Economically, is Obama America’s Greatest Modern President?

by | May 16, 2013 | Current Affairs, General, Leadership

With the stock market hitting new highs, some people have
already forgotten about the Great Recession.  If you recall 2009, things looked pretty bleak
economically.  But the outlook has changed dramatically in just 4 years.  And it has been a boon for investors, as even the safest indices have yielded a 250% return (>25% annualized compound return:)

Growth of $1,000 ChartSource: Bulls, Bears and the Ballot Box at Facebook.com

Meanwhile, trends have reversed direction with unemployment falling, and consumer confidence rising:

Confidence-Unemployment Chart

Source: Bulls, Bears and the Ballot Box at Facebook.com

Since this coincides with President Obama’s first term, I asked the authors of “Bulls, Bears and the Ballot Box,” (available on Amazon.com) which I reviewed in my October 11, 2012 column, to capture their opinions on how much Americans should attribute the equity
upturn, and improved economic prospects, to the President as we enter his second term.

Interview with Bob
Deitrick, co-Author "Bulls, Bears and the Ballot Box" (BBBB):

Q– Bob, how much credit should Americans give President
Obama for today’s improved equity values?

BBBB – Our research reviewed American economic performance
since President Roosevelt installed the first Federal Reserve Board
Chairman – Republican Marriner Eccles.  We observed that even
though there are multiple impacts on the economy, it was clear that policy
decisions within each administration, from FDR forward, made a clear difference on performance. And
relatively quickly. 

Presidents universally take credit when the economy does
well (such as Reagan,) and choose to blame other factors when the economy does
poorly (such as Carter.)  But there
was a clear pattern, and link, between policy and financial market performance. 

Although we hear almost no one in the Obama administration
taking credit for record index highs, they should.   Because the President deserves
significant credit for how well this economy has done during his leadership. 

The auto rescue plan has worked.  American car manufacturers are still dominant and employing millions directly and in supplier companies.  Wall Street reform
has been painful but it has re-instated faith amongst investors. 
The markets are far more predictable than they were four years ago, as VIX numbers demonstrate greater faith and less risk. 

Even for small investors, such as thoughs limited to their 401(k) or IRA investments, the average annual compound
return on stocks under President Obama has been more than
24% since the lows of March, 2009. 
This is a better result than either Clinton, Reagan or FDR who were the
prior winners in our book. 

Q– Bob, what policies do you think were most important
toward achieving today’s new highs?

BBBB – Firstly, let’s review just how bad things were in
2009.  In 2000 America was completing the longest
bull market in history. But by
the end of President Bush's tenure the country had witnessed 2 stock market crashes, and the DJIA had fallen 58%.  This was the second worst market decline in history (exceeded
only by the Great Depression,) and hence the term “Great Recession” was born.

In 2000, at the end of Clinton’s administration, the
Consumer Confidence Index was at a record high 140. 
By January, 2009 this index had fallen to an historic low of 25.3.  Comparatively, when Reagan took office
at the end of the economically weak Carter years the Confidence Index
was still at 74.4!  Today this
measure of how people feel about the country is still nowhere near 2000 levels,
but it is almost 3 times better than 4 years ago.

Significantly, in 2000 America had a budget surplus.  By 2009 surpluses were long gone and the
country was racking up historic deficits as taxes were cut while simultaneously
outlays for defense skyrocketed to cover costs of wars in Iraq and
Afghanistan.  Additionally, banks
were on the edge of failing due to unregulated real estate speculation and massive derivative losses.

Today the Congressional Budget Office is reporting a $200B decrease in the deficit almost entirely due to increased revenue from a growing economy and higher taxes on the wealthiest Americans.  The deficit is now only 4% of the GDP, down from over 10% at the end of Bush's administration – and projections are for it to be only 2% by 2015 (before Obama leaves office.)  America's "debt problem" seems largely solved, and almost all due to growth rather than austerity.

We can largely thank a fairer tax code, improved regulation and consistent SEC enforcement.  Also, major strides in health care reform – something no other President has accomplished – has given American's more faith in their future, and an increased willingness to invest.  

