At the very end of the 1980 presidential campaign, Ronald Reagan posed a question that has since come to be the gauge of every U.S. president’s performance: “Are you better off than you were four years ago?”
Now Mitt Romney’s campaign has seized upon the question, and unsurprisingly, the Republican nominee’s answer is no. When President Barack Obama accepts the Democratic nomination Thursday in Charlotte, North Carolina, he will have to be ready with a response.
It’s a hard question for the president to answer, and not just because of its provenance. When Obama took office in January 2009, it was pretty much a given that Americans would soon be much worse off. A severe financial crisis was sending the economy into a deep slump. The challenge was not to raise living standards, but to avert another Great Depression.
So the second answer to this question, a simple yes, is pretty much off the table.
Instead, the Obama campaign is saying it’s the wrong question -- a classic political dodge that in this case might be justifiable. Simple measures such as the level of unemployment, though important, won’t suffice to assess Obama’s performance. The president would prefer a variant of the query: Are you worse off now than you would be if he hadn’t been elected four years ago? Grammatical complexity aside, this is a far more subjective question.
Then there is the third answer: yes and no. It’s less satisfying, equally subjective and perhaps most fair. Here’s our take on how Obama handled the tasks we consider the most relevant.
Obama moved quickly and decisively to confront the crisis, with an $800 billion stimulus package to jump-start the economy, bank stress tests and capital injections to rescue the financial system, and an auto bailout aimed at averting permanent damage to U.S. manufacturing.
Whatever their differences about the details, experts agree the response was effective. In a poll conducted by the University of Chicago’s Booth School of Business, economists from across the political spectrum answered almost unanimously that the U.S. unemployment rate -- now at 8.3 percent -- would have been higher without the stimulus and bank bailouts. A separate study by Fitch Ratings and Oxford Economics found that the U.S. policy response to the recession boosted gross domestic product by more than 4 percent.
The most important answer to the “better off” question is this: Americans on the whole are better off than they would have been without the stimulus. But (yes, there’s always a but) many are worse off than they were four years ago, and that means more work needs to be done. The recovery remains weak and long-term unemployment is threatening to impair the country’s growth potential. Median household income stood at a seasonally adjusted $50,964 in June, according to economic-consulting firm Sentier Research. That’s down an inflation-adjusted 8 percent from December 2008.
Obama can hardly be blamed for one of the country’s biggest problems: a federal debt load that is projected to grow far beyond the government’s ability to pay. But he has made precious little progress in telling the country how he would whittle it down.
The tax cuts and spending increases needed to stimulate the economy, together with the unavoidable effects of the recession, have generated large budget deficits and pushed government debt to 72 percent of GDP -- a level not seen since the aftermath of World War II. The growing cost of Medicare and Social Security benefits will, by some estimates, push the debt burden beyond 200 percent of GDP by 2042.
To get debt under control, the government must raise revenue or cut spending by at least 6 percent of GDP, or about $900 billion a year. Obama’s latest long-term budget proposal falls far short of that goal. He has also failed to adopt the more workable plan set out by the Simpson-Bowles commission, a group he set up to address the fiscal challenge.
Obama played an instrumental role in enacting the Dodd-Frank financial-reform law, designed to reduce the threat that financial institutions can present to the broader economy. For all its warts and complications, the act is an important achievement: It gives regulators the power to reduce taxpayer subsidies for financial risk-taking, make banks less likely to collapse and insulate the economy when banks do fail.
In practice, however, the U.S. is still highly vulnerable to financial disaster. Most of Dodd-Frank has yet to go into effect. The six largest U.S. banks account for an even larger share of the financial system than they did before the crisis, making it unlikely that the government could stand by and let one of them fail -- and raising the troubling possibility that they’ve become too big to save. And regulators have failed to address weaknesses outside the banking sector, such as money-market mutual funds, which are susceptible to shocks of the kind that the festering European debt crisis could deliver.
The Obama administration has been too timid in its efforts to resolve the biggest problem hanging over the housing market: the 11 million borrowers who owe more on their mortgages than their homes are worth, a number virtually unchanged since 2009. As many as 4 million homes are expected to enter foreclosure during the next two years -- a supply of distressed properties that will weigh heavily on the market. Despite recent signs of recovery, house prices in June remained 32 percent below their 2006 peak and 6 percent below the level of December 2008.
Obama’s various relief programs have fallen far short of their goal of averting as many as 9 million foreclosures. By one recent estimate, the Treasury Department’s signature Home Affordable Modification Program reached only about one third of the three million to four million households it had targeted. The modifications that are done often don’t help, because they rarely reduce the amount people owe.
That said, it’s important to note that no matter what the government did, the housing collapse was the necessary and unavoidable result of a credit-fueled bubble.
Which leads us back to our original point about this “Are you better off” business. In politics as in economics, context is everything. The housing market is not better off, but before the crisis it was too good to be true. The economic slump has been particularly grueling because consumers are shedding debt rather than shopping, but ultimately that will make their finances stronger. So perhaps the best answer is this: Not yet, but eventually and maybe even soon.
To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at email@example.com.