While the success of most Administrations correlates highly with the unemployment rate, presidents, ironically, have relatively little control over the economy.
George W. Bush inherited a recession flowing from the dot.com bust of 2000, and the economy promptly took another major hit following 9/11. Bush’s Federal Reserve Chief Alan Greenspan then proceeded to lower interest rates and kept them low for way too long, oblivious to the gathering housing bubble. Bush also went wrong in stacking the Securities and Exchange Commission (SEC) with people enamored with deregulation, and either unable or uninterested in reining in the gross irregularities taking place in the derivatives market.
In addition, Bush’s signature domestic initiatives were tax cuts for the rich; these dramatically increased the deficit (which became Obama’s to deal with) and did little to stimulate the economy. Bush also failed to make any significant investments in green energy and prevented federal funds from being used for stem cell research, thus retarding these industries.
As a result President Obama inherited the worst economy since the recessions and stagflation of the 70s and early 80s. Unemployment would top 10% before the end of his first year in office. None of this was really his doing; nevertheless, as he predicted, in the public mind he’s become responsible for the current economic conditions.
During the past year the Federal Reserve has kept interest rates at essentially zero percent and flooded the financial system with hundreds of billions in order to prevent a crisis and a repeat of the Great Depression. New financial regulations making their way through Congress could do a lot to prevent another crisis in the future, but they have nothing to do with today’s jobs picture.
Obama was able to pass a massive fiscal stimulus plan in his first weeks in office, and he’s now expected to announce new jobs initiatives in the coming weeks. From all estimates his policies have prevented the loss of around one million jobs, but they have not led to a net jobs increase. Obama has also laid the groundwork for long-term employment by investing in green technology and new infrastructure, and by easing restrictions on stem cell research.
Due to luck as much as anything, the jobs picture is apparently improving faster than anyone had predicted; last Friday’s surprising Labor Department report showed that the economy lost only 11,000 jobs this past November, reducing the unemployment rate from 10.2% to 10%. If the trend continues and job growth turns positive in the coming months, it would be a huge plus for American workers and a tremendous political boon for Obama and the Democrats.
The lesson, for all presidents, is that with so little direct influence over the economy, they had better use wisely what little leverage they have. While Bush was not responsible for the initial conditions during his first term, he did nothing to shore up the economy and wasted trillions on regressive fiscal policies. Obama inherited an economy that could easily consume his presidency and his ambitions, but he acted aggressively with all of the levers of his power and it may well be paying off.
Jason Scorse