Whether U.S. Presidents succeed or fail often depends on a big factor beyond their control: the timing of the business cycle. Lucky Presidents – Ronald Reagan, George W. Bush – experienced downturns early in their first term, leaving plenty of time for an economic rebound to lift them to reelection.
Barack Obama, who took office months after the Great Recession started, must be cursing his luck. Just at the point when investment and jobs normally would be coming back, the U.S. economy has taken a sickening swoon.
Last month’s feeble job numbers – just 54,000 jobs created, far short of the 300,000 or more needed each month to return unemployment to pre-crisis levels – reinforced the public’s growing economic gloom. They also suggested that the administration has erred in viewing the economy’s problems as cyclical.
If that were true, the White House strategy of waiting for the economy to heal itself might make sense. But if America faces structural impediments to growth, we can’t just wait for the economy to revert to normal.
Since the Great Recession officially ended in the fall of 2009, the economy has grown just 2.8 percent per year, well below the average 4.6 percent growth that follows typical recessions, economist Lawrence Lindsey said. And instead of declining steadily, unemployment is rising again.
From GOP presidential aspirant Jon Huntsman to liberal columnist Paul Krugman, commentators across the spectrum are rightly talking about a “lost decade” of economic growth. According to the Wall Street Journal’s Gerald Seib, America has endured 11 straight years of lackluster growth since 2000, the last year in which economic growth exceeded four percent.
The job picture is even worse. As this useful chart shows, the U.S. economy created 23 million jobs on Clinton’s watch and 16 million on Reagan’s. Bush’s job-creation record is a paltry 3 million. And we can’t just blame the Great Recession. Even before it hit in December 2007, the rate of job growth lagged well behind the record of the previous decades.
No doubt about it: the aughts under Bush were a lost economic decade. While no president can be blamed for cyclical downturns, it is fair to say that Bush’s economic policies did little to address the structural roots of slower economic and job growth. On the contrary, his purblind economic policy mix – coupling a spending binge with deep tax cuts – helped dig America into a deep fiscal hole.
Nonetheless, the lingering economic malaise has cast a shadow over Obama’s reelection prospects and boosted Mitt Romney’s political stock – the two are now running neck-in-neck in the polls. The 2012 election will largely be a contest over which party has the most credible plan for reviving U.S. economic dynamism.
The Republicans have a simple fiscal theory that leads to an equally simple solution. They see the size and cost of government as the chief obstacle to growth. Cut public spending, and the economy will sit up on its haunches again and roar.
Many liberals, including Krugman, seem stuck in the Keynesian paradigm, arguing that the problem is inadequate demand, which means government needs to spend more until the economy recovers its “animal spirits.”
Obama is smart enough to reject a witless choice between less or more government. He has, however, yet to develop a plausible plan for restructuring the U.S. economy to unleash economic innovation, capture its benefits in good jobs that stay in America, and boost our ability to win in world markets.
Above all, Obama needs to spell out big, concrete initiatives that can inspire public confidence that his administration has properly diagnosed the economy’s structural ills and prescribed realistic remedies.
PPI has developed bold proposals that meet this standard: An independent National Infrastructure Bank, to unlock hundreds of billions of private investment in state-of-the-art transport, energy and water systems; pro-growth tax reform that closes inefficient tax expenditures and reduces the corporate tax rate; and a base-closing style commission charged with periodically pruning regulations that impede economic innovation and business start-ups, the engine of most new American job creation.
America can’t afford another lost economic decade – and neither can progressives. This is an FDR moment for Obama – a time for “bold, persistent experimentation” to get America’s economy moving again.
Photo credit: S. Hernandez
