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“No president — no president, not me, not any of my predecessors, no one could have fully repaired all the damage that he found in just four years.” – Bill Clinton, 2012 Democratic National Convention.
First things first: It’s unclear whether Bill Clinton has any special insight about dealing with recession and its aftermath. He inherited a nearly two-year-old recovery from his predecessor, George Bush. (In fact, U.S. GDP grew by 3.4% in 1992 vs. 2.9% in Clinton’s first year in office.) Clinton did, however, bequeath a recession to his successor, George W. Bush, after the Internet bubble popped. So there’s that.
More to the point, let’s look at Clinton’s New Normal claim. Repair all the damage? Has any of the damage been repaired?
1. If you take into account combined high unemployment, low labor force participation, and slow GDP growth, 2012 might well be the worst non-recession, non-depression year in the history of the United States. The only other challenger is 2011. Or maybe next year.
4. The only reason the unemployment rate has declined to near 8% from 10% (and isn’t over 11%) is that the labor force has collapsed and millions of unemployed are no longer being counted by the government. As a JPMorgan economist puts it, “There has been essentially no progress in repairing the labor market after the recent downturn.”
5. Growth has averaged only 2% in this recovery while it averaged 6% in the 1980s recovery. That, even though deep downturns are usually followed by strong rebounds.
6. And yet another year of sub-normal economic growth, below 3%, means the output gap between where GDP is and where it should be (if the economy were growing merely at trend) continues to grow.
7. And the growth gap is bad news for the jobs gap — the number of jobs the U.S. economy needs to create in order to return to pre-recession employment levels while also absorbing the people who enter the labor force each month. At last month’s pace, we would not close the jobs gap until after 2025.
8. There there’s falling U.S. competitiveness. As measured by the World Economic Forum, the U.S. was #1 in 2008. Now we are 7th. (Two growing problems, according to the analysis: a) wasteful and ineffective government and b) crony capitalism.)
9. And how about the weakening entrepreneur sector? There are fewer new firms being formed today than two years ago when the recession ended. In fact, the rate of startup jobs during 2010 and 2011, years that were technically in full recovery, are the lowest on record.
10. Also, no progress has been made the past four years on tax and entitlement reform.
11. Finally, debt as a share of GDP has exploded the past four years, and under Obama’s most recent budget would remain at dangerously high levels for a decade before exploding even higher.
There has been no recovery. Economic historians may well refer to the 2007-2012 period (and 2013, 2014 …) as the Long Recession or the Long Great Recession or some such.
Now to Clinton’s second point: No president could have done better. In other words, we are experiencing the optimal outcome.
To answer that, let me tell a wonderful story. Even better, it’s a true story.
In 1981, the U.S. economy was a shambles, a complete and utter mess. And that was bad news not only for Americans, but for the rest of the Free World. The decline in American economic power was leading to a decline in American military power and confidence. Our enemies no longer respected or feared us.
But it turns there was nothing wrong with America that couldn’t be fixed with what was right with Americans. Deregulation and tax cuts (under Reagan) and reduced spending (under Clinton) unleashed our inherent entrepreneurial and innovate talents. Our resources were shifted from government to the private sector where they could be used more productively and efficiently.
The wonder-working power of economic freedom in action. Instead of decline and diminished expectations, the end of the 20th century saw America ascend to new heights. Reagan’s Shining City on a Hill. From 1981 through 2000, the U.S. economy grew at an average annual rate of 3.4% and created some 42 million jobs.
But then we fell back. The old faith in big government slowly returned in Washington. During the 1990s, we started bailing out troubled banks, which only encouraged them to take bigger, more dangerous risks in the 2000s. And we decided it was government’s job to put every American in a house, whether he or she could afford it or not. And we started spending again. Big time.
When America was booming, we consistently had one of the freest economies in the world, according to a ranking of economic freedom from the Fraser Institute. But during this most recent period, our freedom ranking steadily declined to 8th in 2005, 15th in 2009 and 18th in 2010. The U.S. is now nestled between Qatar and Kuwait. Too many bailouts. Too much government. Too much spending. Too little economic freedom where markets decide winner and losers, not bureaucrats.
Bill Clinton is wrong. This is not as good as it gets. It could be better had we tried what worked in the past. Economic freedom. But Barack Obama doesn’t buy this story, doesn’t believe in it. He disparages it, mocks it:
There is a certain crowd in Washington who, for the last few decades, have said, let’s respond to this economic challenge with the same old tune. “The market will take care of everything,” they tell us. If we just cut more regulations and cut more taxes—especially for the wealthy—our economy will grow stronger. But here’s the problem: It doesn’t work. It has never worked.
Some American president could have done a better job creating an environment that would have helped America return to prosperity.
Just not this one.
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