Obama’s eco­nomic dis­ap­point­ment

Business Mirror - - OPINION - By Narayana Kocher­lakota | Bloomberg View

PRES­I­DENT Barack Obama thinks Amer­i­cans don’t prop­erly ap­pre­ci­ate the ben­e­fits of his eco­nomic poli­cies—a view he most re­cently ex­pressed in an in­ter­view with the New

York Times. Iso­lat­ing the ef­fects of any pres­i­dent’s poli­cies is close to im­pos­si­ble. That said, it’s not hard to see why many peo­ple are dis­ap­pointed with the per­for­mance of the econ­omy dur­ing Obama’s time in of­fice.

In Jan­uary 2009, at the be­gin­ning of Obama’s first term, the non­par­ti­san Con­gres­sional Bud­get Of­fice (CBO) is­sued a 10-year fore­cast for the US econ­omy, in­clud­ing such in­di­ca­tors as un­em­ploy­ment, GDP, the bud­get deficit, gov­ern­ment debt and in­ter­est rates. Here’s a ta­ble com­par­ing the CBO’s ex­pec­ta­tions for the year 2015 to what has ac­tu­ally hap­pened:

The un­em­ploy­ment rate has come clos­est to ex­pec­ta­tions. Al­though it re­mained very high through much of the Obama pres­i­dency, it had fallen to near his­tor­i­cal av­er­ages by 2015.

Else­where, the story is less pos­i­tive. To­tal in­come growth in the US has fallen well short of ex­pec­ta­tions, in both nom­i­nal and in­fla­tion-ad­justed terms. And al­though Obama ex­pressed pride in the re­cent de­cline in the fed­eral bud­get deficit, it’s still much larger than the CBO fore­cast in 2009—as is the ra­tio of gov­ern­ment debt to GDP.

No num­ber ex­presses the econ­omy’s weak­ness bet­ter than the yield on the three- month Trea­sury bill, which cap­tures mar­ket ex­pec­ta­tions of what the Fed­eral Re­serve (the Fed) will do with in­ter­est rates over the next three months. In­stead of re­cov­er­ing to near 5 per­cent as the CBO pre­dicted, the yield was close to zero.

Some would say this sim­ply means the Fed is hold­ing rates too low in its ef­forts to boost the econ­omy. Yet growth re­mains in­ad­e­quate, and in­fla­tion is still be­low the cen­tral bank’s tar­get. More likely, the low rates re­flect the large amount on un­cer­tainty among house­holds and busi­nesses—un­cer­tainty that even the Fed’s ex­traor­di­nar­ily loose mone­tary pol­icy can­not com­pletely dis­pel.

Who’s re­spon­si­ble for the un­der­whelm­ing eco­nomic per­for­mance? Blam­ing the pres­i­dent alone would be a big mis­take. Many ac­tors were in­volved, in­clud­ing Con­gress, the Fed, the pres­i­dent’s ad­min­is­tra­tion and for­eign gov­ern­ments. Tech­no­log­i­cal de­vel­op­ments may well have played a role, too.

What mat­ters is how we re­spond. Should pol­icy- mak­ers be sat­is­fied, as though this were the best that Amer­ica can do? At times in his in­ter­view, Obama seemed to sug­gest that he thought so. I strongly dis­agree.

OBAMA

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