Analysis: Obama’s Economy -- or Not?

President Obama was eager to meet real, suffering Americans in the troubled Midwest, and when he got there he promised "to do everything" he could to address the economic crisis that he had "inherited," one that he said was "as deep and as dire as any since the Great Depression."

The date was February 9, 2009; the place was Elkhart, Ind. It was the newly inaugurated president's first trip out of Washington. This week, as Obama returns to the Midwest for another attempt at assuaging the nation's economic distress, the issue that he once said he had inherited -- and few people disagreed with that assessment then -- is seen by more and more people as his own problem.

So a new cynicism greets the president on his bus tour through the heartland. Still, even at this late date it is fair to ask: In purely economic terms, how much of this crisis is really Obama's problem, and how much better might he have done to fix it? The answer is: probably not that much.

"A long, long period of halting and slow growth was baked in the cake when he took office," said Harvard University economist Kenneth Rogoff, a former adviser to Obama's 2008 GOP opponent, John McCain, and the co-author of an acclaimed 2009 book on the nature of economic crises, This Time is Different: Eight Centuries of Financial Folly. "It's very difficult after such a huge credit bubble and financial collapse to recover all that much faster than we've been doing. It wouldn't have mattered if McCain had won. We would have been in a similar situation."

The traumatic events around the world that have been exacerbating the recovery, especially Europe's debt crisis, are mostly out of Obama's control. That too was more or less predetermined, Rogoff said. "The sovereign debt woes in Europe are prototypical of a financial crisis of this size," he said. The only difference this time is that the new fact of the eurozone might have made things worse, Rogoff added, because it prevented individually troubled nations such as Greece from devaluing their currencies and recovering faster.

But there is general agreement on both sides of the aisle that Obama could have done a better job of leadership, both at home and globally. That he could have done much more to make Americans and the rest of the world believe he was indeed doing "everything" to tackle the toughest issues and thus restore what JPMorgan Chase Chairman Jamie Dimon, a sometime Obama adviser, last week called the "secret sauce" to any economic recovery: confidence.

As Obama himself seemed to understand at the outset, the economic devastation he faced was the worst in 80 years. It was far worse, in other words, than anything Jimmy Carter, Ronald Reagan, Richard Nixon, or Gorge H.W. Bush had to overcome. And because this recession was caused by an unprecedented financial collapse, history shows that it was destined to be longer-lived than most.

The numbers tell part of that story. What Rogoff calls the Great Contraction is essentially an inversion of the debt-inflated consumer bubble of the 2000s, a continuing collapse of demand that has lingered longer than many of Obama's top advisers or the Federal Reserve thought would occur. Though the recovery technically began in June 2009, the reason for this "jobless recovery" is pretty straightforward: Consumers aren't buying, stores aren't selling, and as a result companies aren't making-or hiring. That has been exacerbated by a credit crunch that is also historic. Consumer confidence is at the lowest level since 1980, new data show.

Unemployment trends also indicate that it is somewhat unfair to accuse Obama, as his GOP opponents are wont to do, of driving up the jobless rate beyond what it was when he took office. The official recession began in December 2007, more than a year before he became president, and ended in June 2009, some five months into his presidency. But the unemployment rate is a lagging indicator; in November of 2008, the month of Obama's election, it was still only 6.8 percent, though it had slowly climbed from December and it reached a height of 7.8 percent in January, just before Obama was sworn in. Still driven by what began as George W. Bush's recession, it didn't bottom out until nine months into Obama's term, 10.1 percent in October of 2009, and then barely began to decline over the next two years.

Today, the unemployment rate continues to hover above 9 percent, below the worst levels at the recession's bottom. Elkhart itself is down to 10.1 percent from the 15 percent level it reached during Obama's inaugural visit, although that's still double what it was in the 2000s.

This doesn't mean, however, that there was nothing else Obama could have done. In retrospect, that Elkhart speech in early 2009 presaged the president's biggest current problem: the perception that he is a naïve, weak leader who has allowed both the GOP and Wall Street to get the better of him, and who by trying to do too much at once did too little. Even then, trying to be all things to everyone, Obama was muddying the message and leaving himself open to savage Republican counterattacks. In Elkhart, he tried to sell what was actually a giant shot of adrenalin to an economy with a stopped heart-in other words, a pure emergency measure, the nearly $800 billion stimulus package-as a long-term restructuring plan that would "lay the groundwork for long-term economic growth." Obama thus fed GOP suspicions that he was just another Big Government liberal.

After the stimulus passed, Obama and his team took great pride in preventing the economy from falling into another Great Depression, while at the same time fighting two wars, in Afghanistan and Iraq. But he quickly grew distracted by other issues, especially by health care reform. Obama seemed to pay less attention, as if just successfully avoiding the abyss were the main job. "The plan that we put forward will save or create 3 to 4 million jobs over the next two years," Obama had pledged that day in Elkhart. According to Heidi Shierholz, an economist at the liberal-leaning Economic Policy Institute, "there is pretty strong consensus in the economics community that the stimulus did pretty much what it said it was going to do. It created or saved between 3 to 4 million jobs. But the gap in the labor market is 11 million-that's how many payroll jobs we've lost since the start, plus the number of jobs we didn't add."

Obama, in other words, failed to keep his eye on the biggest thing on his agenda by far: an ongoing historic disaster, created by an out-of-control era of credit expansion and a predecessor administration that seemed not to care a whit about fiscal responsibility or oversight of the financial system. Above all, Obama left himself to appear weak-hardly confidence-instilling-by constantly appealing to Republicans and especially to Wall Street, one of the biggest culprits in the crisis, for help.

In a speech at Cooper Union in New York in April 2010, he spoke again "of a financial crisis as dire as any we've known in generations. And that crisis was born of a failure of responsibility--from Wall Street to Washington--that brought down many of the world's largest financial firms and nearly dragged our economy into a second Great Depression." Yet even there Obama seemed to pretend that Wall Street was on his side. "Ultimately, there is no dividing line between Main Street and Wall Street," he declared. "We rise or we fall together as one nation. So I urge you to join me."

Meanwhile, health care reform totally dominated the Washington agenda for the next year, sapping Obama of what remaining political capital he had if he wanted to bring additional stimulus measures. Did the health care system need attention? Of course, but not necessarily in the middle of an unprecedented economic disaster, and not at the expense of permitting the chief culprits in the disaster to escape whipping. Surveys show that both Left and Right, liberals and conservatives, were united in wanting to see fundamental change to Wall Street and big finance. Yet rather than seizing the chance at the kind of leadership that might have unified a good part of the country, Obama threw himself into an issue that divided Left and Right as never before, and which was not directly related to the historic crisis at hand. "He was too generous to the financial system. He followed a set of policies aimed at preserving the status quo," Rogoff said.

It is a status quo that much of the country now identifies with Barack Obama.