Q– To which President would you compare Obama’s economic
performance?

BBBB– By all measures, President Obama has outperformed
every modern President. 

The easiest comparison would be to President Reagan, who’s
economic performance was superb.  Even though Obama's performance is better.

Reagan had the enormous benefit of two major factors:

  1. a significantly better economy than Obama inherited, even if afflicted by inflation
  2. and his two terms coincided with the highest performing
    demographic years of the Baby Boomer generation.

Today's demographics have shifted dramatically.  The country is much older, with fewer
young people supporting a much larger near-retirement age group.  This inherent demographic fact makes
creating economic growth monumentally harder than it was 30 years ago.

Few people think of Reagan as a stimulus addict.  Yet, his administration’s military
build-up added $1trillion of stimulus to the national debt ($2.3trillion adjusted for
inflation) – the opposite of what is happening during the Obama years.  Many like to think
that it was tax cutting which grew the economy, but undoubtedly we now know
that this dramatic defense and infrastructure (highways, etc.) stimulus had more to do with igniting economic growth.  Reagan's spending looked far more like FDR than Herbert Hoover!

Ronald  Reagan tripled the national debt during his tenure, creating what today's Congressional austerity advocates might have called "a legacy of unpayable debt for our grandchildren.” But, as we saw, later growth (during Clinton) resolved that debt and created a budget surplus by 2000.

Q– Bob, President’s Obama detractors liken the Affordable
Care Act (i.e. Obamacare) to an Armageddon on business, sure to kill economic
growth and plunge the country back into recession.  Do you agree?

BBBB– To the contrary, ACA levels the playing field and will
be good for economic growth.  Where
previously only large corporations could afford employee health care plans, in
the future far more employees will have far more equitable coverage.  Further, today employees frequently are unable to leave a
company to start a new business because they would lose health care, which in
the future will not be true.

One leading indicator of the benefits of ACA might be the performance of healthcare and biotech stocks, which are up 20-30% and leaders in the current market rally.

Q– What policies would you recommend the Obama
administration follow in order to promote economic growth, more jobs and
greater returns for investors during the second term?

BBBB-  Obama needs to make the cornerstone of his second term creating new job growth.  That was the primary platform of his candidacy, and it is a platform long successful for the Democratic party.  If President Obama can do this and  govern effectively, this could be his real legacy.

 

 

Beyond the Debate – Common Economic Misconceptions vs. Reality

by | Oct 10, 2012 | Books, Current Affairs, Leadership, Lock-in

There was a time, before primaries, when each party's platform was really important.  Voters didn't pick a candidate, the party did.  Then voters read what policies the party planned to implement should it control the executive branch, and possibly a legislative majority. It was the policies that drew the most attention – not the candidates. 

Digging deeper than shortened debate-level headlines, there is a considerable difference in the recommended economic policies of the two dominant parties.  The common viewpoint is that Republicans are good for business, which is good for the economy.  Republican policies – and the more Adam Smith, invisible hand, limited regulation, lassaiz faire the better – are expected to create a robust, healthy, growing economy.  Meanwhile, the common view of Democrat policies is that they too heavily favor regulation and higher taxes which are economy killers.

Right?

Well, for those who feel this way it may be time to review the last 80 years of economic history, as Bob Deitrick and Lew Godlfarb have done in a great, easy to read book titled "Bulls, Bears and the Ballot Box" (available at Amazon.com) Their heavily researched, and footnoted, text brings forth some serious inconsistency between the common viewpoint of America's dominant parties, and the reality of how America has performed since the start of the Great Depression. 

Gary Hart recently wrote in The Huffington Post,

"Reason and facts are sacrificed to opinion and myth. Demonstrable
falsehoods are circulated and recycled as fact. Narrow minded opinion
refuses to be subjected to thought and analysis. Too many now subject
events to a prefabricated set of interpretations, usually provided by a
biased media source. The myth is more comfortable than the often
difficult search for truth."

