State of the Union: Obama's Economic Report Card

Nouriel Roubini

“When the president came to power he inherited the worst economic and financial crisis since the Depression, in addition to two foreign wars; the economy was in freefall. You have to give him credit for the fact that the economy and the markets are in recovery, and that there is even some job creation. Yes, the recovery is anemic and job creation is still very weak, but that is not because of his policies. The process of deleveraging that is still going on means that growth will be below-trend for several years. We have to accept the fact that things wouldn’t have been much better under any other leader from either party. And a significant number of the issues we are facing right now are independent of [Obama and his policies]. Under any administration, the economy would not be much stronger.

“Nonetheless, Obama has made some tactical and political mistakes. For instance, emphasizing health care in the first year of his administration and not tackling the deficit was a mistake. Doing nothing to tackle long-term structural deficits eventually could become a serious problem for the country. In my opinion, we certainly needed the stimulus program to stop the recession from turning into another Great Depression — there was still the risk of a double dip recession — [but] that stimulus should have been accompanied by a commitment to cut spending and raise taxes down the road. Obama didn’t do anything about the medium-term need to address the deficit. He should have fought against extending tax cuts for the wealthy. Instead, we have ended up adding another trillion dollars to the deficit because we don’t want to make tough decisions.”

Shapiro

Robert J. Shapiro

“On financial reform, I give the president a solid B, but there are two things that keep him from winning an A. For one, he has failed to find a way to handle the issue of what to do with holdings of toxic securities on a bank’s balance sheet. There is also the fact that the loophole in the requirement that all derivatives be traded on exchanges [that gives an exemption to ‘end users’ of those derivatives] will be a huge mistake.

“When it comes to industrial policy, I give Obama an A. There isn’t any doubt about the success of the federally-managed bankruptcies of the automakers. The only place the administration fell down on the job was in housing — the housing market has not stabilized, and until it does, the pace of expansion and recovery will remain slow, holding down consumption and thus business investment.

Johnson

Simon Johnson

“A ‘B’ is the lowest passing grade at MIT. The best news, I suppose, is that the administration managed to direct the economy well enough to avoid a second Great Depression. But on other fronts, the performance was fairly depressing. They didn’t approach directly the real problems centered in the financial system, for instance. Obama had the ability to confront the power of a few overfed banks and now he’s lost that chance. Instead, the belief that finance is good, unregulated finance is better, and global megabanks engaged in unregulated finance are best of all seems to have taken over in Washington.

“The issue of the tax cut extension, well, that was an absolutely terrible showing on the part of the White House. These are very smart people who understand that there is a big budget deficit and that this kind of compromise was foolish. I fail to understand why [the administration] couldn’t challenge the Republicans more effectively on this.

“The bottom line is that agreeing to cut taxes under present circumstances is reckless — and [Obama] didn’t seem even to try to fight that. It was a tough test but he didn’t pass. Surely the president’s job also is to get people to focus on the important issues; the big picture issues. So far, Obama has been reluctant to discuss the big issues, like the need to control costs in health care, which will ruin us all in 30 years. Big picture, long-term problems like that seem to have completely slipped the administration’s attention.”

Keefe

John Keefe

“Things did improve as the year went along, but there is still a big gap when it comes to jobs. I’m not a big fan of just creating government jobs like hiring people for the Census, and it takes too long to fund alternative energy programs and other business initiatives that might ultimately create jobs. It’s a hard problem to solve, but I would have liked to see specific incentives for job creation, along the lines of rewarding companies for hiring people. We had some of that in 2009, but it didn’t really get any traction.

“The constructive initiative we did have was the incentive for companies to invest in new stuff by offering them depreciation incentives, which makes the investment more financially appealing. What is missing is something to stimulate demand across the board. We need people to buy housing.

“As for the year-end tax agreement, well, lowering tax rates doesn’t do it for me. In fact, I’m offended by it — I don’t think it’s necessary and I don’t think it’s wise. Those tax cuts on the wealthiest citizens were unnecessary in the first place and now they will further damage the country’s finances. Given the political realities, I suppose it’s better than raising the tax rates on everyone by a few points, but it’s the extension of a political failure that began back in the period from 2001 to 2003.”

Thoma

Mark Thoma

“I’m giving Obama and the administration a passing grade, because at least they tried to do all the right things. But they weren’t aggressive enough, or the programs weren’t big enough, or they didn’t follow through. In some cases, initiatives weren’t handled well on a political level. For instance, the bailout of the financial system left the impression that it was all a handout to the same people who caused the problems in the first place. They did OK on financial reform, I think, but it will depend on how well the foundation laid by Congress is sustained.

