate of real GDP growth on Obama’s watch has averaged roughly 1.5 percent, and has never exceeded 2.6%. By contrast, under George W. Bush, the economy grew by roughly twenty percent, averaging growth of more than 2 percent annually. In four of those years the economy grew by more than 2.6%, and in two of those years by more than 3%. Those are not good numbers, but better than Obama’s.
This information comes courtesy of the U.S. Department of Commerce’s Bureau of Economic Analysis (“BEA”). Since World War II, we have had twelve Presidents. Based on BEA numbers, in a ranking of those twelve Presidents based on GDP growth while in office, Obama ranks dead last.
Also ignored by Obama and his allies is the increase in the Federal Debt, in both absolute terms, and in relation to the size of the economy. The size of the Federal Debt represents the degree to which we have mortgaged our future (and our children’s future) in favor of current consumption. According to the Federal Office of Management and the Budget (“OMB”), when Obama took office the deficit was 9.9 Trillion Dollars, and was 68% the size of the economy. When he leaves office the deficit will be more than 19 Trillion Dollars, and will be approximately105% of the size of the economy.
Based upon BEA and OMB numbers, in current dollars, during the Obama years the economy will grow by about 4 Trillion Dollars, from 14.7 Trillion Dollars in 2008 to approximately 19 Trillion Dollars in 2016. However, during the same period the Federal Deficit will grow by more than 9 Trillion Dollars. With their tendency to point to deficits as promoting growth, how can Obama and his allies explain the wisdom of incurring more than 9 Trillion Dollars in extra debt, with only an increase in annual GDP of a little more than 4 Trillion Dollars to show for it?
Finally, there is the health of the labor force to consider. While new jobs have been created during the Obama years, focusing only on job creation or the official unemployment rate does not provide an accurate picture of where matters stand. The growth in disposable income (which has been flat), the labor participation rate, and the nature of the jobs created also have to be considered, and each of these factors have been ignored by Obama and his allies.
Fortunately, an analysis of the nature of the jobs created during the last decade was recently completed by Lawrence Katz and Alan Krueger, the latter the former Chairman of the White House Council of Economic Advisors under Obama. Katz and Krueger concluded that “[t]he percentage of workers engaged in alternative work arrangements – defined as temporary help agency workers, on-call workers, contract workers, and independent contractors or freelancers – rose from 10.7 percent in February 2005 to 15.8 percent in late 2015”. Put differently, nearly all of the net new jobs created during the Obama years were not the type of permanent full time jobs that most seek, but rather “alternative work arrangements” of the type that most people don’t want except when permanent full time jobs are not available.
If this were not bad enough, according to the Department of Labor’s Bureau of Labor Statistics approximately 95 million adult Americans are currently not in the workforce – as against a number of roughly 80 million who were not in the workforce when Obama took office. To put these numbers in perspective, since Obama took office the U.S. population has grown roughly 7 percent. The number of adult Americans who dropped out of the workforce during the same period has grown by nearly 20 percent, or nearly three times as fast. It should also be noted that the number of adult Americans who have dropped out of the workforce exceeds the net number of new jobs created during the Obama years.
That 15 million Americans – which is equivalent to the adult population of New York State – have been forced out of the labor force in the last eight years is a socio-economic catastrophe of enormous proportions. Moreover, to add insult to injury, these victims of Obama and his progressive policies are not even counted towards the official number of unemployed. All of this makes a mockery of the official unemployment rate of less than 5 percent. If just the increase in the number of “dropouts” during the last eight years were added to the number who are officially unemployed, the unemployment rate would rise to nearly 13%.
Obama once claimed that George W. Bush drove the economy into the ditch, and there was some truth to that claim. However, there is a canyon beyond the ditch, and what Obama and his allies won’t admit is that in their efforts to push the economy out of the ditch they have pushed it in the direction of – and dangerously close to – the canyon wall. That is the economy that Trump will now inherit. I don’t envy him.