Democratic National Convention – Charlotte, North Carolina
The Romney-Ryan campaign is now explicitly comparing President Obama to former President Carter. Paul Ryan yesterday: "You see, the president has no record to run on. In fact, every president since the Great Depression who asked Americans to send them into a second term could say that you are better off today than you were four years ago, except for Jimmy Carter and for President Barack Obama."
So are Americans better off today than they were when Obama took office in 2009 --- or not?
The superficial answer is "Yes, Americans are better off." In January 2009, America was in a recession; today, the economy is slowly growing. In January 2009, America was losing jobs; today, it is adding them.
But that is setting the bar pretty low and framing the question absurdly narrowly. It also completely ignores the historically-anemic nature of the current economic recovery.
I would ask the question in a different way: "Is America better positioned to compete, prosper, and innovate today than it was four years ago?"
And the answer to that question is, unfortunately, a decisive “No, America is not better off.”
1. The weak recovery and continued high unemployment is permanently hurting the American jobs machine. As Citigroup said in a recent research note: Long bouts of higher unemployment are empirically linked to losses of human capital, raising structural unemployment. The OECD estimates that a rise in the U.S. unemployment rate of one percentage point over a multi-year period has the impact of raising the natural rate of unemployment by about 0.2 percentage point.
In other words, the productive American workforce is wasting away month by month, year by year. Here are two charts that show how deep the jobs depression is. This first one simply shows how many Americans are working as a share of the available population:
The second chart show what share of the labor force has a job or is looking for work:
2. U.S debt is at a level linked to slower economic growth. As economists Carmen Reinhart, Vincent Reinhart, and Kenneth Rogoff found: We identify 26 episodes of public debt overhangwhere debt to GDP ratios exceed 90% of GDPsince 1800. We find that in 23 of these 26 episodes, individual countries experienced lower growth than the average of other years. Across all 26 episodes, growth is lower by an average of 1.2%.
By that metric, America is already in the danger zone. Gross U.S. debt is 107% of GDP. That debt is a heavy chain to keep dragging forward. With the debt burden so large, the U.S. might not be able to grow as fast it used to.
3. America has incurred huge opportunity costs for failing to reform the tax code and to put entitlements (Medicare, Medicaid, and Social Security) on a sustainable fiscal path. Each year without pro-growth tax reform is a year where incomes are far lower and jobs far fewer than they need be. And every year we don’t fix entitlements increases the need for even more dramatic and costly changes.
4. In 2009, America needed fundamental health care reform. In 2012, America still needs fundamental health care reform — and Obamacare makes that more difficult. The president’s health care reform and its reliance on government planners moved the U.S. away from the consumer-driven, choice-centered reform it needs.
Bottom line: President Obama gives himself an “incomplete” grade on the economy. I would give him a “W” — for wasting four years that America didn’t have to waste.