And The Economist Endorsement Goes To ...

The Economist may not be especially cheerful about the election:

"FOUR years ago, The Economist endorsed Barack Obama for the White House with enthusiasm. So did millions of voters. Next week Americans will trudge to the polls far less hopefully. So (in spirit at least) will this London-based newspaper. Having endured a miserably negative campaign, the world’s most powerful country now has a much more difficult decision to make than it faced four years ago."

Of course, some would say we shouldn't expect cheerful enthusiasm to be the norm from a publication named for "the dismal science".

But nonetheless The Economist has issued an endorsement for President Obama, even if mainly because "Mr Romney has an economic plan that works only if you don’t believe most of what he says".

Shall We Restore our Cavalry Numbers?

President Obama during the final 2012 Presidential debate:

"You mention the Navy, for example, and the fact that we have fewer ships than we did in 1916. Well governor, we also have fewer horses and bayonets ... because the nature of our military has changed. We have these things called aircraft carriers where planes land on them. We have ships that go underwater, nuclear submarines."

Government and Job Creation: Where Both Candidates Got It Wrong (Although One More So), Government Does Create Jobs

No binders involved in this jobs question, not even Mitt's "binders full of women" for filling state cabinet positions. In the Presidential debate last night neither of the Presidential candidates got it right on government and job creation. One, of course, was more wrong than the other ... but neither got it right.

Mr. Romney:

"Government does not create jobs. Government does not create jobs. (Chuckles.)"

 President Obama (in response to "What do you believe is the biggest misperception that the American people have about you as a man and a candidate?"):

"... a lot of this campaign, maybe over the last four years, has been devoted to this notion that I think government creates jobs, that that somehow is the answer. That's not what I believe. 

I believe that the free enterprise system is the greatest engine of prosperity the world's ever known. I believe in self-reliance and individual initiative and risk-takers being rewarded. But I also believe that everybody should have a fair shot and everybody should do their fair share and everybody should play by the same rules, because that's how our economy is grown. That's how we built the world's greatest middle class."

Given his relatively conservative budget policy and restraint -- arguably ambivalence -- on fiscal stimulus, it seems plausible that the President really doesn't get that government can create jobs. Sure, he could have just been playing to conservatives, but his actual record suggests he really meant it. He may see more of a role for government in helping free enterprise than his opponent. But that just makes him less wrong. He apparently doesn't particularly believe in fiscal stimulus as a major tool to raise actual GDP towards potential GDP, which shouldn't be surprising to all of the Keynesian economists who called for a much larger, better stimulus and who read the accounts of how we came to get what stimulus we got, mostly without the President seriously pushing for any more. Sure, it might not have been politically feasible to get more, but that was partially because the President wasn't using the bully pulpit to push hard for more. Why? Apparently because he believes the widespread conservative myth that "government does not create jobs".

Despite what the candidates appear to believe, the fact of the matter is clear. Government most certainly can create jobs when actual GDP is significantly below potential GDP. Such as now.

As Dean Baker put it in summing up a different debate, "the Baker-Rowe-DeLong-Krugman Deficit Debate",

"First, we all seem to agree that in a situation where the economy is clearly operating well below its potential, governments can run deficits to boost employment and output. I believe we all agree that in principle the government can also use these deficits to increase future output through productive investment in either physical or human capital. This would make future generations better off on net as a result of deficits today, since the economy will be larger than it would be without the deficits."

When the economy is running at capacity, deficit spending generally won't stably boost us above potential. At that point, extra government spending risks crowding out private enterprise and in some cases certainly will do so. We're not at that point. Heck, we're nowhere near that point. The economy is gradually improving, but we've got a long way to go. While we're still plugging an output gap, deficit spending most certainly can and does create jobs whereas government cuts directly reduce overall employment.

Yet deficit spending during a downturn just illustrates one of many ways that government can create jobs. Progressive tax rates combined with social safety-net programs mitigate inequality and -- by getting money to those who have more want than means to fulfill it -- increase commerce, both effective and potential. Then there's research and development, for which various estimates show it's just a matter of exactly how many dollars are added to the economy for each dollar we've spent on NASA research that we've patented and licensed out to domestic firms. The only question is the exact multiplier; it's certain that NASA spending (not to mention DARPA and others) has created some number of private enterprise jobs beyond those that would have existed without the space program.

