Tag Archives: Obama

Looking Back on Barack

Share Button

At the end of his time in office Barack Obama merits an enumeration of some of his many accomplishments.   The recollection should start as he started, on January 20, 2009: the pilot taking the cockpit just when the plane was in an uncontrolled dive.

The circumstances were the most adverse faced by any new president in many decades.  Two ill-conceived and ill-executed foreign wars were underway, which had done nothing to bring to justice the mastermind of September 11, 2001.  He inherited an economy that was in free-fall, whether measured by the seizing up of finance markets, the fall in GDP, or the hemorrhaging of employment.  (The rate of job loss was running ran at 800,000 per month.)  True, Franklin Roosevelt inherited the Great Depression and Abraham Lincoln took office just as the Civil War broke out.   But what other president has come in facing both an economic crisis and a national security crisis?

The rapid policy response to the economic crisis included — in addition to aggressive and innovative monetary easing by the Federal Reserve — the Obama fiscal stimulus (the American Recovery and Reinvestment Act, passed by the Democratic Congress in February 2009) and rescue programs for the financial system and the auto industry.  Republicans were near unanimous in opposing the stimulus. And almost everybody was critical of the rescue programs – either urging nationalization of the banks and auto firms, on the one hand, or urging letting them go out of existence on the other.  There was and is insufficient recognition of how the Obama Administration succeeded, against all odds, at making the middle path work:  jobs were saved, while shareholders and managers suffered consequences of their mistakes  and the government got its money back after the recovery.

Most importantly, the free-fall ended promptly.  The timing and clarity of the turnaround is much more visible than one would think by listening to debates on what was the right counterfactual to evaluate the effect of Administration policies.  Economic output in the last quarter of 2008 had suffered a shattering 8.2 % p.a. rate of decline and job loss had been running at more than 600,000 per month.  Output and employment began to level out almost immediately after the February stimulus program.  The bottom of the recession came in June 2009; output growth turned positive in the next quarter.  Job creation turned positive early in 2010 and employment growth subsequently went on to set records all the way through the end of Obama’s time in office, adding more than 15 million jobs.

By the last half of Obama’s second term, the unemployment had fallen by half, to below 5% (2015 and 2016), wages were rising (by 2.9% nominal over the 12 months to Dec. 2016); and real median family income was finally growing too (by a record 5.2% in the most recently reported year, with lower-income groups advancing even more).

It is certainly true that the recovery was frustratingly long and slow.  Reasons include the depth and financial nature of the 2007-08 crash and the early reversal of the fiscal stimulus after the Republicans took back the Congress in the 2010 election and blocked Obama’s further efforts.   2011-14 are the years when the economy really could have used infrastructure spending and (the right) tax cuts.  But it would seem that Republicans only support fiscal stimulus when they are the ones in the White House — including when the economy is no longer in recession.

Obama’s other two biggest accomplishments in those first two years before the Congress starting blocking everything he tried were the Dodd-Frank financial reform bill and the Affordable Care Act (Obamacare).  In both cases, the reforms would have been better without a succession of steps by the opposition party to weaken them, both at the stage of passing the legislation and subsequently.

But each of those important reforms nonetheless succeeded in moving the country more clearly in the right direction than most people realize.  Dodd-Frank in a variety of ways helped make less likely a repeat of the 2007-08 financial crisis. Among other things, it increased transparency for derivatives, raised capital requirements for banks, imposed additional regulations on “systemically important” institutions, and, per the suggestion of Senator Elizabeth Warren, established the Consumer Financial Protection Bureau (CFPB).  Obamacare has succeeded in giving health insurance to 20-million-plus Americans who lacked it (for example, due to pre-existing conditions) and the cost of health care contrary to most predictions and perceptions slowed noticeably.

In the area of foreign policy, the wars in Afghanistan and Iraq were  intractable.   But the President made the tricky decisions that resulted in the elimination of Osama bin Laden (a goal in which George W. Bush had lost interest, in his eagerness to invade Iraq).  In 2015, just as the press was saying Obama was a lame duck, he achieved a string of foreign policy successes: a much-needed nuclear agreement with Iran, normalization of relations with Cuba, agreement on the Trans-Pacific Partnership (TPP), and important progress to address global climate change via a breakthrough with China.

Needless to say, the man who assumes the Presidency this month has said he will reverse most of these initiatives, if not all.  In some cases, he will do exactly that. TPP is certainly dead, at least for the time being.  (And four years from now will probably be too late to revive it, as East Asian countries may by then have responded to America’s withdrawal from the region by joining China’s trade grouping instead.)

