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Obama’s mixed economic legacy

by Darrell Delamaide

Obama’s mixed economic legacy

President Barack Obama has been talking up his economic legacy, but it’s ringing hollow for much of his audience.

Most experts give Obama credit for the 2009 stimulus package that pulled the US back from the brink of a full-fledged depression. But they also fault it for being inadequate to fuel a robust recovery, while his too-quick pivot to deficit reduction further dampened economic growth.

Worst of all for a candidate swept into office on promises of hope and change, both income and wealth inequality dramatically worsened during his tenure as he adopted a stubbornly centrist approach – instead of using the substantial political capital he had in his first two years to effect real change.
So Hillary Clinton is having a tough sell as she seeks to build on that legacy by promising even more of the same.

Labour participation

If Donald Trump still has any standing in the polls, it is because he has spoken to the wide swaths of the US population who feel the country is still in the grip of a recession. Trump has excoriated what he calls the Obama-Clinton economic policies for the sluggish US recovery over the past eight years.

In an economic policy speech in Detroit in August, he noted that the number of Americans outside the labour force had increased by 14m since Obama took office, to 94m (though some of this increase is due to demographics as an aging population retires), and that labour participation was at its lowest level in four decades.

Chart: Labour market participants fall to 35-year low
US labour force participation and unemployment rates, %, 1990-2016 (Source: US Bureau of Labor Statistics)

Darrell -chart -(JH-edit)

Some 7m more people have fallen below the poverty line, Trump added, pushing the poverty rate up by 1.6 percentage points to 14.8%. Nearly 12m people have been added to the food stamp rolls since Obama took office, drawing subsidies so they can afford the most basic groceries.

Some economists talk about a ‘dual economy’ in the US, with employees in core sectors of finance, technology, and electronics getting higher salaries and accumulating wealth, while everybody else languishes in poorly paid jobs (or long-term unemployment) with only intermittent access to relatively expensive credit. 

Peter Temin, a professor emeritus at the Massachusetts Institute of Technology, has noted that US workers as a group have hardly had a raise in a generation. Many are leveraged to the hilt, often for homes that are still underwater from 2008 or in hock for college degrees they could not complete.

These are the people Trump is speaking to, and they are listening. By the same token, these are the people Obama is ignoring when he boasts about his economic legacy. This is what makes Clinton’s task that much more challenging. 

When Clinton gave her economic policy speech three days after Trump, also in Detroit, she pointedly avoided any discussion of macroeconomic statistics. In fact, the hour-long speech did not mention Obama or his policies at all.

Clinton’s detailed policy prescriptions – spending $10bn here, $25bn there – seem unlikely to have a transformative effect on an $18tn economy. The $25bn, for instance, is supposed to be government ‘seed money’ which will unlock $250bn in private capital to finance her plans for $275bn in infrastructure investment. Trump, by contrast, is proposing to spend $500bn on infrastructure.

Clinton lamented that the factory she had just visited imported most of its precision machinery from Germany, Italy, and Japan, and said she wanted to bring precision manufacturing back to the US. She also gave a nod to creating more non-college training opportunities and encouraging paid corporate apprenticeships for skilled blue-collar labour. In general, her prescriptions were modest, the type of incremental measures Obama has characterised as ‘small ball’.

Economy remains a problem

Part of Clinton’s strategy appears to be to keep a low profile in the media – based on the theory that Trump will defeat himself as he continues to provoke outrage among various categories of voters.

But the economy – which in a normal election year would be decisive – remains a problem. Not only did Trump get 14m votes in the Republican primaries; Bernie Sanders, who challenged Clinton for the Democratic nomination, got 13m votes with much the same message about inequality and lack of economic opportunity in America.

These 27m voters who are unhappy with the state of the economy compares with 16m votes won by Clinton. And Clinton has her own popularity problems, with the abiding email controversy pushing her favourability rating into negative territory.

The gap between the two major party candidates has widened to nearly double digits in Clinton’s favour. But much of that margin can be attributed to aversion to Trump, including among many Republican officials who have repudiated him.

Clinton may well win the White House. But it will not be because of the strength of Obama’s economic legacy – rather, almost in spite of it.

Darrell Delamaide is a writer and editor based in Washington. This is an edited version of an OMFIF report ‘Obama’s mixed economic legacy’. For more details contact editorial@omfif.org.