Obamanation: A Day of Truth
Accuracy in Media Conference 9/21/2012
Speaker: John Merline
“Obamanomics: Fact and Fiction”
Transcribed by J. C. Hendershot & Bethany Stotts
JOHN MERLINE: Thank you, Mal, for that kind introduction, and thank you all for sticking it out to this point. You’ve managed to stay to the best presentation of the day, so I’ll congratulate you for that. I know we’re a little overtime, and my talk is on economics, so you’re probably thinking, Maybe that’s not such a good thing, and given that, I’m tempted just to say that everything Obama says about economics is bull, and just get off the stage, because basically that’s what I’m going to spend ten minutes telling you.
But the fact is that, as our esteemed Vice President might say, this is a “big effing deal.” Economics are going to decide the election. People’s view of economic policy is going to decide the election, mostly likely—how they feel about themselves, how they feel about Obama’s ability to make things better over the next couple years, and how they feel about the job he’s done so far.
One of the things that’s puzzled us at IBD is, you have unemployment that’s been over 8% for almost four years; you have a national debt that is now bigger than the gross domestic product; you have an economy that’s barely growing; and most people think we’re on the wrong track—and yet, President Obama’s approval ratings are still pretty high. So we’re trying to figure out why that is, and what we realized is that the President has been very successful in selling his economic argument to the public—I should add, with a generous helping from the mainstream press.
So here is his basic argument. First one is, “I stopped the Second Great Depression.” The second is, “A slow recovery was inevitable.” Bill Clinton at the convention said that no President could have done better than Obama did, given the circumstances. His third point is, “We can’t go back to the failed policies of the [George W.] Bush administration.” His last point is, “My plan is working, even if it’s not working fast enough.”
All right, so let’s look at point number one, “I stopped a Great Depression.” Interesting point. There’s just one problem with it: It’s completely false. In this chart the fever line, the blue line, is monthly GDP numbers that come from the National Bureau of Economic Research, and the bars are the cumulative amount of money spent out of the stimulus. What you’ll notice is that the economy stopped falling in December 2008. I may be wrong, but I’m pretty sure that President Obama didn’t get sworn in until January of 2009, so it doesn’t look like he could have stopped the fall. You’ll also notice it went sideways for several months, and you’ll notice that the recession ended in June 2009, but you’ll see that hardly any of the stimulus money had been spent by that point. So there’s no way that the economy is going into a Great Depression but for the stimulus. It’s just categorically untrue. Now, I could go on—I could spend twenty minutes just on this—but the President himself complained at one point that the stimulus, he thought, was too slow-acting. Here’s what he said: “Shovel-ready was not as shovel-ready as we expected.”  So if you have a program that’s taking way too long to take effect after the recession has already ended, how can you argue he stopped a Great Depression? Also, just one other point: Two economists, Mark Zandi and Alan Blinder—these guys are not fierce critics of the White House, of the Obama administration—did a big report  on what stopped the recession. Like many economic reports, it was little-read, but in it they say that while they credit the stimulus  for creating jobs—or “saving jobs,” as we like to say now—they actually gave more credit to Bush’s TARP program and Fed actions taken in 2008 for stopping the recession. Okay, so he didn’t stop a Great Depression.
Next is “A slow recovery is inevitable.” As I said, Bill Clinton said it at the convention; Obama says it every chance he gets. One problem, again, is, here’s what Obama was saying in 2010, that’s the yellow bars: He was forecasting a very strong economic recovery out of this recession. I put the 2012, the latest economic forecast, by comparison. What you see is that it was only when the results started to come in way below what Obama had expected, what his economists had expected—what everybody had expected—that Obama suddenly turned around and said, “Nobody could have done better than this, it was so bad.” The other line of argument is that the reason the recovery is so slow is because the recession was the result of a financial crisis. Here’s what Obama said: “Typically there’s a bigger drag in the economy for a longer period of time after a financial crisis.”  Every reporter that covers this will say the same thing. Any time they talk about the recovery, the sluggish recovery, you will read, somewhere in there, that it was a financial crisis, and everybody knows that recoveries out of a financial crisis are slower and lengthier and more painful.
Well, there are a couple of economists who wrote a book on this, and wrote some articles about it—one appeared in Newsweek , I think—and that was their claim. But it’s not as though this is Gospel truth. There was an Atlanta Federal Reserve study ; the key quote from that is “There’s no support for linking”—so get it, “No support”—“for linking low unemployment and high unemployment with the financial crisis.” This was after they did an analysis of all these recessions that involved a financial crisis. There was another study , which we will not read in any mainstream outlet, by an economist at Rutgers University and the Cleveland Fed. Here’s their conclusion: “Recessions associated with financial crises are generally followed by rapid recoveries.” In other words, exactly the opposite of what the President says, and what every reporter who covers this says.
Generally, the history of recessions is that the deeper and more painful the recession, the faster and stronger the recovery. Milton Friedman described it as like pulling back on a rubber band—the more you pull it back, the harder and faster it’ll snap back. That’s exactly what happened after the 1981, 1982 recession. That lasted sixteen months—compared with this one that lasted eighteen months. Unemployment actually got higher than it did this time around—10.8%—but the recovery was far stronger.
