WASHINGTON — Mitt Romney knew the day would come when a president would be able to swagger into the House Chamber and lay claim to a burgeoning economic recovery, as Obama did during his State of the Union remarks last month.
Romney, running for president in 2012, had hoped that it would be him.
“I wouldn't be going after this job if I thought the future was bleak. I would not want to be president — be on watch if you will — as America goes over a cliff. I would not want to take this job and this responsibility if I didn't think the future is going to be extraordinarily bright," Romney told about 300 wealthy Missourians at a St. Louis fundraiser in early June 2012.
Instead, Obama defeated Romney to win reelection, and in 2015, the White House has moved increasingly aggressively to take credit for the recovery. Unemployment is at 5.7 percent, the lowest since June 2008. Real GDP grew at 5 percent in the third quarter of 2014 (although it went back down to 2.6 percent in the fourth). Even the federal budget deficit — once nearing 10 percent of the economy — has been slashed to less than 3 percent, though it is projected to begin growing again in 2018. The nation’s economic rebound from the worst crisis since the Great Depression was a long time in coming, and as evidenced by Romney’s speech in 2012, many knew it was in some respects inevitable.
But it happened on Obama’s watch, and — as the administration sees it — the president now has an opportunity to recast the way that liberal economic policies are thought of for a generation.
“Because the economy did well under Reagan — even though some of the work was done before Reagan got there — we believed in this country for a long time that it was less government, less taxes is good for economic growth,” Obama adviser Dan Pfeiffer said recently. “And we have been battling that conception, and Democrats were forced to play on that field for a very long time.
“We want to change the field,” Pfeiffer said.
Obama in 2012, like Romney, was looking forward to a post-election economic rebound, Pfeiffer said in an interview with The Huffington Post just before Christmas. Before Obama defeated Romney, the president had been nervous about Romney getting credit for the economic growth that the White House could see coming on the horizon.
"That would be super-annoying," Pfeiffer said. “The thing that worried [Obama] most about losing was the idea that he would lose, Romney would come in, the economy would now do what it’s doing, because it’s on a trajectory."
Obama has often talked in glowing terms about Reagan, the 40th president and a conservative icon. Obama has expressed admiration for Reagan’s iconic status — for the change he represented and the symbolic figure he became.
“I think Ronald Reagan changed the trajectory of America in a way that, you know, Richard Nixon did not, and in a way that Bill Clinton did not,” Obama said during the heat of his 2008 Democratic primary showdown with Hillary Clinton.
This may be his most Reaganesque play of all: riding the coattails of an economy that came out of crisis, and using it to bolster liberal ideas about economics and governance, as well as his own legacy.
The 30,000-foot view of the Obama years that he hopes is taking shape — despite the fact that the recovery has been sluggish, and despite criticism from the right that Obama’s policies have slowed it down — is that he came into office with the economy in a huge hole, and that while he was president, it came back to life. The debate will rage for decades over whether the recovery was because of or in spite of Obama’s policies. But it’s quite possible that many people won’t care about what the economists decide, and will look only at the topline indicators, GDP growth and unemployment. The first line has gone up. The second has gone down.
But what really caused the recovery, and how much credit should Obama’s policies get for the nation’s brightened economic mood?
First off, there are the “normal forces of cyclical recovery,” sparked as “you work off the normal forces that led to the recession in the first place,” according to Joel Prakken, a senior managing director at Macroeconomic Advisers, a St. Louis-based independent research firm that sells economic forecasts to a broad range of customers, including the Obama White House.
The excess supply in the housing market and major “imbalances in household balance sheets” had to go through a natural deleveraging process. In other words, people who had taken out too many loans on their mortgage or bought houses or other assets they couldn’t afford were going to have to tighten their belts and take some losses.
“The further that stuff is in the rearview mirror, the more buoyant the economy is,” Prakken said.
The government could soften the blow for some, but that was about it. And in fact, Obama’s Home Affordable Modification Program (HAMP) — to help people avoid foreclosure — reached many fewer homeowners than the White House hoped to and saw a large number of mortgages that were renegotiated go into foreclosure anyway.
Second, there are phenomena that have little to do with government policy, such as the domestic energy boom, which was taking off in 2012 when Romney made his remarks in St. Louis. At that time, the shale and natural gas revolution had been ongoing for a few years, but was not widely recognized.
