Obama’s Economic Report Card


The Economist, a British magazine dealing with economics, has put out a report card for President Obama’s first term.  I would like to give my thoughts on each grade and would hope if anybody actually reads this that they could offer up their own report card for all the categories.

The Economist/Me

Crisis response          A-/C          I lowered the grade to a C because although the auto bailout was necessary in my opinion they should have done more to reign in the UAW because much of the reason the companies were no longer competitive was due to labor costs.

Stimulus                     B+/C-         I gave him a C-  here because it did not deliver anything near what the president had said it would.  Also so much of it was wasted on green energy pipe dreams that will never work without government funding.

Housing                      C+/C          An enormous problem that will take years more to work through to see the housing market fully recover.

Labour                        C+/F           I’m not sure what the guy writing this article was thinking but boosting college funding is not near a good enough reason to merit a passing grade when the nation is still at record high unemployment levels 4 years removed from the crisis.

Trade                           B-/B-         I left the grade unchanged because I do feel the Obama administration has tried to help American companies export more goods.  However, since the Obama administration has not fundamentally addressed the nation’s most critical economic failure, our trade policy, I could not give him an even higher grade as I originally wanted.

Industrial Policy        F/F            The Economist laid out the obvious reasons for the grade already.

Regulation                  D/F            To me there is no question this has been of the administration’s most glaring failures.  The fear that companies have of what Obamacare might mean in terms of new costly regulations is enough for most to give him an F here.

Debt            Incomplete/F            I thought hard here about giving the president a D because republicans have not been realistic about accepting at least some meagre tax hikes in exchange for entitlement reform, which will have to happen to solve the deficit problem.  Unfortunately I couldn’t do that because of the president’s record-breaking trillion-dollar plus deficits for each year he has been in office.  The bottom line is that the size of these yearly deficits and the accumulated debt overall has done more to endanger our country than anything in the history of this nation since World War II.

In the final analysis the Obama administration faced problems not seen since the Great Depression and should be graded with that in mind.  Some of the things that many conservatives blast him for the most were needed like the auto bailouts and the stimulus, even though they were poorly executed, because the country was ready to plunge into the abyss.  Unfortunately record high unemployment, out of control deficits, and the burden of Obamacare mean that this president does not deserve a passing grade in my opinion.

Barack Obama’s economic record: End-of-term report

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Who Is #1?


 

Who has the world’s number one economy in terms of size and who does the world think is number one?  That was the subject of a world-wide poll conducted recently.  The results were interesting with both the people’s of China and America thinking the other held the title.  In reality it is still America, but according to some experts that will change at the end of this decade with China expected to finally eclipse the US.  I say finally eclipse but that is misleading because the speed with which China’s economy has risen has been breath-taking.  For instance, back in 2004 or so there was a report done by an investment bank that said China would not pass up the US until around 2043 or so, so much for that.  What else is noteworthy about the study is that much of the world already assumes China is number one.  While China becoming number does not necessarily mean that they will rule the world right away, after all according to the article I read America became number one in 1871.  Most agree that it did not command the world until after World War II.  That is quite a long time from becoming the biggest economy to assuming true global leadership, although one has to factor that time seemingly moves faster today because technology pushes great events to happen faster.  This much is sure the United States went from unchallenged global supremacy at the beginning of this century to a super power not looking so super in the short span of less than ten years.  Well, at least it should be an interesting time to come.  Be sure to check out the link below and see who the world thinks is number one right now.

Daily chart

The world’s biggest economy

Something Positive For Once


 

If you have read this blog before you probably have realized that it tends to be somewhat negative sometimes because it reflects what is going on in the wider world.  So after reading a fascinating article over www.foreignpolicy.com entitled The End of the Asian Miracle I wanted to share some of the author’s insight on some very positive things happening right now for the US economy.  The article is fairly long but does go in-depth about how China is beginning to lose some of its competitive advantage versus the US and is worth reading but for the sake of time I’m only going to address what is actually happening in the US instead of the rest of the world. 

