The Reckoning

Better Off Than Four Years Ago? Depends on How You Feel About Bubbles.

President Barack Obama delivering an address in Washington last May.

Photograph by Kristoffer Tripplaar-Pool/Getty Images

A great deal more will be written on the question of whether an incumbent president who presided over an entire term of disappointing jobs and GDP growth deserves re-election. This is, of course, precisely the kind of question—devoid of context and precooked to solicit a particular answer—that mass market democratic contests usually turn on.

Are we better off today than we were four years ago?

Economically, the answer is not in doubt: Yes, we are. But there are lots of caveats.  

First, the view that President Obama wants to emerge from Charlotte: Four years ago the country was sliding over the edge of an economic cliff. Today, we’ve got one leg back on top, and even with the Republican congressional caucus holding onto the other leg and screaming, “I’d rather fall to my death than climb back onto that debt-strewn precipice”—we’re clawing our way to safety.

All this is true enough.

But is everything all right? No.

Is the country happier than it was four years ago? Hardly.  

Is the country more certain of its future? Perhaps, but if so, we don’t like what that future looks like, and we’re desperate to blame someone else for our misfortunes (China, immigrants, Muslims, bankers, socialist Kenyans).  

Are the structural economic problems that caused the 2008 debacle solved? Mostly no.

Are we getting back to normal? Well, of course not: Times were not normal to start. To get back to that normal would be national suicide—an asset bubble fueled normal more unsustainable than anything either of our political parties is flirting with today.

The “good old days” is another staple of dumbed-down campaigning, and it is in full view today. In reality, “normalcy,” the alleged “promised land” that Warren G. Harding offered his Republican constituents in the 1920 presidential race, is always unattainable.*

In Harding’s day, it disappeared when combustion engines replaced horses. Harding knew people pined for that simpler time—when don’t they? But it turned out there was no going back to the days before World War I then, and there’s no going back to the false prosperity of the bubbly Bush years now, either. Harding’s promise was the sham, and the absentee governance of his administration, and those of his two GOP successors, Calvin Coolidge and Herbert Hoover, set the stage for the collapse that followed.

Do we really pine for the bubble years? Remember, folks, the “prosperity” now implied by those who as about “four years ago”  were fuelled by a runaway financial system that treated peoples’ homes, jobs and lives like so many chips in a casino.

Would we be “better off” if the bubble loomed over us again?  No, we’d be walking toward an even deeper cliff.

The fact is, a “balance sheet recession”—a recession caused by reckless spending and our unwillingness to raise the revenues necessary to cover expenses—takes longer than other downturns to mend. It’s the difference between the headache that results from having a few too many glasses of red wine and the medically induced coma that comes from mixing your red wine with steroids, Extacy, West Texas moonshine and anything else high-spending lobbyists put in your hands. That latter scenario does real damage, a near death experience with a long recovery time and no guarantee that you will ever again be the same.

That said, Americans have plenty of reason to be disappointed in Obama’s performance. He took the high road too often on economic policy in the beginning, failing to lay out for Americans a realistic timeline for recovery or explain the extent of the hole they were in. “Yes We Can” can-doism led to candy-coated politics. He should have been driving home the lesson of the Bush years (and, to be fair, Clinton’s second term): deregulation of markets is not a religion, it is a theory. It has limits, that those limits must be monitored or we will destroy the economy.

But he did not do that. Today, as he prepares for his second nomination speech, there will be no Gospel-like refrain that calls to mind those days when most everyone was glad to see him—a “pay any price, bear any burden” kind of phrase harkening back to a time when the whole country was yearning for leadership.

So yes, he steered us away from the cliff. But he seems to have fallen asleep shortly thereafter at the wheel.

Ironically, his economic policies are not the real problem. Again, this was always going to take a long time to solve. We can argue whether there should have been more stimulus (I think so). But on the finer economic points, the general direction has been correct.

The Economist, usually inclined toward centrists of either party, cannot bring itself to completely condemn Obama, just as it cannot seem to believe what Mitt Romney has morphed into. The magazine noted this week in a clever “End-of-Term” report on Obama’s first term, “His handling of the crisis and recession were impressive. Unfortunately, his efforts to reshape the economy have often misfired. And America’s public finances are in a dire state.”

Recessions, as Europe demonstrates every single day, are no time to cut government spending: the result is a vicious circle in which austerity kills growth and deficits become nearly insurmountable (especially in countries that have to fund them on the open market). So even if deficits rise during a recession, the idea is to hasten the return of growth that, in the end, is the only real solution to such gaps.

As the Economist points out, “normal standards of fiscal rectitude have not applied in the past four years. When households, firms and state and local governments are cutting their debts, the federal government would have made the recession worse by doing the same.”

How is it a man who rode to office on such a raft of soaring rhetoric has failed to put that last point in simple language for the American voter? Whatever the depth of the damage he inherited or the obstructionism of his opponents, it could turn out that the lack of a mantra sinks him. At such times, few choice words uttered under pressure—“nothing to fear but fear itself”—“morning in America”—are worth a million lines of legislation.

Correction, Sept. 5, 2012: This blog post originally referred to Warren G. Harding’s 1924 presidential race. Harding ran for president—and won—in 1920.