Obama's economic failures outweigh successes

By Ovunc Kutlu and Gulbin Yildirim

NEW YORK

After eight years in the White House, President Barack Obama’s economic legacy shows some successes but these are largely overshadowed by failures.

Increased employment, stricter financial regulation following the Wall Street scandals that fueled the 2008 financial crisis and cleaner energy stand out as areas in which the 44th president succeeded.

Less illustrious have been his policies to boost growth, international trade deals and healthcare reform, while attempts to tackle tax reform, public debt and income inequality stand out as his administration’s main economic failures.

When Obama was elected in November 2008, the U.S. was going through one of the biggest financial crises the world had seen. Financial institutions that had stood as bywords for American business, such as Lehmann Brothers, were bankrupt and hundreds and thousands of people out of work and homeless.

In his first year in office, the U.S. economy shrunk by 2.8 percent -- its worst annual performance since World War II.

The government initiated an $800 billion stimulus plan -- the American Recovery and Reinvestment Act -- to revive the economy and the Federal Reserve lowered its benchmark interest rate to 0 percent and launched a $600 billion asset purchasing program.

Expansionary fiscal and monetary policies helped the economy recover and grow an average of 1.5 percent between 2009 and 2016 but despite surviving recession such low levels of growth proved disappointing to most economic observers.

This led to Donald Trump’s highly critical election campaign claim that the U.S. had experienced the “slowest growth since 1929” under Obama. He later added that Obama had been the “first president in modern history not to have a single year of 3 percent growth.”

Some experts, however, have argued that the slow pace of growth was not a result of policy but more the impact of the financial crisis and weakness of the global economy.

Obama supporters have countered that job creation was the shining light of his presidency’s economic achievements and point to 15.5 million new jobs created in the 80 months since February 2010. However, others say this private sector job creation came as public sector employment fell.

- Unemployment

In mid-2009, the unemployment rate stood at 10.3 percent, its highest level in 26 years. This fell to below 5 percent earlier this year.

However, the administration, hampered by a Republican majority in Congress, failed to raise federal minimum wages as promised. It was not until February 2014 that Obama was able to raise government employees’ wages through an executive order.

Despite steering the economy away from recession and adding new jobs, the country’s economic gains were not distributed as evenly as Obama had pledged.

Last year, the U.S. had the worst income inequality in the world with a Gini coefficient -- the most common measure of inequality -- of 80.65, where 0 represents perfect equality and 100 means perfect inequality, according to Allianz’s Global Wealth Report.

The average household income fell steadily between 2007 and 2014 -- a statistic largely blamed on the failure of Obama’s middle-class-focused policies.

In the area of financial regulation, Obama imposed the Dodd-Frank Act to curtail risky Wall Street behavior and address irresponsible and overly risky practices in areas such as the highly complex derivatives market.

However, even this positive has been accused of having a negative impact on the economy and strangling growth.

“The Dodd-Frank Act... imposed very restrictive regulation on the financial system,” Peter J. Wallison, a senior fellow at the American Enterprise Institute, told Anadolu Agency.

Wallison said the act was “largely responsible for the historically slow growth of the U.S. economy in recovering from the financial crisis and the recession that followed”. In turn, these poor levels of growth caused a slump in the world economy.

However, the stock market has indicated benefits from Obama’s time in office with the three main share indexes showing gradual increase over his presidency.

- Wall Street

The Dow Jones stood at around 8,000 points at the time of Obama’s January 2009 inauguration while the S&P 500 was at 840 points and the Nasdaq was at around 1,500 points. The indexes not only rose but reached record-high levels in recent days.

The Dow reached 19,000 points for the first time in history on Tuesday. The S&P climbed above the threshold of 2,200 points and the Nasdaq hit nearly 5,400 points.

Wallison, however, put the current high levels as the market’s enthusiasm for Trump’s pledges to repeal or reform Obama’s programs.

One area where Obama fulfilled his promises was in increasing the volume of American exports.

U.S. exports fell 15 percent to $1.58 trillion in 2009 but managed to increase steadily in the following years, reaching $2.34 trillion in 2014, according to the Department of Commerce.

Among the bilateral trade deals signed by Obama were agreements with South Korea, Colombia and Panama.

However, grander schemes such as the Trans-Pacific Partnership (TPP) signed this year by 12 Pacific Rim countries and the ongoing Transatlantic Trade and Investment Partnership (TTIP) negotiations are regarded as failures.