Private enterprise certainly excels at many things and government would be the wrong choice for a number of tasks, especially producing most kinds of manufactured products from MP3s to ice cream. So please don't misconstrue this as suggesting that more government is always better; there's a limit to what government reasonably can be expected to do or should do. President Obama is correct to believe that a major part of government's role consists of working towards creating a level playing field for private enterprise. But like Mr. Romney, he's wrong to fall for the conservative delusion on government and job creation. Government most certainly can create jobs. And right now, even more than usual, we very much need government to stop cutting back and do all that it can to create jobs.

But how do we get these politicians and the general public they serve to understand that?

The Cost of Balanced Budgets and a Longer View on Presidents and Jobs From Ike To 2012

I'd usually heard the 50s described as more or less a golden era of rising prosperity. But till recently I tended to skip over digging into that decade's economic data to focus on the Great Depression up through World War II (when not mucking about the peaks and valleys of more recent times). So I have to admit this chart surprised me.

starting with Ike, the first President fully covered in the monthly POP data; to June 2012

I was expecting that adding in the Republican Presidents before Reagan would show that prior to Trickle-down / Supply-side economics / Reaganomics infecting the Republican party, they'd done better. I expected to be illustrating the post-Depression glory days of the Republican party via Ike, Nixon, and Ford. Instead, the data gave me what we see above. In jobs, Nixon and Ford both did worse than Johnson, Carter, and Clinton. While Nixon and Ford did better than Obama's marks for his full term so far, they each did worse than during his tepid recovery span from February 2010 on to the latest data. And then there's Ike -- whom we admire -- down there with the likes of the Bushes. I didn't want to see that. Frankly, I wanted to believe Ike pulled off the Clinton trick of balancing the budget while improving employment. But I can't deny the data.

If we look a bit further back, before the dates in the data used above to put payroll growth in perspective via population growth, we can at least compare Ike's raw payroll figures to those from FDR (since 1939) and Truman, but that only rules out claiming Ike's dismal jobs performance as part of a longer trend.

Ike's sad job numbers with context: at least he's not Bush II

It's not a pretty picture for Ike, which I'm sad to see. Thankfully there's still much to admire from President Eisenhower in the highway system and his work for civil rights. I still like Ike. I still think I'd have voted for him if I'd been old enough at the time. But his economic record is tarnished.

In his defense, President Eisenhower did start his term with a 2.6% unemployment rate during that first full month. It's hard to improve on 2.6% unemployment. Still, unemployment rose dramatically to 6.9% by the first full month of his successor's term. Ike's shift: +165% unemployment. That's a rather lousy fumble. And while the Eisenhower years saw increasing family incomes, the same can be said for the Kennedy / Johnson years except without the rising unemployment, as over the course of their span they reduced that rate from the 6.9% that Eisenhower left them back down to 3.4% by the end of Johnson's Presidency.

So what went wrong? Let's look at the modern history of balanced budgets:

• At Republican urging, FDR tried to balance the budget with spending cuts and it brought us the Recession of 1937-38. 
• After World War II we saw dramatic cutbacks in spending with balanced budgets in 1947 through 1949 and the recessions in 1945 and 1949. (Of course, the war spending was unsustainable; there was probably no way to avoid recession in the late 1940s.)
• Truman balanced the budget in 1951. But like the later Clinton-era balanced budgets this one was done while expanding federal outlays ... rather swiftly increasing from the 1948 lows. Then after we slowed spending at the end of the Korean War, we got the recession of 1953.
• Eisenhower balanced the budget in 1956 and 1957 and we got the Recession of 1957.
• Eisenhower balanced the budget again in 1960 and we got the Recession of 1960.
• Nixon balanced the budget in 1969 and we got the Recession of 1970.
• While Clinton balanced the budget in 1998 lasting through Bush's first budget in 2001, the balancing in these years was done without reducing the growth of federal outlays but rather through moderate increase of tax rates. As such, this particular instance was thoroughly different from most previous balancing of the budget (except Truman's).

There were also some recessions that didn't correspond to these balanced budgets: the oil shock under Nixon, the extremely high interest rates under Reagan, the S&L crisis under Bush I, the Dot-Com crash under Clinton and Bush II, and the housing/finance crash under Bush II. I'm not suggesting that all recessions are caused by cutting to achieve balanced budgets. However, it would seem that balancing our national budget via cuts -- even if only in inflation-adjusted terms as in 1960 and 1969 -- tends to lead to recession.

