In a response to the post, Should We Upgrade Our Assessment of Obama’s Economic Record?, I wrote:
I think the Obama economy was a non-traditional economy so evaluating it using traditional quantitative measures will be quite difficult. I suspect some economists would go so far as to describe the Obama economy as a “grand experiment”. Let me highlight some of the non-traditional aspects of this economy that separate it from past traditional economies.
- The combination of zero interest rates and quantitative easing is not something we have done before. Other countries tried this and got hyperinflation. This was America’s first time with this “experiment” and we got low inflation. This tactic was extremely risky. We got lucky!
- For the last eighteen years, American companies have consistently reported better earnings with almost no growth in sales. An underlying theme for this earnings growth was various financial engineering schemes. Instead of investing in capital equipment or employees, we invested in stock buybacks. There is nothing like zero interest rates to encourage stock buybacks and prop up the stock price. Traditionally American companies earnings grew because of productivity growth and great products.
- Another interesting divergence with tradition was the sector driving GDP growth. In the Obama economy, it was the growth of health care and almost no growth of traditional areas, such as home building and retail. For a consumer-driven economy like the United States, this is probably a bad omen for economic growth.
So we had a non-traditional economy, what difference does it make? The policies in the first two years saddled America with a lot of debt and slow economic growth. The solution to this problem is faster economic growth. So why did the Obama administration fail to enact policies that unleashed the animal spirits of the economy? They had six years to figure this out. As James Carville once said its “the economy, stupid“. The Trump administration figured this out in less than two years. It won’t take too many quarters of over 3% GDP growth to come to the conclusion that the “grand experiment” was a policy failure that fortunately we can overcome. The good news is that the “grand experiment” is over and we can go back to being America again. The question that goes to the heart of the question on Obama’s economic record is, am I better off than eight years ago? Am I better off than two years ago? Yes, I am. Real economic growth with low inflation solves a lot of problems.