Oil was around $100 a barrel all year in 2012. The price has dropped in half since then. That’s in part because over the last six years, domestic oil production in the United States has nearly doubled. Rising fuel- efficiency standards have reduced demand, particularly in Europe. OPEC nations, as a result, have had to look to Asian markets — where prices are lower — to pick up the slack. OPEC has also declined to prop up prices by decreasing supply, hoping to squeeze U.S. producers into reducing their production.
Oil prices can be expected to rebound as production slows due to falling prices, but in 2015, American consumers could see average savings of about $750 due to lower energy costs, according to a U.S. government estimate. Along with the quickened GDP and lowered unemployment, that’s a big reason why there is more optimism around the economy than there has been in a while.
And the economic impact of the fracking revolution in the U.S. is much broader than simply what American drivers feel at the pump.
“The increase in domestic production has reduced imports by more than $100 billion a year,” said Prakken. “That’s like a $100 billion tax cut to the U.S. economy, and it’s more or less permanent.”
The lower cost of energy is also increasing manufacturing in the U.S. and creating new jobs, although some of those jobs are already being offset by layoffs in the energy sector because of the cratering price of oil.
Without the energy explosion, Prakken said, “It would have been a much deeper recession [after the 2008 crisis], a bigger drop in GDP, and you would have had slower GDP growth in the recovery.”
Third, there is the role that government action has played.
Jared Bernstein, the top economic adviser to Vice President Joe Biden from 2009 to 2011, is one of the most prominent voices to argue that the Obama White House did a lot to help the economy.
“Today’s economic revival was, in the end, a victory of the technocrats,” Bernstein wrote in The Washington Post a few days after Obama’s State of the Union address.
“The lesson of the recovery is this: In crucial areas of the economy, we have the historical knowledge to diagnose what went wrong, and when we undertake the prescribed policy responses, they work like they’re supposed to. Conversely, when we fail to apply what we know, we hurt the economy,” Bernstein wrote. “The Recovery Act, the financial and auto bailouts, Federal Reserve policy, and Obamacare are examples of applying the known hydraulics to achieve the intended effects.”
Certainly, the Federal Reserve’s loose monetary policy — keeping interest rates low and monetizing the big banks — has led to stock market growth and has been great for the wealthy. Of course, it has also arguably increased income inequality. The wealthiest 10 percent of Americans own 61.9 percent of all publicly traded stocks.
If history looks only at the broad trends during Obama’s presidency, then, barring a novel economic calamity, the economic recovery is likely to secure Obama’s legacy. But it has taken six years for the economy to start recovering. That’s a long time.
And as the 2016 Republican primary heats up, the likely candidates are beginning to make the case that Obama’s presidency should be remembered for the slowness of the recovery more than the recovery itself.
“It’s true enough that we’ve seen some recent and welcome good news on the economy. But it’s very little, and it’s come very late,” former Florida governor Jeb Bush said at the Detroit Economic Club on Wednesday. “Six years after the recession ended, median incomes are down, households are, on average, poorer, and millions of people have given up looking for a job altogether.”
“The recovery has been everywhere but in the family paychecks. The American Dream has become a mirage for far too many,” Bush said.
Doug Stafford, a senior adviser to Sen. Rand Paul, R-Ky., said the recovery “hasn’t worked for most Americans.”
“And the debt incurred to paper over bad policies will last through their lifetimes if we don't change direction,” Stafford told Yahoo News.
Sen. Elizabeth Warren, D-Mass., is the leading voice on the left whose critique of the Obama presidency is very similar to that of the Republicans.
The “widely cited statistics” on economic growth, unemployment, inflation and the stock market are “an important snapshot of the health of the overall economy,” Warren said in a speech to the AFL-CIO in January.
“But the overall picture doesn’t tell much about what’s happening at the ground level to tens of millions of Americans. Despite these cheery numbers, America’s middle class is in deep trouble,” Warren said.
Republicans are now moving quickly to try to align their message and their policies to address wage stagnation, underemployment and a languishing labor force participation rate. Warren and the progressive wing are already there.
With that kind of pushback, Obama may not get much credit in the short-term. So he’s making a long-term play.
“While the contemporary debate may not credit him, I think historians will look back on his tenure quite fondly,” Shawn Brimley, who served on Obama’s National Security Council, wrote last month in commenting on the State of the Union. “Of course, plenty can happen between now and 2017, but it’s hard to argue that the macroeconomic landscape is anything other than a substantial improvement from what President Obama inherited.”
That’s what the president is counting on as his calling card for the history books.