January 13, 2016
Dean Baker
The New York Times, January 12, 2016
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When President Obama took office seven years ago the economy was in a full-scale tailspin. It was losing 700,000 jobs a month, the auto industry was facing bankruptcy and the major banks were on life-support. These were undoubtedly bad economic times, but this crisis also opened the door to real change. Just as the Great Depression created the political space for Social Security, the federal minimum wage and the Wagner Act institutionalizing unions, the economic crisis that President Obama was handed could have created an opening to allow for a very different economy.
Unfortunately, major transformations were not forthcoming. Obama took the steps necessary to get us out of the immediate crisis. He pushed through a stimulus package that quickly reversed the tailspin and had the economy growing at a healthy pace by the end of the year. He also bailed out the industry, keeping GM, Chrysler and hundreds of supplier firms in business. These were hard fought battles even for a Congress run by Democrats, but they were important for the health of the economy.
While this was a good start, the economy is still very far from recovering the ground lost in the downturn. We are down more than six million jobs from what the Congressional Budget Office (C.B.O.) projected for 2015 in the winter of 2010. This projection provides a useful benchmark since the C.B.O. made it after seeing the worst of the downturn run its course.
The missing jobs don’t translate into high unemployment because so many people have left the labor market. And, this is not just a story of baby boomers retiring or workers with limited skills unable to find jobs in the modern economy. Employment rates are down from prerecession levels even among prime age (25-54) workers with college and advanced degrees. In spite of strong recent job growth, the labor market remains weak.
The weakness shows up in wages. The high unemployment of the recession years led to a huge income shift from wages to profits. The labor market has not tightened enough for workers to get back their share of income. As a result of this shift and the extraordinarily slow economic growth of the last five years, total wages in 2015 were more than 10 percent lower than the level predicted by C.B.O. in 2010.
Remarkably Wall Street is still standing, with the big banks even bigger than before the recession. Financial speculation and predatory lending are probably still the best ways to get rich in today’s economy.
Obama supporters can rightly point to the Republican Congress’s efforts to block President Obama at every turn. Undoubtedly they have been a serious constraint. But President Obama cannot escape blame. After all, it was his decision to “pivot to deficit reduction” immediately after the stimulus passed and to appoint two deficit hawks, Alan Simpson and Erskine Bowles to head his deficit commission. And, it was his decision to both keep the major banks alive with low interest loans and to block efforts to use Dodd-Frank to break them up.
In short, things could certainly be worse. If we are grading on a curve, President Obama does better than almost any of his foreign counterparts. But his presidency did not lead to the sort of transformation we might have expected at the peak of the crisis.
