Someday quite soon, like maybe tomorrow, this mess of an economy will belong to Barack Obama and his administration. He will own it, not his predecessor. This is as it must be – we only have one president at a time -- and public-opinion polls suggest that millions of Americans feel that this is already the case, their numbers increasing with each new round of the deteriorating economic news that has greeted each of Obama's five-plus months in office.
While that's not a long time to alter the course of the world's largest economy, it is long enough for Americans to start to wonder if Obama and the ruling Democrats in Congress have the answers – or, even more ominously, whether their prescription has made things worse.
On Inauguration Day 2009, the unemployment rate stood at 7.2 percent, while the declining Dow Jones Industrial Average stood at 8281. An estimated 45.7 million Americans did not have health insurance, and 7.6 million American families were below the poverty line. The federal budget deficit for 2009 was projected to be a record $1.2 trillion.
Today, the Dow is a tad higher, while the uninsured numbers have not appreciably changed. The federal deficit has soared, as have the unemployment figure, which stands at 9.4 percent, and rising. Obviously, the budget is the variable that a president has the most direct influence over, but it is those unemployment figures that are most disturbing. They drive every other national economic statistic in the wrong direction, inflict direct pain on American families, and signify the depth and duration of the nation's recession.
Throughout almost all of George W. Bush's two terms in office, unemployment ranged between 4 percent and 6 percent. Four percent is not really a problem; in fact, historically it's considered by economists to be a rate approaching full employment. Six percent is troubling, but sustainable – as long as the number is not heading upwards.
On Election Day 2008, unemployment stood at 6.1 percent. But it wasn't stable, and most people knew it. It was going higher.
Economists now know, officially, that the current recession began in December 2007. The U.S. economy is cyclical and such dips in the road occur regularly, but this slowdown seemed by the end of Bush's term to be qualitatively different than previous recessions. The bursting of the housing bubble, the seizing up of the financial markets, and the stalling in economic activity proved to be interrelated ills that, together, defied an easy solution. By late November, in fact, Bush and Obama were working together to try to forestall disaster – something Herbert Hoover and Franklin Roosevelt hadn't managed to pull off in the momentous transition of 1932-1933.
Bush's and Obama's prescriptions for the financial markets were not much different. Both men believed that an emergency infusion of hundreds of billions of federal dollars to bail out the banks was necessary to avert disaster. And on Nov. 24, with Bush's tacit blessing, Obama essentially began exerting some level of influence over the economy. Moments after Bush spoke at the Treasury Department about the Citigroup bailout, Obama introduced his new economic team and expressed explicit support for Bush's plans while describing what would be a cornerstone of his own approach: a massive federal spending program designed to jump-start the economy.
"We have to make sure," the president-elect said that day, "that the stimulus is significant enough that it really gives a jolt to the economy."
"The news this past week, including the morning's news about Citigroup, has made it even more clear that we are facing an economic crisis of historic proportions," Obama added on that late November morning. "If we do not act swiftly and boldly, most experts now believe that we could lose millions of jobs next year."
Benefiting from a pliant Congress of his own party, Obama certainly did act speedily. Twenty-seven days after taking office, he signed the American Recovery and Reinvestment Act of 2009, which called for $787 billion in federal spending – all of it borrowed money – to stop the hemorrhaging.
"Today does not mark the end of our economic troubles," Obama said before signing the bill in Denver. "But it does mark the beginning of the end – the beginning of what we need to do to create jobs for Americans scrambling in the wake of layoffs; to provide relief for families worried they won't be able to pay next month's bills, and to set our economy on a firmer foundation."
It hasn't yet worked out that way.
Two weeks ago, the unemployment rate went to that stunning 9.4 percent level. Last week, at a press conference, Obama said rather casually that it would probably go over 10 percent, which has happened only once – in Reagan's first term – in the last 70 years, and which signals deep trouble for the president and his political party. Last week, the Congressional Budget Office also revealed that the federal deficit for the current fiscal year would reach $1.8 trillion. These are stunning numbers.
This is an annual deficit that is significantly larger, even in inflation-adjusted dollars, than at any time since World War II. Last July when the Bush administration announced that the deficit would reach $490 billion, House Budget Committee Chairman John C. Spratt, a South Carolina Democrat, said those figures confirmed "the dismal legacy of the Bush administration."
These days Spratt must adhere to the party line. But he's a candid and sincere fellow who doesn't pretend this is a sustainable situation. Two weeks ago, speaking in the context of a trillion-dollar-plus deficit, he said, "We could be heading into a Japanese-like recovery, which is weak and slow." Now that it seems the real number might be closer to $2 trillion, it begs the question of whether America is headed for a North Korean-type recovery – real weak and slow.
This underscores the risk of attempting to borrow your way out of a recession: If the infusion of government cash does not have an immediately stimulative effect, the pressure on the markets of such borrowing begins to be a drag on the economy instead of a boost. In other words, government action itself slows the natural recovery cycle.
Interestingly, this fear was expressed by both liberal Democrats and conservative Republicans. Some congressional liberals, heeding voices like those of New York Times op-ed columnist Paul Krugman, called for a much larger stimulus package under the theory that it would take truly massive public works projects and other spending proposals to oil the wheels of the economy and get it humming again.
Meanwhile, conservative Republicans, taking their cue from Hoover Institution economists such as Michael Boskin, said an immediate slash in the payroll tax was the best and fastest antidote, because it would put billions of dollars directly in the pockets of (employed) Americans so they could buy the cars, houses, and other goods that would keep manufacturers churning out goods instead of laying off workers.
Obama took the advice of neither ideological wing. As is his wont, he steered a more moderate course of action instead. Normally, keeping such an even keel has served him well, and every American who works for a living ought to hope now that Obama knows what he's doing. But a certain Republican senator from Arizona once reminded us that moderation in the pursuit of justice is no virtue. No, that wasn't John McCain, it was Barry Goldwater. We can only hope old Goldie's maxim doesn't apply to economic justice as well.