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economics, politics, Uncategorized

The “are you better off than you were four years ago” question.

Artist: John Darkow

Now that the RNC and DNC are over, both parties are rushing to frame their answer to the question: are you better off than you were four years ago?  Who ever makes the more persuasive argument will likely win on election day – that is if history tells us anything about who wins elections.

If you are old enough, you may remember this

Reagan asked the voters “are you better off today than you were four years ago” in 1980…and they answered by voting Jimmy Carter out of office.  The same question is posed today and both parties are rushing to frame the answer in their favor.

So, is America better off today?  Well, it’s complicated question – in fact it may be a misleading question given the wording of it.  This is a political economy blog so we’ll consider the economic side of it.

First, lets look at the numbers.  Republicans are quick to point out that the unemployment rate was 7.8% when President Obama took office and now it sits at a high 8.1%.  For them, the answer is clear – things are worse off.  However, let’s give these numbers some context.  Below is a chart of unemployment from the Bureau of Labor Statistics:

As you can see, January 2009 unemployment was at 7.8%, but it was riding an accelerating increase from the fall out of the 2008 crisis.  That sharp rise in unemployment would have happened, no matter who entered the White House.  A more appropriate question would be – how well did the President handle the crisis?

Soon after taking his oath, Obama bailed out the auto-industry and passed the American Recovery and Reinvestment Act, two very controversial acts.  However, according to the Center for Automotive Research, the government bailouts of the automobile industry saved around 1.14 million jobs in 2009 and as well as prevent “additional personal income” losses of $97 billion.  According to the CBO the ARRA, also known as the stimulus, saved 3.3 million jobs.  I have more on the stimulus here.  Below is a chart from the Bureau of Labor Statistics showing job growth before and after those two acts.  If you are looking for the effects of policy, this is the chart to look at:

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Notice how the downward trend turns around at the end of the first quarter, right after government action was taken.  In other words, the controversial actions taken by the President reversed the job less trend.  As the trend in job losses reversed, unemployment peaked around 10% and started a rocky road downward.

The only reason the unemployment rate is higher today than it was when Obama took office is because the 7.8% rate was increasing and accelerating – so you can hardly use that number as a marker to compare today’s unemployment rate.  You can, however, judge the President’s ability to address the economy – and his policies did, in fact, reverse the direction of our recession.  Whether he did enough or not is up for you to judge.  One thing to keep in mind, though, is that policies take time to implement and the jobs numbers lag behind the implementation of those policies.

What also matters here is perception.  Below is a graphic from a Gallup poll measuring people’s financial expectations for their future.

Trend: Looking ahead, do you expect that at this time next year you will be financially better off than now, or worse off than now?

American’s have consistently been optimistic about their personal finances (around 60% of Americans expect next year to be better off in a year).  This kind of optimism is good news for the incumbent.

In closing, it’s important to note that this post looks only at jobs, while a nation’s welfare includes so much more in terms of economic, social, and foreign policy related issues.  Let’s not forget other factors like the Patient Protection and Affordable Care Act, or the killing of Osama bin Laden.  How Americans think about these issues are also important when deciding who to vote for.

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