Email Debate: State of the Economy, Part I

It's election season, and one guy is running for re-election, which means this isn't the first, and will likely be far from the last time you read the words, "are you better off than you were four years ago?"  Still, as amateur members of the American punditocracy, Stephen and I could not suppress the urge to fire the first shots.  Here's Conflict Revolution on the State of the Economy (Part I):

Stephen: Hey Matt, do you think the economy is better today than it was 4 years ago?

Matt: Well, considering that in late April 2008 the global financial system was about four months away from near collapse, the auto industry was about to die, and American households were as debt-saddled and overleveraged as ever... yes, yes I do.  State your claim to the contrary. 

Stephen: Let's start with GDP, since that's the only thing that has really gone up. GDP has risen by an unimpressive $235.6B, which is a total of 1.8% or 0.4% annually. Let's ignore the fact that people have been expecting the US economy to take off now for 3 years (I won't say it has no chance this year, just that its a heavy underdog). Now, I'm sure you are familiar with how GDP is calculated, GDP = C+I+G+(X-M). That G piece (government) has increased by 681.2B. So we can see where the new growth is coming from right? And after three years, it's still unimpressive. At what point do we say this is the problem and not the solution? (But let's try to stay off that for now, that's an entirely different debate)

Unemployment - the unemployment rate is at 8.1%, up from 5%. But that probably doesn't tell the whole story since labor force participation is constantly declining... look at the U-6 rate (unemployed/underemployed/"marginally attached workers" aka people who dropped out of the labor force but want a job) and that's up to 14.5% from 9.2%.  Total payrolls are down 5.9% as well.

Should we get into household income or housing? They are both down, housing by as much as 50%. Or how about the S&P 500, which is generally used a gauge of American business performance? Its down about 10% still from its 2007 highs and just about equal with its 2008 high. Oh and did I mention that QE1, 2 and Operation Twist have managed to push the money supply into stupid levels? Or that inflation has increased by 7% since Obama took office (I understand these is totally normally inflation rates, but it puts into perspective how bad things are since NOTHING else is increasing so rapidly).

Matt: Well I guess now I'm just confused as to what you're arguing - or more accurately, I understand what you're arguing but I'm not sure what the point is, other than to simply show that the economic numbers were better before we entered a massive recession.  But how is that in any way useful?  What do you want to accomplish with this information?  If you're trying to argue that Barack Obama has been a bad economic steward, the point of reference should be January 2009, when the economy had just contracted by 9 percent, was shedding jobs at a rate of 700,000 per month, and the unemployment rate was 7.8 percent and rising.  

Stephen: Well the original question was "is the economy better than it was in 2008"?

Matt: Right, but when in 2008... before or after the biggest economic calamity since the Great Depression?  If it's before, you're just using numbers to give an extremely misleading representation of Obama's economic stewardship, which I presume is what you're out to discredit.

Stephen: Well I was looking at performance since the official start of the recession (December 2007). Now, I guess this debate is at a conclusion that the economic situation has not broken into growth mode (eclipsing past recessions) but is still in recovery. So should we debate if Obama is actually improving anything? If so, I'll cite meager growth as why he has not done anything beneficial to the economy.  Just because we're not in the depths of recession does not mean Obama has succeeded. Regular business cycles would account for that. This debate, in my mind, concerns whether or not Obama's policies have helped or hurt natural business cycles.  

Matt: I mean no one is going to say that the economy is humming along right now, but we're now at 25 consecutive months of job growth, weekly first time unemployment claims that have halved since Obama took office, and eleven consecutive quarters (dating back to Q3 of 2009) of positive GDP growth. I'm not saying we've seen explosive or even desirable levels of expansion by any means, but considering that Germany and Japan each contracted at the end of 2011, and the UK's austerity-weighted economy has slipped back into recession, the US doesn't look so bad.  Given the depths of where we were as the recession hit its zenith in 2009, I think we are undoubtedly headed in the right direction. You've got a very difficult road to hoe if you're going to try and convince me that this is the result of regular business cycles alone, but you're welcome to try.