Perhaps the biggest new development happening in the US is the discovery and extraction of shale gas that is allowing the US access to large quantities of domestically produced cheap energy for the first time since probably the 1960’s.  Yes, we have had the Alaskan oil discoveries since then but this has the potential to be much bigger and because of this its impact will be much more beneficial.  The effects of this are already being felt in manufacturing with some US companies returning production back to the US from overseas because of the cheap energy, but also foreign companies moving their operations from their home countries to also access this energy.  According to the article the US now is supplying gas to domestic customers at about $2-2.50 per 1 million BTU.  Compare this with China which imports gas at a price of about $13-17 per 1 million BTU.  As you can see that is quite the advantage for us.  I’m sure you are wondering about how this relates to oil?  The article states that the $2-2.50 price is equivalent to an oil price of about $12-15 per barrel.  But the size of the deposits discovered in America mean that this will be an enduring advantage, one so great that this gas will not only power energy intensive manufacturing plants but also provide electricity and perhaps even fuel cars and trucks.  Obviously fueling are personal vehicles is some way off because of the lack of infrastructure (the technology to convert our vehicles already exists and is relatively cheap) but it certainly is not unreasonable to see fleet vehicles that operate out of a terminal being able to take advantage of this much sooner than cars.  Cheaper transportation costs mean cheaper goods at the store, we all win.  In fact the reserves of gas are so large that the idea of the US once again being energy independent may become a reality, now that really is something positive to move forward with.

The End of the Asian Miracle

Nearly Half Of All US Households Get Govt. Benefits


The Wall Street Journal reports disturbing news that almost half of all households receive federal benefits.  The article points out several reasons for this rise like an ageing population and lingering effects of the recession.  The author also discusses how difficult it will be to reduce deficit spending by the federal government if so many people are dependent on it for their income.  Link to story below.

Number of the Week: Half of U.S. Lives in Household Getting Benefits

 

Quote Of The Day


Here is a good quote that seems to go along with our other article on diminished future economic prospects The New Normal.  The quote is by Jeremy Warner who was writing a story for the Daily Telegraph criticising economist and writer for the New York Times Paul Krugman for calling for more deficit spending.  What makes the quote relevant for us is that he echoes many of the things we have already touched on here.

“As Raghuram Rajan, a former IMF chief economist, has argued, today’s troubles are not simply the result of inadequate demand, but of major changes in the world economy brought about by globalisation. The old monopoly of knowledge and expertise once enjoyed by advanced economies has been swept away. For decades, we compensated for the jobs and income lost to technology and cheaper foreign competition with unaffordable government spending and easy credit. Much of the growth enjoyed in these pre-crisis years was simply unsustainable”.

We can all only hope that both this blog, the author quoted, and many others are wrong because if not we are in for a much poorer existence.  Here is the link to the story below.

We can’t fall for the false Messiah

The New Normal


I touched on this idea a few days ago in the post entitled US GDP Growth, Historical and I would like to come back to that again today.  I was just reading an article over at the www.economist.com entitled Humbler horizons.  As you may have guessed by the title it too dealt with reduced economic potential for America.  The article reasoned based on new studies by both the IMF and OECD that the American economy’s long term potential had been significantly reduced because of the damage done by the economic crisis.  Check out this excerpt from the article below.

“What accounts for this stifling effect? Both the OECD and the IMF argue that crises stunt the three main ingredients of growth: capital, labour and innovation. First, by choking off the supply of credit and throttling sales, crises depress investment and thus productivity. Second, they leave prolonged high unemployment in their wake. Some workers lose their skills, which makes it hard for them to find jobs again. Others simply drop out of the workforce altogether, lowering labour-force participation rates. Third, and more controversially, the papers argue that crises undercut innovation, and the efficiency with which capital and labour are used, by interrupting the supply of capital to high-growth firms or by reducing spending on research and development.

The upshot is a permanent reduction in the path of potential GDP. This does not necessarily mean a permanently lower growth rate: an economy whose trend growth was 2.5% before a crisis should return to that rate, but from a lower starting-point.”

The author’s conclusion in the second paragraph makes sense when he basically says that gdp growth rate will return to normal however our projected gdp will have been much reduced.  Below are some charts from the article that help substantiate this.

The bottom line here is it looks that we will all be a little less well off.  What do you think?