Now, just to give you a sense of how crappy this recovery has been: This needs a little bit of explanation. The blue line is, if you were to look at all of the post-World War II recoveries, and you were to pick the worst quarter from each of those recessions and recoveries, what would that plot look like? That’s what it is: Each quarter you select the worst of each recession and recovery. So in the deepest recession, before the current one, GDP dropped almost 4%. What it shows you is that, yes, the recession was deeper than any of the previous post-war recessions; it dropped farther. But look at the recovery: The recovery is shallower than any recovery, than the worst of all the recoveries since World War II. If you look at the very last data point there, you’ll see that eighteen quarters after the recession started, in the worst recovery on record before this one GDP was more than 10% higher than its pre-recession peak—in other words, the economy dropped, and then grew enough by this point that it was 10% bigger than where it was before that recession started. Right now we’re about less than 2% than above the pre-recession GDP. One other way to look at this—this just compares the [Ronald] Reagan and Obama recoveries. In the Reagan recovery—this is after the recession ended—29 months after that, the GDP was 12% higher than its pre-recession peak, and by that point, when we built that chart, it was only 0.4% bigger. You’ll see, too, the effect on unemployment: A lot more long-term unemployed this time around than before.
Okay, so that takes care of that claim. The next one is “We can’t go back to the failed policies of the past.” You’ve probably seen this ad—they’re running it heavily in Virginia—of Bill Clinton saying, “You know, we just can’t go back to those policies of the Bush administration, of tax cuts and deregulation, that got us into this problem.” Obama said it at the convention. Everybody says the same thing: Bush’s tax cuts and deregulation caused the recession, and [Mitt] Romney simply wants to go back and do the same thing all over again. There’s just two problems with that. First of all, Bush’s tax cuts get a very bad rap. They weren’t the best-designed tax cuts. There were two separate laws; the first one was passed in 2001, and it cut income tax rates, but phased them in over a long period of time. The original law had it so that the tax rates weren’t fully cut until 2006—okay?—and then it had some sort of Keynesian-style stimulus-check-writing-type features. In 2003, because the economy was really struggling, they passed another tax cut. This one did two things: First, it retroactively made all of the income tax rate cuts effective that year back to January 1 of that year. So instead of waiting to 2006, the rates went down to where they were going to be, where they are now, that year. The second thing he did is he cut capital gains and dividend taxes. Well, I looked at that the unemployment numbers; the number of jobs was softening for months in the early years of the Bush administration. He signed this law in June of 2003. In July of 2003 employment started to pick up and it continued to grow—in fact, I believe, the economy created about 8 million new jobs until the recession started. So, I don’t know; it seems like the tax cuts did something and did something good.
The other claim is that Bush was this great deregulator, that he deregulated the economy and that’s why everybody went crazy, and greed took over, and that’s why we had this recession. But, again, Bush was no deregulator; it’s completely and totally false. Yet every time Obama says this, nobody challenges him on it. The Heritage Foundation actually looked into this when Bush was President and concluded that, as James Gattuso , who does incredible work on this here at Heritage, said, regulation grew “substantially during the Bush years.” They figured that regulations imposed during the Bush years added $30 billion in costs a year. Even Obama says that Bush was a big regulator, to defend his own record. When people said, “You know, you’re regulating like crazy,” Obama said, “Oh, no, no, no. If you look, I’ve imposed fewer regulations than George Bush did.” I don’t understand how you can have it both ways: He’s saying Bush deregulated the economy, but, at the same time, “He imposed a lot more regulations than I did.” And again, he does not get called on this
If anybody wants to know what caused the recession, it was government policy that tried to increase home ownership; one of the ways they did it was they put a tremendous amount of pressure on banks to lower their lending standards—that started under Clinton and continued under Bush—and it had the effect that it intended: Home ownership rates went way up. But it also caused the bubble that eventually burst.
Okay. So, quickly, his next point is “My plan is working.” The best way to judge this is to look at how things have done since the recovery started in June 2009. Here is household family incomes. Anybody think this is getting better here? Does that look like it’s getting better? In fact, household incomes went down faster and farther after the recession ended than during the recession itself. I don’t think that’s progress.
This chart shows the number of people who are out of the labor force; it has increased by almost 8 million. That’s a huge pool of people—some of them have retired, but a lot of them have just simply given up looking for work, and what that does is, it hides the true unemployment rate. If you control for the change in the number, the share, of people who are either working or looking, which has gone down during this recovery, if you control for that—what we did here was, we said, “What if labor force participation rate remained where it was when the Obama recovery started, instead of falling?”—what you see is that, instead of an unemployment rate coming down from 10% to about 8.3%—where it was when this chart was created for IBD—it’s at or above 11% for almost three years. This is a stunning finding that, again, you never see any mainstream reporter talk about. But this is what’s really going on, okay?
Just some more evidence. This is from the latest Census report. What I did here was plot out the change from 2009 to 2011, so, again, this is all under the Obama administration, during this economic recovery. Median income—again, you see it down 4%; people in poverty, up 6%. Income inequality is up, oddly enough, under Obama, and you’ll see a big increase number of people on government insurance.
