Editor’s note: This article first appeared The Daily Caller.
In spite of the claims by President Obama’s Council of Economic
Advisors regarding his administration’s economic accomplishments, the
U.S. economy has grown very slowly in the years since the Great
Recession of 2008-09. After four years of slow growth, the latest data
reveals that the U.S. economy shrank at a 2.9 percent annual rate during the first quarter of 2014.
That figure has been widely reported, but here are some figures that have not been reported, and they are quite eye-opening:
Over the first five years of Obama’s presidency, the U.S. economy
grew more slowly than during any five-year period since just after the
end of World War II, averaging less than 1.3 percent per year. If we
leave out the sharp recession of 1945-46 following World War II, Obama
looks even worse, ranking dead last among all presidents since 1932. No
other president since the Great Depression has presided over such a
steadily poor rate of economic growth during his first five years in
office. This slow growth should not be a surprise in light of the
policies this administration has pursued.
An economy usually grows rapidly in the years immediately following a
recession. As Peter Ferrera points out in Forbes, the U.S. economy has
not even reached its long run average rate of growth of 3.3 percent; the
highest annual growth rate since Obama took office was 2.8 percent.
Total growth in real GDP over the 19 quarters of economic recovery since
the second quarter of 2009 has been 10.2 percent. Growth over the same
length of time during previous post-World War II recoveries has ranged
from 15.1 percent during George W. Bush’s presidency to 30 percent
during the recovery that began when John F. Kennedy was elected.
Economic growth is usually faster than normal following a recession
as entrepreneurs find more productive ways to employ the resources that
were idle during the recession. How rapidly the economy grows and
recovers depends partly on whether market forces are allowed to allocate
resources, including labor, to their most productive uses.
Unfortunately, the Obama administration has pursued several policies
that make it harder for market forces to work. These include: bailouts,
expansion of entitlement programs, regulation of the economy, tax
increases, and huge government deficits.
Bailouts have resulted in capital being stuck in businesses that are
either inefficiently run or have failed to produce goods and services
that consumers’ value highly. In the absence of bailouts, some firms
would have gone bankrupt and the capital reallocated to vibrant firms
that are producing what consumers demand in a cost-effective way.
Expansion of government entitlement programs, such as food stamps and
unemployment compensation, has reduced the incentive to be employed.
The average benefit per recipient of food stamps jumped by approximately
25 percent between 2007 and 2010 due to rule changes. It also became
easier to qualify for food stamps. As Richard Vedder points out in a
Wall Street Journal editorial, the number of food stamp recipients rose
by over 7 million between 2010 and 2012, a period of falling
unemployment.
A number of changes associated with the American Reinvestment and
Recovery Act (the economic stimulus package passed after Obama was
elected) resulted in greater after-tax benefits to being unemployed.
These include exempting part of unemployment insurance benefits from
federal income taxes and subsidizing health insurance costs for laid off
workers. Unemployment benefits also were extended for up to 99 weeks.
In addition, the federal government developed mortgage modification
formulas for banks to use, which resulted in a bigger reduction in
interest payments for those with lower incomes.
The combined effect of a more generous food stamp program, more
generous benefits for unemployed workers and mortgage modification
formulas is to offset a considerable percentage of the reduction in
income from being unemployed. This results in less incentive to work. If
less people work, less output is produced and real GDP grows more
slowly.
In addition to the policies described above, health care reform has
also likely contributed to less employment and output in the economy. By
requiring all firms employing more than 50 workers to provide health
insurance coverage, the Affordable Care Act has discouraged some firms
from hiring workers, while giving other firms an incentive to reduce
hours or lay off workers.
Finally, uncertainty about the future direction of the economy has
resulted in fixed investment that is only 93 percent as high as it was
in 2006. This uncertainty likely stems from a combination of recent
bailouts, huge and unsustainable government deficits, Federal Reserve
monetary policy and growing government regulation such as Dodd-Frank and
health care reform. Investment is what makes workers more productive
thereby driving economic growth.
Although some of the policies responsible for slow growth began
before Obama took office, he has expanded those policies and added new
ones as well. It is necessary that those policies be reversed if the
U.S. economy is going to again grow as rapidly as it did during most of
the 20th century. Such growth is vital both as a means to lift people
out of poverty and to raise the revenue necessary to pay for Social
Security and Medicare benefits to a growing population of retirees.
Unfortunately, in the meantime, the lack of growth under Barack Obama
during the last five years has been literally the worst for any
president since World War II.
Dr. Tracy C. Miller is an associate professor of economics at Grove City College and fellow for economic theory and policy with The Center for Vision & Values. He holds a Ph.D. from University of Chicago.