Stephen: So if it's not just a fake recovery propped up by cheap government money (with the Federal Reserve's help) what policies has Obama enacted that have staved off recession? Taking over the auto industry? Well the reason that needed saving was because of your side's longtime embrace of Big Labor. Once that contract was renegotiated it was amazing how quickly they turned their balance sheet around. Citing that would be like declaring yourself a hero because you put out a house fire that started because you fell asleep with a cigarette. 

Matt: So it wasn't because Detroit started making better cars?  It takes two sides to negotiate a labor contract.  Maybe if the auto execs didn't want to go under they shouldn't have agreed to hand out benefits to their unionized workforce that the company's shitty products wouldn't be capable of sustaining.  But that's another discussion.  As I've argued on several occasions, part of what continues to ail the economy is a chronic lack of demand.  Obama's policies have kept more people working and more people earning money, even as the economy has struggled to recover from a massive shock.  To the extent that things are getting better, it is because key indicators like employee wages, consumer confidence, and household income are starting to tick up.  This increases demand for products and services, which influences more businesses to hire, which contributes to more overall economic activity.  

Stephen: Matt, totally agree on your point about shitty products and unsustainable benefits. Unfortunately, in a non-right to work/pro-union state that's easier said than done. As for policies that have "kept more people working" which would these be?  His un-shovel ready stimulus projects? Or perhaps Keystone XL or the proposed Boeing plant in SC?  Perhaps you mean that Obama's pro-natural gas positions have really helped the recovery? That sector created nearly 1 of every 10 jobs in 2011 (responsible for a total of 147,000 according to IHS). Maybe Obama can claim that people are getting old because of him and are therefore requiring more healthcare services?  You might claim that ObamaCare did this but nothing has really taken effect yet and especially not in 2011. 

Speaking of Obamacare, the president's most significant domestic accomplishment, CBO predicts that it will eliminate 800,000 jobs. So what again did Obama do that isn't easier to attribute to the business cycle, despite seemingly his best efforts to suppress any recovery?

Matt: Hm, given that he aspires to be re-elected, I would find it hard to believe that the President of the United States would be doing his to best to suppress recovery.  But let's talk about the stimulus.  Rhetoric aside, if you take the average of analyses done by CBO (median projection), the White House, IMH/Global Insight, and Macroeconomic Advisers, you get 3.9 million jobs created or saved by the Recovery Act between 2009 and the end of 2011.  But hey if you don't believe me here's Politifact: http://tinyurl.com/8xvbxw2

We should save Obamacare for another debate - as you said, most of it doesn't even kick in until 2014.  In the meantime, however, it's not a jobs bill, it's a we-can't-support-50-million-

uninsured-free-riders-in-our-health-care-system bill. 

Lastly, Keystone XL and Boeing make for nice conservative soundbytes but certainly neither will have a major impact on the overall employment situation.  Boeing has pledged to employ 3,800 people at the April, in what was a relatively weak month for job growth.   

Stephen: I’m going to start with Keystone and Boeing because I just cannot understand this response and I have a lot to say about stimulus. First, regardless of size, why would we discourage ANY job creation? Especially in Boeing’s case when it wasn’t an issue of environmentalism it was an issue of placement and government interference. As for Keystone, we’ve debated this before and your insistence on that number is absurd. I do not think it is unreasonable to expect that they will hire the same ratio of workers/mile as the first pipeline - unless you are aware of some major fundamental shift in pipeline construction over the past several years, under this ratio of 4.19 workers/mile we’d get about 7,000 workers. Assuming that they create 3 spin off jobs per construction job, like such labor did in 2011, we’d get just under 30,000 jobs. Please, tell me where you disagree with this analysis the next time you toss out that ridiculous number. While, this is certainly nothing explosive on its own, like you said overall employment gains are slowing.  Are these jobs really not something we want? 

Matt and Stephen had so much to say about the current state of the economy that we had to split it into two parts.  Stay tuned, but in the meantime, practicar su Inglespanol and sound off on our assessments of the stimulus, Keystone, the unemployment rate, or any other aspect of the current economic situation en los comentarios.