So, quickly here—I have to be fair—there are two industries that are booming under Obama. One is the regulation industry—this is the number of people that work in regulatory jobs compared with private sector jobs; big difference there, it’d be good if you’re a regulator.
And the dependency industry. These are various data showing direct payments to individuals, the number of people on disability, people on government insurance. There were others that we couldn’t include on food stamps and student aid, which is also undergoing an explosive growth.
Just one other thing on disability: Disability has been increasing faster than private sector jobs since the recovery started. That is, the number of people going on disability has been growing faster than the number of jobs being created. I showed you that chart where you had all these people leaving the labor force; a lot of them are getting on disability. They just can’t find work, they can qualify for disability, after two years they get Medicare—so their health care is paid for—and it’s fairly easy to get on disability these days.
So that’s Obamanomics: Fiction, fiction, fiction, and fiction. One of the points I want to make is that what I’ve showed you here are all government data. These don’t come from think tanks, this isn’t from advocacy groups; these are from the Bureau of Labor Statistics, Census Bureau, and so forth. And it’s really striking. It’s like a parallel universe, between what you see here, and what you hear from the administration—but, more importantly, the way the stuff is depicted by the mainstream press. I am confident that, if reporters actually did their job and described what’s really happening with this economy, President Obama’s approval ratings wouldn’t be at 50% or 49% or whatever, they’d be probably in the teens. He’d probably be in George H. W. Bush territory right now.
So with that, I’m happy to take any questions.
ROGER ARONOFF: A couple questions?
AUDIENCE MEMBER 1: Will the administration be able to manipulate the economic numbers right before the election?
MERLINE: It always comes up—“Are these numbers being massaged for political benefit?” My view on that is that the guys that work at the Bureau of Labor Statistics are all real professionals. They’re career employees of the Bureau of Labor Statistics; they have their own professional reputations at stake. I really don’t think that that goes on, honestly. However, having said that, it is—what you saw, for instance, in the last unemployment report was, unemployment went down to 8.1%, I think it was. Why did it go down? Because 380,000 people left the labor force. Remember, unemployment is just a measure of the number of people looking for jobs, compared with the number of people who can have jobs. If you stop looking for a job, you’re not counted as “unemployed” anymore. If everybody would just quit looking for jobs, the unemployment rate would be zero. So you know, we can do this if we really just try, okay?
AUDIENCE MEMBER 2: What is the true statistic of net jobs created since 2009, assuming population growth and all that?
MERLINE: Yes. Well, the number that the administration loves to tout is 4.5 million new jobs. You’ve all heard that countless times, and it is true, if you start counting at the absolute bottom of the barrel under Obama, that the change in jobs from there—which I think was January of 2010—to today is 4.5 million, and, you know, it sounds like a decent number. The problem is that that isn’t even keeping pace with the growth in population, in the number of people that are coming of working age. This is why half the college graduates can’t find work. This is why kids are staying at home with their parents—because they can’t find work. If you were to look, however, from the start of the Obama administration to today, I don’t even think it’s made up all the ground it lost in the first year of his administration. It may have by now—I haven’t looked exactly at that—but if you were to look at from when the recovery actually started again, you continue to have job losses until, like, January 2010. But the issue really is that we’re not creating jobs fast enough to even soak up new entrants into the labor force, let alone really pull back all these people. If you look, there are something like 800,000—I can’t remember the number exactly—hundreds of thousands of people who have been unemployed—more!—hundreds of thousands more people who have been unemployed 27 weeks or longer now than there were when the recovery started. So we have an ongoing jobs crisis, and the problem is, of course, that the longer that people are unemployed the harder it is for them to ever get hired., so people who lose their jobs today are more likely to get the next job than ten guys who’ve been out of work for a couple of years.
AUDIENCE MEMBER 3: It seems to me a better statistic than this crazy unemployment statistic that’s so adjusted, and all the things you were talking about—what seems to me better is a comparison of what percent of people in the country have a job. That takes into account the rise in—
AUDIENCE MEMBER 3: —and I wish I—
MERLINE: When I came here today I was thinking, I wish I’d put that chart together, because it’s really eye-opening. What you see is that it’s going along like this, and then it hits the recession, it goes down, and it’s just been stuck down below where it’s been for a very long time. It’s, like, around 52% or something. But it’s really eye-opening because it kind of goes like this and then plummets during the recession—that happens—but then just moves sideways from this very low level. So we’re not seeing exactly what happens in every other recovery; what you see is labor force participation going up, you see the participation, more people working, because there’s more opportunity, and more jobs. That’s just not happening here.
ARONOFF: Okay. Sorry. We’re going to have to stop there, but thank you. I just want to say one thing: I receive a lot of E-mails every day from different news organizations and all that, but the one I look forward to most is when my IBD editorials come in every night. It’s just the greatest—I know it’s going to be six or seven great editorials to read. I recommend everybody sign up for that—I think you’ll know what I’m talking about within a few days.
MERLINE: I appreciate it. Thank you.
ARONOFF: John, thank you very much.