I tend not to bother with the WSJ’s editorials and op-eds; they often read to me like news from an alternative universe, one where the facts are whatever you say they are. More interesting are pieces, such as this one by economist Lawrence Lindsey, that gets some facts right, but portrays them in a misleading way that deserves to be corrected.
In the course of producing their budget, presidential administrations generate economic forecasts of GDP growth, unemployment, interest rates, and price growth. Lindsey went through a bunch of these forecasts by team Obama (of which I was once a member) and showed that they’ve consistently overestimated GDP growth. From there, he concludes that President Obama failed to learn from his mistakes and that any “plan to continue the same failing policies for another four years while expecting a different result is simply insane.”
First, it’s notable the Lindsey says not a word about jobs. The figure below replaces GDP with the unemployment rate and performs a similar analysis as that in his piece. Here, the administration’s forecast were generally on track; if anything, they were too pessimistic, as the actual jobless rate fell faster than they expected. In fact, as the Obama economists love to remind us, “U.S. businesses have now added 15.1 million jobs since early 2010…the longest streak of total job growth on record.”
Some of that is due to ongoing weakness in labor force participation, but there’s no question that the job market is closing in on full employment. And thanks to the tightening job market, real wages are rising, middle- and low-income households are posting historically large income gains, and the Fed is poised to raise rates to slow the economy down, all of which is completely inconsistent with Lindsey’s conclusion.
To be clear, I’m much less quick than Lindsey to link everything that’s happening in the economy to the president. After all, congressional dysfunction has got to be in the mix here, too, not to mention demographic trends and technological developments that are far less blown about by the winds (mostly hot air) of politics. But that said, given recent gains in jobs and middle-class incomes and declining poverty rates, building on this progress seems as far from “insane” as you can get.
Adding in the sharp decline in the share of Americans without health coverage—a clear outcome of an Obama policy—only further bolsters my point, as does this recent assessment by Obama’s economists of the extent to which his policies have reduced income inequality. And let’s not forget that any useful economic policy the administration has been able to implement, like health care reform or progressive tax changes, has been achieved in the face of hurricane force political headwinds.
Second, while it’s certainly true that the Obama Administration has overestimated GDP growth, so has almost everyone else, including the Fed, CBO, and the IMF, which has overestimated GDP growth in most other economies as well. (As a snarky side-note, I’ll add that when Lindsey was a top economist with the GW Bush team, they forecast GDP to go up 2.6% in 2001 when the actual change was a recession-induced 0.2%.)
What’s really going on here is revealed by simple arithmetic: relatively low GDP growth coupled with strong employment growth implies weak productivity growth, a real problem which we see across all advanced economies.
Serious economic analysis must take up this challenge of understanding the slowdown in productivity growth, as I’ve tried to do in various places. But if we’re too busy cherry-picking the data to whack the administration while ignoring any positive developments on the plus side of the ledger, we’ll never learn anything useful.