In other cases, real-world constraints will make it harder for Mr. Trump to translate crowd-pleasing sound-bites into reality.  Repealing Obamacare is apparently top of the list.  But the Republicans are likely to be stymied by the absence of an alternative that does not take health insurance away from those 20 million Americans nor raise the net cost.  Some important innovations, such as the switch to electronic patient record-keeping and more emphasis on preventative care, are bound to survive in any case.  Perhaps the eventual outcome will be relatively minor changes in the substance of the Affordable Care Act, together with a new name – the analog of building a big beautiful wall on a quarter-mile of the Mexican border as a sort of stage set suitable for photo opportunities.

Similarly, it is hard to see how pushing harder on China would produce desirable results.  To take the most ironic example of ill-informed policy positions, if the Chinese authorities were to acquiesce to Mr. Trump’s demands that it stop manipulating its exchange rate, its currency would depreciate and its competitiveness would improve.

Similarly, if the Administration tries to carry out its promise to tear up the nuclear agreement with Iran, it will quickly find that US sanctions are ineffective without the participation of our allies.  Iran could rapidly renew and accelerate its nuclear program.  That is what happened with North Korea when George W. Bush essentially tore up the “agreed framework” upon taking office in January 2001.

Do the voters hold presidents accountable?   Bush made other serious mistakes in economic and foreign policy as well in those early years, of course, with the predictable consequences for the economy, budget, and national security.  Yet his poll numbers soared in his first term.

Conversely President Obama’s popularity sagged during much of his eight years.  Yet he leaves office with substantially higher poll ratings than most presidents at this stage and – unusually – with much higher ratings than his successor, let alone his predecessor at the end.  So apparently the person who occupies the White House does eventually receive the credit he is due for the intelligence of his policies and the content of his character.  It just takes longer than it should.

[A shorter version of this column appeared at Project Syndicate.  Comments can be posted there.]

Share Button

Talk on trade: TPP & Trump

Share Button

The ITC Wednesday released its mandated report on the economic effects estimated to result from the TransPacific Partnership.  As is usual in standard trade models, the estimated welfare gains may sound small: on the order of ¼ % of income.  But that would still be way worth doing.    Furthermore the ITC study, by design, leaves out a lot.  For example, the Petri-Plummer study from the Peterson Institute estimates income gains from TPP that are twice as large, in part because it takes into account Melitz-style opportunities for  more productive firms to expand.

I am quoted twice in the associated press coverage this week. They can be tweetably summarized in one sentence:
(1) US rejection of TPP would signal withdrawal from Asia; (2) US acceptance of Trump would signal withdrawal from the entire world!

(1)   One quote appeared in an Associated Press article (titled “Complex US politics of trade will follow Obama to Asia”):
“Many in Asia have come to think that maybe they can’t depend on us, that we’re withdrawing.  That feeling may be worse in this presidential election year,” says Professor Jeffrey Frankel of Harvard University‘s Kennedy School of Government. “The international relations aspect of this is if we don’t pass TPP, Asians are going to interpret it as a U.S. withdrawal from their region. And they’re going to get closer to China.”

(2) Another appeared in a Financial Times article today (titled “Obama fights back against Trump over US trade deals”):
“It is hard to believe he would really be able to follow through — much of it is illegal [and] contradicts US international agreements,” Jeffrey Frankel, a professor at Harvard’s Kennedy School of Government, said of Mr Trump’s economic agenda. “The global impact of that would be tearing down the entire postwar international . . . order.”  

 

 

Share Button

The Threat to US Global Leadership

Share Button

President Barack Obama has had a remarkable series of foreign policy triumphs over the last 12 months.  One of the lesser-known was the passage of legislation for reform of the IMF on December 18, 2015, after five years of obstruction by the US Congress.   As the IMF convenes in Washington DC for its annual spring meetings April 15-17, we should pause to savor the importance of this achievement.  One could almost say that if Americans had let yet another year go by without ratifying the IMF quota reform, they might as well have handed over the keys of global economic leadership to someone else.  That would be China.

The IMF reform was an important step in updating the allocations of quotas among member countries. (Quota allocations in the IMF determine both monetary contributions of the member states and their voting power.  They are supposed to be determined by economic weight.)   The agreement among the IMF members was to allocate greater shares to China, India, Brazil and other emerging market countries, coming primarily at the expense of European and Persian Gulf countries.  The change in IMF quotas is a partial and overdue adjustment in response to the rise of the newcomers.  President Obama managed to get the leaders of the other G20 countries to agree to this reform at a 2010 summit in Seoul.

Approving the agreement should have been a “no-brainer” from the viewpoint of the United States:   it was neither to pay a higher budget share nor to lose the voting weight that has always given it a unique veto power in the institution.  The reform was an opportunity to exercise US global leadership.  But one might have thought it was a threat to US leadership if one judged from congressional opponents who blocked passage of the legislation until last December.

