Last week the Labor Department reported the economy added 292,000 jobs in December, bringing the total jobs added for the year to more than 2.7 million. The unemployment rate at the end of the year was 5.0 percent, almost down to the lows hit in 2007. We even saw substantial growth in real wages in the last year, as plunging oil prices held inflation under 1.0 percent in 2015.
So why isn’t everyone happy?
The main story here is that we still have a long way to go before we get out of the hole the economy fell into when the housing bubble crashed in 2008 and 2009. While the White House would like us all to be thankful we escaped the Second Great Depression, the reality is the economy has recovered far more slowly than was generally predicted. As a result, workers are paying a huge price in terms of fewer jobs, less job security and lower wages.
To get an idea of how much worse than expected the economy is doing, we can go back to the Congressional Budget Office’s (CBO) projections from the winter of 2010. These are a useful point of reference, since the CBO had already seen the full extent of the downturn at the point it was making these projections. It knew about the collapse of the housing bubble and the resulting financial crisis.
Its projections are also useful because they reflect the consensus view among economists at the time. This is by design. The CBO deliberately constructs its forecasts to fall within the consensus of mainstream analysts, always checking to ensure that its projections do not make it an outlier.
The CBO projections tell an interesting tale. First, if the economy had followed the path projected in 2010, we would have seen the unemployment rate fall back to 5.0 percent in 2015, just as has proved to be the case. However, there is a big difference between the CBO projections on employment and what we have seen over the last six years. CBO expected that the people who dropped out of the labor force in the downturn would soon return to the labor force; it projected in 2010 that total employment in 2015 would be more than 6 million higher it actually was.
This lower employment corresponds to considerably lower GDP. The CBO projected that growth would average almost 3.3 percent annually from 2010 through 2015. In fact, growth has averaged just 2.2 percent over this period, leaving GDP in 2015 almost 6.5 percent lower than projected. Even worse from the standpoint of workers, the CBO projected that the wage share of GDP would bounce back after its falloff in the recession, reaching 45.4 percent of GDP in 2015. Instead, profits continued to grow at the expense of wages so that the wages are now just 43.4 percent of GDP.
If GDP had grown as the CBO projected and the wage share had followed the predicted course, then total wages in the economy would be almost 12 percent higher today than is the case. In total, this would translate into almost $900 billion a year in additional wage income, or $6,000 per worker.
Again, this was not some aspirational target; this was the path that most economists expected the recovery to take. The actual course has been far worse. The people who are surprised by the public’s lack of enthusiasm over the economy’s performance under Barack Obama’s administration are either ignorant of the basics of economics or are simply being disingenuous.
The extent to which Obama can be blamed for the weak recovery is a separate question. After all, since 2011 he has been forced to deal with a Republican Congress that has quite openly sought to sabotage every economic proposal coming out of the White House. If we graded on a curve, the president’s supporters could point out that the U.S. recovery is stronger than the recovery almost anywhere else in the world.
But Obama hardly helped his cause by promising a pivot to deficit reduction in the weeks immediately after the passage of the stimulus in February 2009. And he created a pointless rallying point for deficit hawks by launching his National Commission on Fiscal Responsibility and Reform, co-chaired by Erskine Bowles and former Sen. Alan Simpson, in 2010. Obama certainly helped contribute to a political environment in which deficit reduction occupied center stage even in a context in which millions of people remained unemployed and risked losing their homes and the inflation and interest-rate concerns of the deficit hawks were totally baseless.
Obviously much more can be said about the political path that got us where we are today, and reasonable people can differ in assigning blame. But as we listen to the last State of the Union Address of Obama’s presidency, many people are still not happy, and with good cause.