Under normal circumstances, one would have to say that our economy is functioning reasonably well. Unemployment is down to 5 percent, inflation is under 2 percent and last year’s fiscal deficit was the lowest since 2007.
In the current environment of ideological noise, however, a calm discussion of the overall effects of President Obama’s economic policies seems impossible.
Instead, I will try to analyze his specific actions from the benefit of hindsight.
After inheriting the worst economy since the great depression in 2009, Obama’s first major effort was passage of the stimulus package. The initial spending totaled $787 billion, later increased to $831 billion during the next two years.
Though most economists agree that without this spending the economy would have fallen further and unemployment higher than what actually happened, there was nasty debate about the size and composition of the package.
First, though this level of spending seems high, as a percentage of gross domestic product it was only half of what we experienced during World War II. In fact, some leading economists called for $400 billion more spending in order to reduce unemployment faster.
Also, the new president allowed his Democratic colleagues in the House and Senate to create the package. Instead of a focused approach such as infrastructure improvements, which would have been clearly visible and beneficial for public morale, Democrats in Congress filled the package with so many pet projects the stimulus was spread thin with little apparent impact.
Second, when it came to punishing those responsible for creating the financial crisis, Obama chose not to prosecute investment bankers who clearly had committed fraud. He was convinced by Treasury Secretary Tim Geithner that the economy was too fragile and criminal proceedings against leading bankers would cause further decline.
Geithner had been president of the New York Federal Reserve Bank and vigorously protected the interests of Wall Street. Sadly, his approach fed tea party claims that Obama’s commitment to Main Street was hollow.
The president’s signature legislative success was the Affordable Care Act known as Obamacare.
His proposal, curiously, was modeled after the plan the conservative Heritage Foundation developed for Republicans in the 1990s. In fact, U.S. Sen. Robert Dole, Republican presidential candidate in 1996, introduced this program in Congress.
Twenty years ago Dole’s party supported this concept because it relies on private insurance companies competing in the market for customer business. Cost savings would be achieved by allowing individual citizens to join purchasing groups so they could obtain the benefits of lower medical prices previously realized only by people working for large companies.
Why Obama supported this plan instead of the single payer approach favored by the majority of people in his party remains a mystery. He could have adopted the original Heritage idea as a compromise if his first initiative had failed.
Instead, the Republican leadership announced that their primary goal was to block Obama’s re-election and directed their members in Congress to vote against the plan they originally proposed.
Since its passage, more than 11 million uninsured Americans have gained coverage, problems from pre-existing conditions must be covered by insurance, families may keep children on their policies until age 26 and the growth of health care costs has been reduced.
Unfortunately, the hyper partisanship has made it impossible to find ways to make the program work better.
The opportunity for states to expand Medicaid with substantial federal subsidies (90 percent at first), for example, has divided states along party affiliation. Democrat led states have joined while most Republican states refuse to do so even though the financial benefits for states seem clear.
The Dodd Frank Law (2010), developed to counter the factors that caused the financial crisis of 2008, was the second most important legislation passed during Obama’s presidency.
While the law established needed equity requirements for banks and consumer protections in the environment of complicated new investment instruments, it failed to achieve three goals supported by most reformers.
It did not create a regulatory system for derivatives, it did not fully implement the “Volker Rule” (to prohibit commercial banks from making risky equity investments) and it did not stop banks from growing too big to fail. In fact, the four largest banks are significantly larger than when the law was passed.
Later, the law was amended to weaken the regulatory requirements for small, community banks whose actions could not threaten the stability of the entire economy.
Possibly Obama’s most impactful decision for the economy was his appointments of the chairman of the Federal Reserve Board of Governors.
In 2010, he appointed Ben Bernanke for his second term as head of the Fed. Then in 2014, he named Janet Yellen to succeed Bernanke as Fed Chairman. He had previously appointed her to the Fed’s Board in 2010.
Though the federal reserve system is charged with achieving two goals, limiting inflation and supporting economic growth, previous Fed chairmen had focused their efforts on the former (fighting inflation), often to the detriment of the latter. Inflation and the easy money policy that caused it were viewed as the primary threats to economic stability in the long run.
The financial crisis of 2008 created a shortage of liquidity which, if not overcome, could have crippled the world’s largest economy. Bernanke and Yellen responded with a dramatic expansion of the money supply through quantitative easing and then keeping short-term interest rates at historically low levels for most of Obama’s first seven years in office.
This was especially important following the tea party’s success in the 2010 congressional elections and their attempts to reduce federal spending while the economy was still struggling to grow.
In sum, President Obama’s economic actions have disappointed the left wing of his party and were met by ideological rejection of Republicans. Fortunately, his cautious approach to policy and his appointments to the Federal Reserve Board have enabled us to realize reasonable economic growth and, recently, rapid job expansion.
Kenneth Zapp is a professor emeritus at Metropolitan State University and a mentor with Savannah SCORE. Contact him at Kenneth.Zapp@metrostate.edu.