Authored by: Matt Palumbo
Is former President Barack Obama to thank for pulling us out of the worst financial crisis since the Great Recession? His trillion dollar stimulus generated plenty of debate, and there’s no question that we did rebound from recession under his administration, but how connected are the two, and how does this recovery compare to countless others in history?
It should’ve been a red flag to most observers when the Obama administration began inventing new economic terms to measure the stimulus’ alleged success, such as how many jobs were being “saved or created” by it. Obama told us not long after passing the stimulus that it had created or saved 150,000 jobs in June, and would save or create another 600,000 by September. How the heck does one measure a “saved” job? Simple, create a baseline prediction (for example: predict the economy will lose a million jobs next month), and then if the economy were to only lose 200,000 jobs, Obama could claim he “saved” 800,000 jobs. Convenient, right?
It’s never a vote of confidence when the statistics are being tortured to prove a point, and when measured using conventional (i.e. real) statistics, the stimulus didn’t live up to its own hype.
The Stimulus Did Not Meet the Obama Administration’s Own Predictions
Prior to passing the stimulus to find out what’s in it (wrong bill, I know), the Obama administration predicted the unemployment rate would never top 8% with the stimulus passed. But in absence of the stimulus, we were told that unemployment would touch 9 percent.
And now that enough time has passed to do a full comparison, here’s what actually happened:
As you may have noticed, not only did unemployment crack eight percent, nine percent, and ten percent, the actual unemployment rate was always higher than the unemployment rate that was predicted without the stimulus.
And if that wasn’t bad enough…
The Unemployment Rate Was STILL Higher Than Advertised!
Despite unemployment being higher than predicted in absence of the stimulus, the true rate is still masked in large part because the labor force participation rate declined. A person is only counted as unemployed if they’re out of work and currently looking for work. But if an unemployed worker simply gives up looking, they’re no longer counted as “unemployed” in the statistics, even though their situation remains unchanged.
The headline unemployment you often see is the U-3 unemployment rate. The U-6 unemployment rate adds back in discouraged workers to the statistics, and you can see what a difference that makes:
Since Obama taking office to his departure, the number of Americans employed rose by 9.9 million – compared to 14.6 million who left the labor force. In other words, nearly 50% more left the labor force, than became employed. The labor force participate rate of those aged 65 and older actually increased during the Obama years, meaning this shrinkage in the labor force under his watch cannot be attributed to people leaving the labor force by retiring.
The Speed of the Recovery
The fact that the economy recovered under Obama doesn’t say much, given that all economies go through cycles. What is notable is the glacial pace at which the economy recovered. As Forbes Magazine noted:
The Obama recovery of the last seven years remains the worst in postwar American history. Average gross domestic product (GDP) growth since the bottom of the recession in 2009 was barely above 2.1% per year. The average since 1949 is well above 4% per year during the previous 10 expansions.
Had Obama’s recovery kept pace with historical averages, incomes would’ve been 20% higher at the end his presidency than they actually were.
How’s that for a recovery?