If the game is a competition between China and the US for international power and influence, then some damage has already been done.  China feels that its economic success merits a greater role on the world stage.  If the status quo powers “move the goal posts” by denying China the place at the table of global governance that it has earned, it will look to establish its own institutions.   Meanwhile, Asia has been wondering if the US is committed to the region (as its “pivot” claimed).  Indeed, the rest of the world has often in recent years wondered if internal politics prevents the US from functioning at all.  Asians tend to prefer to have the US engaged. China’s territorial assertions in the South China Sea confirm its neighbors worst fears. But they will look elsewhere if need be.

Thus Asian countries (and others) were happy to join a new China-led institution, the Asian Infrastructure Investment Bank. The AIIB, widely viewed as a serious diplomatic setback for the US, went into operation December 25.

The good news is that the AIIB is off to a good start, with no sign so far of the feared lowering of standards relative to other multilateral development banks (such as the World Bank).  But it is even better news that the US can now get back into the game, after a string of international successes.

It has been a busy 12 months for President Obama in the international arena.   Consider  global achievements in four areas (in addition to the IMF reform):

  • On April 2, 2015, the United States (and five other major powers) reached a long-shot breakthrough with Iran over its nuclear program, which was then consummated in a July 14 agreement diverting Tehran from what had seemed an inexorable march to nuclear weapons.   On January 16, 2016, the International Atomic Energy Agency verified that Iran had in fact completed the necessary steps under the agreement to ensure that its program remains exclusively peaceful.
  • On June 24, 2015, Congress was persuaded to give the White House Trade Promotion Authority.  It allowed the administration to complete the Trans-Pacific Partnership (TPP) in October.
  • On July 20, 2015, the US and Cuba re-opened embassies in each other’s countries.  Last month, on March 20, Obama because the first president to visit Cuba in 90 years. The historic event marked the end of 55 years of an attempted isolation policy that had only succeeded in giving the Castro brothers an excuse for economic failure and in handicapping American relations throughout Latin America.
  • On December 12, against all expectations, representatives of 195 parties to the UN Framework Convention on Climate Change successfully reached an agreement on global action in Paris, spurred in no small part by an earlier breakthrough between President Obama and Chinese President Xi Jin Ping.  This month, on April 22, the two leaders are scheduled to sign the Paris Agreement on behalf of their respective countries, the world’s two largest emitters of greenhouse gases.  The signing will encourage others to ratify.

These accomplishments are not the kind that come automatically with possession of the Oval Office.  A year ago, not one of them was expected.  Not only did the international political obstacles appear nearly insurmountable; the domestic obstacles looked even worse.  The overwhelming conventional wisdom was that Obama would not be able to accomplish much in his remaining time in office.  After all, the Republicans had succeeded in blocking almost all Obama’s proposals since they took the House of Representatives in November 2010.  Why should he have any better luck after they took the Senate (in November 2014) and especially now that he was a “lame duck” as well?

The Trade Promotion Authority legislation was declared virtually dead last May.  The IMF quota reform legislation was considered so moribund, the press did even consider it worth reporting on.

A lot of the opposition came from Republicans who from the start have been eager to line up on the opposite side of whatever position President Obama takes.   But opposition to such internationalism comes from the far left of the political spectrum as well as the far right, and not just in the area of trade.  To take the salient example of Bernie Sanders, historically he has joined with congressional Republicans in trying to block efforts to rescue emerging market countries in Latin America and Asia at times of financial crisis.  (These rescues are invariably called “bailouts,” even while they cost the US nothing – the Treasury made a profit on the 1995 loan to Mexico that Sanders fought – and even while they sustain economic growth.)  To take another example, New York Senator Chuck Schumer joined the Republicans in trying to block the Iran nuclear agreement, an effort that failed on September 8.

The IMF deal is done.  Managing Director Christine Lagarde is doing a good job (especially compared to her three predecessors, none of whom was even able to serve out his term).   She is right, for example, to tell the Germans that a solution to the Greek problem requires further debt-reduction as one of its components.

But each of the other four initiatives could still be de-railed by US politics, especially if the far left and the far right join together.  Congress has yet to repeal the Cuba embargo.   It could reject the TPP, in effect telling Asia it is on its own.  On June 2, a federal Appeals Court will hear a challenge to the Clean Power Plan whereby the Obama Administration hopes to begin implementing its commitment under the Paris Agreement.  Donald Trump and Ted Cruz both say that if elected president they would tear up the Iran nuclear deal.   (What would happen then?  Probably the same thing that happened when George W. Bush took office in 2001 and tore up Bill Clinton’s “framework agreement” with the North Koreans:  they predictably and promptly got a bomb.)

The struggle over whether the US will lead the world continues.  It is not a struggle between the US and rivals, but a struggle within American politics.

 

[This is an extended version of a column that appeared at Project Syndicate.  Comments can be posted there or at Econbrowser.]

Share Button