Saturday, January 19, 2013

Is Sanity Returning to the GOP?, Taking Stock of Obama's First Term

GOP Offers Debt Ceiling Sanity....for a few months
Coming out of the House GOP retreat, where they are presumably discussing their strategy and vision for the next 2 years and specifically how they are going to hold on to the House in 2014, comes word that the GOP will offer up a more or less "clean" increase of the debt ceiling to ward off default.

It comes with a few strings attached.  The extension would only be for 3 months, meaning that we would be having the same discussion again in May or June.  It would require both houses of Congress to pass a budget by April 15th or forfeit pay, something that the Senate has not done in several years, a fact that has been a talking point for the GOP.

It is possible that President Obama and the Democrats will have some issue with the proposal.  The 3 month extension falls far short of the kind of extension or even elimination of the debt ceiling that the President had sought, hoping to avert having to deal with debt ceiling issue again in his Presidency.  And Senate Democrats might balk at needing to pass a budget resolution.

But it seems like a savvy move for the GOP.  It would be a tough sell for Democrats to vote against the debt ceiling increase they asked for.  And I don't know very many people who would be too concerned about the possibility of Representatives and Senators not getting paid for a little while.

1 Term Down, 1 To Go
President Obama's will celebrate his second inauguration on Monday.  It will be a more subdued ceremony than the celebration four years ago, when the country was less divided and we hadn't endured such a long economic malaise.  But it will be a unifying moment for supporters of the President and a day of patriotism for all.

While the inauguration is on Monday, the official start of the President's second term is at noon tomorrow, as dictated by the constitution and the President will privately retake the oath of office then, before going through the ceremony on Monday.

Being at the end of the President's first 4 years, I thought it would be a good time to take stock of how the President has done.

(1) Did He Keep His Promises? (run by the Tampa Bay Times) has did a great job of tracking all of the promises that the President made in the 2008 campaign and how they have turned out.

There were 508 documented promises made and of those, 239 were fully kept, 130 were partially kept and 139 were not kept.  Those not kept were not kept for a variety of reasons - either the President changing his position (closing Gitmo, for instance), simply not pursuing something he promised to do (giving a State of the World address, for instance) or his desired policies changing as a result of negotiation with Congress (extending the Bush tax cuts for upper income limits for instance.)

Giving the President 100% for promises fully kept and 50% for those partially kept, the President gets 304 points out of a possible 508 or a score of 60%.

I said at the beginning of his term that it would be an A-worthy performance if the President could do half of the things he promised to do in 2008.  A score of 60% certainly qualifies.

Grade: A

(2) Did He Achieve His Major Policy Goals?
The President had articulated six clear policy goals for his first term at the outset:
a. Implement a meaningful stimulus
On this issue, the American Recovery and Reinvestment Act achieved almost all of what the President set out to achieve.  It provided aid to states, funds for infrastructure improvements and targeted tax cuts.  Couple this with the (just expired) temporary Social Security tax rate reductions that the President was able to get in 2010 and you have to say the President basically implemented what he set out to implement.  There is much debate on the effectiveness of those policies, but here we are grading whether he did what he set out to do.

Grade: A

b. Implement Health Care Reform That Achieves Universal Coverage
The coverage is not quite universal (2% are excluded), the plan doesn't contain a public option, it does contain a mandate (something he opposed on the campaign trail) and the President gave up very early on including abortion coverage in the plan (another thing he campaigned on.)  Still, President Obama was successful where Presidents Johnson, Nixon, Carter and Clinton failed (President Reagan and both Presidents Bush were not advocates for such a program.)  The carefully negotiated program was passed through congress narrowly and was narrowly upheld as largely constitutional by the Supreme Court.  It is the law of the land and will roll out over his second term.  We will all get to see how successful it is or isn't.

Grade: B+

c. Repeal the Bush Tax Cuts for Those Making Over $250K
The President completely punted on this once, agreeing to a 2-year extension in late 2010, in exchange for some other goodies, such as the Social Security Tax deal.  The President did better recently, at the end of his term, cutting a deal that let the rates rise on individuals making over $400K and couples making over $450K, about half of the population the President was targeting to contribute more.

Grade: C

d. Pass Meaningful Legislation to Deal with Carbon Emissions
A Cap and Trade bill passed the House in 2009 but was never even taken up in the Senate and there has been virtually no leadership from the President on making this stated priority happen.  There were smaller steps that did happen, such as tax credits for energy efficient homes and appliances and extensions of wind and solar subsidies.  But all-in-all, the President hasn't made much progress here.

Grade: D+

e. Provide for Comprehensive Immigration Reform
Perhaps it will be a second term issue.  But the President never even proposed a package of immigration reform, something which he had stated he would do in his first year in office.  He took some action by executive order, such as the regulatory version of the Dream Act, but these actions were taken very late in his term and fall far short of comprehensive reform.

Grade: D

f. End the War in Iraq and Provide Additional Troops, on a Timetable in Afghanistan
The President basically did everything he said he would here.  We are out of Iraq.  We did surge in Afghanistan, but are now winding down our involvement, in line with the time table the President set.

Grade: A

Overall Grade on Priorities: B-

(3) How Did We Fare Economically?
This is a quite complicated question, given the deep recession that was underway at the start of his term. By some economic measures, the President doesn't make the grade, by others he does.

Average Annual GDP Growth During His Term: 2.1% (average 20 years prior to Obama = 3.8%)
Average Unemployment Rate During His Term: 9.0% (average 20 years prior to Obama = 6.0%)
Stock Market Return During His Term: 12.1% (average 20 years prior to Obama = 9.9%)

By the standards of economic growth and unemployment, the last 4 years have not been among our better ones.  Following a deep recession, we have had slow growth with sustained high unemployment over several years.  While unemployment is now falling, it is doing so painfully slowly and at least in part due to less people in the workforce.  By these measures, President Obama doesn't rate well.

However, putting those numbers in proper context is difficult since anyone could have predicted following the financial crisis that unemployment would be elevated and growth depressed, at least for a period of time.  This is where the stock market return comes in.  The stock market price reflects both present economic circumstances and expectations around future economic performance.  On this measure, the President is doing great, far exceeding normal market returns and, given that those are nominal returns and inflation has been very low, real returns exceed by an even greater margin.

Of course, stock market expectations can be wrong.  The stock market was wildly over-priced in 1999 and wildly under priced in 1982.   So while some of change in expectations can be due to averting crises or sounder policies, some is also due to mean reversion or, in common language, irrational panic or optimism abating. 

So, it is difficult as we stand here today to judge the President's economic performance.  We didn't fall off a cliff and into a depression, something that seemed like a real possibility in 2008.  But we also haven't had a "V-shaped recovery" where the economy grows quickly after purging the less efficient elements in a recession.  It is a mixed bag.

Grade; C

The President has a lot to tackle in his second term.  The deficit is still out-of-control, with no path to balance in sight.  Immigration and climate change remain unsolved issues.  The economy, while not in crisis, is certainly not healthy, particularly for the lower-middle class.

I wish him luck as he begins his second term, for all our sakes.

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