Trump said Monday that he would take the U.S. out of the TPP in his first 100 days in office, and German Chancellor Angela Merkel said last week that the TTIP talks were finished when Trump was elected.

“Nothing the Obama administration did meaningfully influenced the terms of trade between the U.S. and the world,” Scott Miller, a senior adviser at the Center for Strategic and International Studies, said.

“Therefore, we missed out the growth that would have been available by improvement in terms of trade. That's a small part of the overall sluggishness of the U.S. economy during the president’s tenure.”

- International trade

Miller said Obama had embraced the principles of free trade but negotiations on the TTIP had failed to produce any meaningful agreements. “There's not much of a legacy,” he told Anadolu Agency.

During his 2008 election campaign, Obama promised to improve the well-being of the middle class through tax reform. He also planned to tighten tax loopholes in American overseas territories and increase income tax for high-income individuals. The reforms were projected to increase public income by $210 billion.

Most of these plans ended in compromise or failure and his plan to create a $10 billion fund to help homeowners refinance or sell their homes also was not realized, despite creating a $800 billion stimulus package for the economy and major American financial corporations.

Similarly, a proposal to create automatic pension enrollment, create pension savings tax credit for those on low incomes and end income tax for seniors making less than $50,000 a year also failed.

Tax deductions for lower-income families and child credit reforms also had to be shelved.

With the Affordable Care Act -- more popularly known as Obamacare -- around 40 million Americans were given health insurance and the number of Americans without health insurance dropped from 15.7 percent to 9.2 percent during Obama’s presidency, according to the Centers for Disease Control and Prevention.

The scheme was challenged relentlessly by Republicans on issues ranging from constitutional rights to costs. Criticism grew about Obamacare after the Department of Health and Human Services announced last month that some premiums would jump 25 percent next year. Since then, a significant number of insurance companies have left the Obamacare Marketplace.

However, Obamacare resulted in an anticipated $1.76 trillion rise in federal spending by 2025, according to the Congressional Budget Office. Trump has repeatedly promised that he would repeal Obamacare and replace it with "something wonderful."

- Government debt

Federal spending and government debt rose significantly during Obama’s two terms.

Public debt went from $10.6 trillion to $19.9 trillion over the eight years, according to the U.S. Treasury Department.

Federal spending jumped more than 10 percent during the period, most of which was a result of Medicare for senior citizens and Medicaid for low-income citizens.

Obama is expected to leave a government debt of $20 trillion to Trump at the end of January.

The energy sector has also seen a number of changes during Obama’s presidency following his commitment to reduce dependency on foreign energy sources and increase the use of renewables.

Thanks to the shale revolution, domestic oil production nearly doubled from 5 million barrels per day in 2008 to 9.6 million bpd in mid-2015, according to the Energy Information Administration.

As American dependency on foreign oil producers fell by 50 percent during that period, Obama doubled the country’s renewable energy capacity and increased the use of clean energy sources.

As oil production rose, his administration concentrated on the environment.

The controversial Keystone XL pipeline to carry Canadian crude south sat on Obama’s desk for six years and despite congressional approval, it was vetoed by Obama three times.

The president also had a major role in initiating the Paris Climate Agreement signed by 193 countries last year to reduce carbon emissions. However, Trump has called climate change a "hoax," and has promised to withdraw the U.S. from the agreement.

- Legacy

Elected with high hopes in 2008, Obama managed to save the economy from recession, but his policies failed to create higher growth rates.

Tax reform and middle-class policies largely failed to make any positive impact. His health reforms, which were thought to revolutionize the American health insurance sector, left a massive public debt.

Although his election promises looked good, it was weak policy actions and Republican challenges in Congress which left most of his commitments incomplete or unrealized.

President Obama tried to establish new trade links with TPP and ongoing TTIP negotiations, but there is not much he can do when President-elect Donald Trump withdraws the U.S. from those.

“Obamacare” is also very likely to be repealed under Trump, leaving Obama's healthcare legacy undone.

Nevertheless, he will be remembered as the president who managed to pull the U.S. economy out of one of the worst recessions the world has ever seen, and increased employment for his people.

It will, perhaps, take a decade to look back and revisit Obama's economic legacy and the things he tried to do for his country.