“I don’t believe the Obama administration has worked hard enough on job creation. We needed fewer tax cuts and more spending to get the economy moving, but the administration saw its options as being constrained by politics. And now those options really are constrained [by politics]. There won’t be a lot of major initiatives; it will be more of a fight to maintain what we have.

“Up until now, I’ve been afraid to talk about the debt level or deficit reduction, because people weren’t separating the short-term need for stimulus from the long-term need for deficit reduction. But it’s probably time to start talking about reducing the deficit now. We need to see more leadership on that from the White House.”

Ritholtz

Barry Ritholtz

• CEO, Fusion IQ; Blogger, The Big Picture
• Overall grade:

  

“I would probably upgrade Obama’s handling of the issues this past year to a C overall [from a C- last year]. Not on the banking reform — where I give him an F — or housing policy, where he gets a D. But he did a great job, B-plus or A-minus, on the Chrysler bankruptcy. That’s the way to do a bailout — fire the incompetent management and put the company through a prepackaged bankruptcy. Banks like Citigroup should have been put through that process instead of being protected from their own mistakes. Then, while Fannie Mae and Freddie Mac are now barred from lobbying the White House as part of their rescue package, that same rule wasn’t imposed on the rest of the financial industry. Why on earth not?

“To the extent that the economy is getting better, it’s because of what the Federal Reserve is doing rather than what the White House is doing. The original stimulus plan was expensive and temporary; Obama came out of the box compromising. He should have pursued a comprehensive and extensive infrastructure plan that would have left us with long-term benefits — a massive upgrade of the electrical grid, of the port system, or our highways. That was an opportunity that was missed.

“The end result is that Obama hasn’t demonstrated an ability to get the economy moving or grow jobs with only modest inflation. Instead, we see a manipulated economy that has thrived on government subsidies and support and bailouts. These are short-term attempts to fix longer-term issues and keep everyone happy. [But] it’s not wise economics.”

Meltzer

Allan Meltzer

• Professor of Political Economy, Carnegie Mellon University; Visiting Scholar, American Enterprise Institute
• Overall grade:

  

“I think the rhetoric [coming from the White House] has improved a lot. What we haven’t seen — and the reason the grade is still low — is that there still isn’t much to show that there is something concrete behind his comments about not liking regulations. He needs to demonstrate that this is a serious issue for him, and not just something that he is talking about to win votes for his re-election. We know that the most successful fiscal policies of the post-World War 2 era were the permanent tax cuts by the Kennedy-Johnson administrations and later by the Reagan administration. Because they were permanent, they gave people the confidence they needed to go off and invest and build businesses. Right now, we have no such certainty.

“There have been many flaws in his handling of the economy. It was a sad day when he had to admit — after many months — that there were no real shovel-ready projects in which to put all the stimulus money he had pledged to use to [give the economy a boost]. The Dodd-Frank Act is a terrible bill. Yes, it corrects a lot of problems that are of some importance, but it doesn’t correct the real causes of the crisis — we still don’t have a constructive program to get rid of the “too big to fail” issue and the moral hazard problem. What we needed, as I testified to on three occasions, was a measure requiring banks to increase the amount of capital they held on their books. But that hasn’t happened — the bankers don’t want it. We also need to reinin the Federal Reserve; with every crisis, it gets more authority and more responsibility.”

Yardeni

Ed Yardeni

“The D isn’t just a grade; it stands for ‘deficit’. You don’t solve economic problems by borrowing $1 trillion a year — it’s just crazy. It’s one thing if you spend it on infrastructure that made us more productive, which helps us earn more and pay more to the government in tax revenues. But instead, we’re just squandering that money, keeping teachers employed for another year. We’re not dealing with any of the real problems that we have. Instead, we are running large deficits — including a large trade deficit that means we’re enriching and empowering the Chinese at our expense, enabling them to pursue their own interests that aren’t compatible with ours. Our policies are increasing their economic power.

“I do give Obama an A for effort. He put together a very credible deficit-reduction panel that came up with a very credible and workable set of recommendations. He should have embraced those recommendations immediately. Instead, he so far hasn’t done anything to change the course the train is barreling down on its way to destruction, which he needed to do. He needs to move to be like [New Jersey Governor] Chris Christie, who is delivering a message to all the special interest groups that they are out of luck because there won’t be money for anybody the way things are going today.”

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