Economic Trends: Here’s What the White House Views as the Unfinished Business of the Obama Economy
You can be forgiven if it’s hard to remember just how dark the economic future looked exactly eight years ago. The mind, after all, has a way of blocking out memories of trauma.
December 2008 was a month in which employers in the United States eliminated 695,000 jobs; the unemployment rate rose by half a percentage point on the way toward double digits; and entire industries, notably banks and the automobile sector, stood on the brink of collapse and were saved only through billions in federal bailouts.
Thursday, the Obama White House Council of Economic Advisers released its eighth and final “Economic Report of the President,” an annual book-length analysis of the state of the United States economy. It has a bit of a valedictory tone, which is to be expected given the contrast between where things stand today and when the administration began — and the desire of White House aides to put a positive spin on the Obama legacy.
But if you read carefully, you can also find in this 599-page document a road map to what has gone wrong in the Obama economy: where progress toward higher standards of living has been fleeting, or nonexistent, or has gone in reverse.
In particular, a section that begins on Page 57 lays out “four continued structural challenges” that can be read as, in effect, the unfinished business that the president will turn over to his successor.
Weak productivity growth is the first. For reasons that economists aren’t entirely sure about, the rate at which American workers are becoming more productive has slowed. From 1995 to 2005, output per hour worked rose 3 percent a year, which has slowed to 1.3 percent a year since then.
Simply as a mechanical matter, this is a big part of the reason that overall economic growth has been slow. Over time, it implies that economic well-being will increase more slowly.
That said, there are a range of theories around why this has happened and what, if any, policy tools might fix it.
One possibility is that the march of technological progress has slowed, and that government has few tools that might help. Another possibility is that the recession and slow recovery have created a self-reinforcing dearth of investment, and that government policy to increase overall demand in the economy could also trigger more productivity-enhancing investments.
Finally, many conservatives argue that excessive regulation is the culprit, and that loosening a range of restrictions will unleash more innovation and investment by businesses.
Income inequality is the second weak spot the White House economists identify, arguing that the Obama administration has made progress in spreading the gains from a growing economy more widely but not enough.
The report argues that policies like a higher minimum wage, laws more favorable to labor unions, and fewer regulatory barriers to people working in their preferred fields would help push more of the benefits of growth to American workers, building on a thread of research that has gained favor in both the Obama Council of Economic Advisers and liberal think tanks in recent years.
If Hillary Clinton had won the election, this approach to thinking about inequality would most likely have formed a central role in her economic agenda.
Labor force participation is one of the biggest asterisks on President Obama’s economic record, as the new report acknowledges. The drop in the unemployment rate from a recent high of 10 percent to 4.6 percent was helped along by millions of people stepping away from the labor force entirely.
The council notes that part of that is a result of people hitting retirement age, but also that there has been an enormous decline in the percentage of prime-age men working, which goes back decades. In 1953, 3 percent of 25-to-54 year-old men were neither working nor looking for work; that’s now 12 percent.
The Obama administration argues that the way to bring people back into the labor market is to strengthen the “connective tissue” in how the job market works, for example by modernizing the unemployment insurance system; raising the minimum wage and expanding tax credits for low-income work; and increasing access to paid leave and child care.
Donald J. Trump made low labor force participation a hallmark of his campaign for the presidency, but proposes different strategies to solving it; he emphasizes a pro-manufacturing trade policy and infrastructure spending that might offer opportunities for the prime-age men who have left the labor force.
Economic sustainability is the final, and most subtle, item on the unfinished business list.
The White House is essentially arguing that there is a great deal of work to be done to make the United States economy more resilient when the next downturn hits. One step would be to change laws so that “automatic stabilizers” like unemployment insurance can expand automatically during downturns, essentially baking into the system some automatic fiscal stimulus.
The economists argue that more work to reduce the growth of health care cost could improve the prospects for the economy over the longer term, and that reducing carbon emissions is essential for long-term economic sustainability.
One thing the report doesn’t quite say, but which fits in the theme of sustainability, is that the nature of this expansion — heavily reliant on a loose monetary policy from the Federal Reserve — has left the United States particularly vulnerable should a new downturn arise. Indeed, many of the more pessimistic scenarios for the economy involve a recession that happens because the central bank doesn’t have the usual tools available to combat a minor shock.
There’s no doubt that the United States economy is on better footing than it was when Mr. Obama took office — but that’s also a little misleading, like comparing the health of a patient a month after a catastrophic car wreck with eight years later.
Mr. Trump, in other words, will inherit a patient whose short-term trauma has been fixed — but who has quite a few long-lingering problems still to be addressed.
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