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We Are Way Better Off Than Four Years Ago

September 4, 2012

Over the Labor Day weekend, the Romney-Ryan campaign began to ask Ronald Reagan’s question to voters about Jimmy Carter:  Are you better off today than you were four years ago?  Democrats initially reacted defensively, but quickly regained their footing.

There is no reason for defensiveness – things were truly awful four years ago.  Republicans bringing this up gives Democrats license to dwell at length on the situation they inherited from the Republicans – and it is hard to think of a subject better suited to winning voters over to the Democratic column.

In response to the bursting of the dot-com bubble and the recession that followed early in the George W. Bush administration, Federal Reserve Chairman Alan Greenspan suppressed interest rates to stimulate the economy.  At the same time, Bush won major tax cuts from Congress and engaged in a military spending spree – both also having stimulative effect.  Abundant money took advantage of deregulation and inattention.  Unconstrained competition for borrowers led lenders to trash their underwriting and lending standards.  Low quality loans were repackaged and sold worldwide as derivatives.  The results included exhorbitant asset prices:  an unprecedented global bubble in real estate, commodities and equities.

The Great Recession began in December 2007, as the real estate market went south and subprime loans became losers.  The downturn escalated sharply when Lehman Bros. fell on September 15, 2008, causing a world-wide panic that virtually shut down lending.  During the second half of 2008, asset prices collapsed.  Oil dropped from $147 in July 2008 to less than $35 at the end of the year, and other commodities followed suit.  Housing prices tanked.  International trade crashed.

The Great Recession was a global recession.  In about a year-and-a-half, the global value of corporations fell by more than $14 trillion.  Almost no country was exempt:  countries of every political persuasion, location, and state of development were sacked; dictatorships and democracies; large countries and small; socialist regimes and capitalist; oil-producing economies and oil-consuming.  Even those few that did not technically enter recessions exerienced drastically lowered growth rates.

Different countries reacted differently.  Most adopted some form of economic stimulus; some opted for austerity – or were forced into it, like Greece.  The United States went with stimulus – but only because after January 2009 the Democrats held firm control of both the executive and legislative branches of the federal government.  Other than tax cuts, Republicans would have chosen austerity.

President George W. Bush had to try twice to get Congress to pass the Troubled Asset Relief Program, which bailed out the financial industry.  TARP only passed because large majorities of Democrats supported it.  Bush initiated the bail-out of the auto industry, which Obama completed.  Obama obtained Congressional enactment of a stimulus bill, known as the American Recovery and Reinvestment Act – which ultimately passed the House without a single Republican vote, and passed the Senate with only three (Maine moderates Olympia Snowe and Susan Collins, and soon-to-be-Democrat Arlen Specter).  In order to get approval, the stimulus bill had to be scaled back – Keynesian economists like Paul Krugman say the stimulus package was about half the size that we needed.

The bottom line is that when President Obama took office, the global economy was in free fall.  It cannot be overemphasized how close the world came to a meltdown that might have taken decades to reverse.

By the end of 2009, the American financial industry was stabilized, and the American auto industry had been successfully restructured – both despite stiff Republican resistance.  Enough fiscal stimulus was enacted to reverse the American recession, but not enough to recover robustly.

Few developed countries did better, and many did worse – the Eurozone lapsed back into recession late last year.  China and India saw their growth rates fall, and may yet go into recession.  American unemployment, historically relatively high among developed countries, is now comparatively low – unemployment in the European Union, for instance, is 11.1 percent; American unemployment is almost three percent lower.

The country is emphatically better off than it was when Barack Obama became president.  Employment has grown for 22 consecutive months – and would certainly have grown faster had Republicans allowed a larger stimulus package.  Manufacturing and exports have boomed.  We are closer to energy independence than at any time in the last 20 years; domestic energy production accounts for 81 percent of our needs, up from a low of 70 percent during the Bush years.  Renewable energy is one of the sources of our overall job growth.  The housing market has stabilized, and growth has resumed in some areas.  The banking and securities industries have been partially re-regulated, including, critically, previously unregulated derivatives.

Ironically, the wealthy have done quite well under President Obama.  The Dow Jones has literally doubled from its low of 6,547 on March 9, 2009.  American corporations realized record profits in 2011.  American billionaires hit a new record – both in the number of billionaires and in their total wealth.  Given this staggering success of “job creators,” it does not seem unfair to question whether job creation is being held back by Obama’s policies or by corporate reluctance to do anything that might make the president look good.  Corporations are sitting on mountains of cash reserves, and billionaires like Sheldon Adelson and the Koch Brothers evidently prefer to invest in ridding themselves of Barack Obama than in creating actual jobs.

This is not at all to say that Obama’s economic record has been flawless, even given the complete lack of assistance, or participation, by the Republican Party.  I would criticize the Obama economic team for two things:  first, the failure to include a major program of relief for “underwater” homeowners in the stimulus package; and second, the failure to follow up the stimulus package with consistent focus on job creation.  But assessment of both failures must be tempered by realization that Republicans would not have cooperated in either effort.

Of course, a presidential election is not really about whether we are better off now than four years ago – it is about which candidate is more likely to make us better off over the next four years.  As far as we can tell, Mitt Romney holds to modern Republican orthodoxy:  tax cuts are always good, revenue shortfalls should be made up by cutting entitlement programs, less regulation is always better than more, and government should not be in the business of altering market outcomes – for instance, by giving a boost to renewable energy production.

That way lies disaster.  Europe remains in recession, and the European Union has walked the Euro right up to the brink.  China is slowing, and the Chinese will probably have to divert resources to domestic stimulus from buying our debt, which will increase our interest rates.  Crazy as it sounds, global warming might just turn out to be real, and the single-minded pursuit of carbon-based fuels may flood a lot more than the Louisiana bayous, and this year’s corn crop losses may be only the beginning of a much greater disaster.  Pulling back on federal investment in solar, wind and other renewables may mean that China dominates that industry just as it booms.  Undoing Obama’s modest banking re-regulation would sooner or later plunge us back into derivative devastation.

We need more domestic spending, not less.  We need to rebuild our existing infrastructure, and we need to build new infrastructure – high-speed broadband and high-speed rail would be great places to start.  We need more federal spending on educational infrastructure, not less.  We need to rebuild our existing power grid, to make it more efficient and more reliable.  We need more federal spending on renewable energy production, not less.

Every one of those programs would create jobs – white-collar and blue, hard-core industrial and new-age technical.  Every one of those programs would enhance American competitiveness in the world.  Every one of those programs would yield returns for the next four years, and for decades to come.

Is there really any serious question which candidate is more likely to do pursue those programs?

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