Senator Daniel Patrick Moynihan is attributed with saying "everyone is
entitled to his own opinion, but not his own facts."  So even though we
may hold very strong opinions about parties and politics, it is
worthwhile to look at facts.  This book's authors are to be commended for spending several years, and many thousands of student research assistant man-days, sorting out economic performance from the common viewpoint – and the broad theories upon which much policy has been based.  Their compendium of economic facts is the most illuminating document on economic performance during different administrations, and policies, than anything previously published.

Startling Results


CH2_FHP
Chart reproduced by permission of authors

The authors looked at a range of economic metrics including inflation, unemployment, growth in corporate profits, performance of the stock market, change in household income, growth in the economy, months in recession and others.  To their surprise (I had the opportunity to interview Mr. Goldfarb) they discovered that laissez faire policies had far less benefits than expected, and in fact produced almost universal negative economic outcomes for the nation!

From this book loaded with statistical fact tidbits and comparative charts, here are just a few that caused me to realize that my long-term love affair with Milton Friedman's theories and recommended policies in "Free to Choose" were grounded in a theory I long admired, but that simply have proven to be myths when applied!

  • Personal disposable income has grown nearly 6 times more under Democratic presidents
  • Gross Domestic Product (GDP) has grown 7 times more under Democratic presidents
  • Corporate profits have grown over 16% more per year under Democratic presidents (they actually declined under Republicans by an average of 4.53%/year)
  • Average annual compound return on the stock market has been 18 times greater under Democratic presidents (If you invested $100k for 40 years of Republican administrations you had $126k at the end, if you invested $100k for 40 years of Democrat administrations you had $3.9M at the end)
  • Republican presidents added 2.5 times more to the national debt than Democratic presidents
  • The two times the economy steered into the ditch (Great Depression and Great Recession) were during Republican, laissez faire administrations

The "how and why" of these results is explained in the book.  Not the least of which revolves around the velocity of money and how that changes as wealth moves between different economic classes. 

The book is great at looking at today's economic myths, and using long forgotten facts to set the record straight.  For example, in explaining President Reagan's great economic recovery of the 1980s it is often attributed to the stimulative impact of major tax cuts.  But in reality the 1981 tax cuts backfired, leading to massive deficits and a weaker economy with a double dip recession as unemployment soared.  So in 1982 Reagan signed (TEFRA) the largest peacetime tax increase in our nation's history.  In his tenure Reagan signed 9 tax bills – 7 of which raised taxes!

The authors do not come down on the side of any specific economic policies.  Rather, they make a strong case that a prosperous economy occurs when a president is adaptable to the needs of the country at that time.  Adjusting to the results, rather than staunchly sticking to economic theory.  And that economic policy does not stand alone, but must be integrated into the needs of society.  As Dwight Eisenhower said in a New Yorker interview

"I despise people who go to the gutter on either the right or the left and hurl rocks at those in the center."

The book covers only Presidents Hoover through W. Bush.  But as we near this election I asked Mr. Goldfarb his view on the incumbent Democrat's first 4 years.  His response:

  • "Obama at this time would rank on par with Reagan
  • Corporate profits have risen under Obama more than any other president
  • The stock market has soared 14.72%/year under Obama, second only to Clinton — which should be a big deal since 2/3 of people (not just the upper class) have a 401K or similar investment vehicle dependent upon corporate profits and stock market performance"

As to the challenging Republican party's platform, Mr. Goldfarb commented:

  • "The platform is the inverse of what has actually worked to stimulate economic growth
  • The recommended platform tax policy is bad for velocity, and will stagnate the economy
  • Repealing the Affordable Care Act (Obamacare) will have a negative economic impact because it will force non-wealthy individuals to spend a higher percentage of income on health care rather than expansionary products and services
  • Economic disaster happens in America when wealth is concentrated at the top, and we are at an all time high for wealth concentration.  There is nothing in the platform which addresses this issue."

There are a lot of reasons to select the party for which you wish to vote.  There is more to America than the economy.  But, if you think like the Democrats did in 1992 and "it's about the economy" then you owe it to yourself to read this book.  It may challenge your conventional wisdom as it presents – like Joe Friday said – "just the facts."