The impact of Eisenhower's budget balancing exploits are particularly of interest for its parallel to job losses in the Great Recession. Private payrolls dropped by 2.385 million between August 1957 and June 1958, a 5.26% decline. By comparison, that's just barely below the 5.47% decline during the worst job-loss months of the Great Recession from August 2008 through June 2009. Remember that saying about doing the same thing and expecting different results. If we implement massive cutbacks like Eisenhower with our sequestration fiscal cliff, we can expect yet another massive fall just like the Eisenhower recession ... and we've not climbed far enough back from the jagged rocks as it is.

In case after case, budgets balanced with spending cuts have brought on recession. And now the Republicans are once again pushing us to balance the budget with dramatic spending cuts. Democrats may not be leading the charge, but Obama like FDR is far too willing to accept the Republican push for cuts. If we don't turn away from this push to slash budgets, previous experience shows us it will hurt the economy. When we make the debt more manageable by growing our economy such that the debt shrinks by comparison, that's tended to work out well. When we clumsily attempt to tackle the debt directly by slashing spending to balance the budget in the hopes a primary surplus, the records shows it tends to work out poorly.

Presidents and Jobs (Average Private Payrolls Added Per Month Since Carter)

Given that Republicans are often billed as the pro-business party, shouldn't we find business booming under Republican Presidents? Shouldn't we find payrolls rising significantly from all that business expansion?

For President Reagan, to be fair, we should note that his early years were hurt by the same force that crushed payrolls under President Carter during April through July of 1980: the high rates with which Paul Volcker battled inflation. Double-digit prime interest rates diminished employment under both Presidents Reagan and Carter. While those unusually high interest rates may have been necessary to get control over inflation, those high rates severely slowed expansion and thus hiring. However, that doesn't remove the possibility that President Reagan's descent from Carter's payroll numbers hinted at the start of a Republican trend under Trickle-down policies. After all, the Bush I policies were largely a continuation of the Reagan policies. If we average together the Reagan and Bush I months, together they get 113.3 thousand jobs / month. That's less than either of Carter or Clinton. And it's also less than the rate of increase we've seen since the turn-around on 2/1/2010 under President Obama.

While these figures aren't conclusive proof alone, add them together with a few other factors such as that GDP growth has lagged under the lowest top marginal tax rates. It sure looks like Trickle-down (or Supply-side economic or Reaganomics) failed us in a big way.

Maybe we should stop accepting the notion that talking about lowering taxes and deregulating would actually be business-friendly. Maybe we should instead consider ways to return to the sort of sensible, progressive tax structures we had before Reagan lead us down the road to decline. Instead of calling it red tape, maybe we should consider regulation's value for helping business manage risk, compete on a level playing field, and have more predictable returns. And maybe we should get back to expecting serious infrastructure projects and demanding aggressive investments in our research and development programs to build our avenues for growth.

Notes on methodology: Generally speaking, the January in which the executive transitions from one branch to another will be almost entirely impacted by the outgoing President's policies and not those of the incoming President. As such, the average uses the change in monthly manufacturing payrolls starting with the change from the first full month of the President's term (i.e., from the February that is the first full month to the March thereafter) and going until the first full month after the President's term (i.e., the last change counted is from the January during which the President in question is last in office to the February thereafter). Data from BLS/FRED.

Presidents and Manufacturing

Average manufacturing jobs / month gained or lost for the past half dozen Presidents and since the turn-around on January 2010.

Notes on methodology: Generally speaking, the January in which the executive transitions from one branch to another will be almost entirely impacted by the outgoing President's policies and not those of the incoming President. As such, the average uses the change in monthly manufacturing payrolls starting with the change from the first full month of the President's term (i.e., from the February that is the first full month to the March thereafter) and going until the first full month after the President's term (i.e., the last change counted is from the January during which the President in question is last in office to the February thereafter). Data from BLS/FRED.

Trends in Manufacturing Payrolls

A bit of manufacturing job historical info:

• Peak: 6/1/1979 (shortly before Reaganomics) at 19.553 million manufacturing jobs
• Decline from 6/1/1979 to 2/1/2001 (first full month of Bush II's first term): 2.523 million jobs, a 12.9% drop
• Decline from 2/1/2001 to 2/1/2009 (over the course of Bush II's Presidency): 4.644 million jobs, a 27.3% drop
• Post Bush II floor: 1/1/2010 (less than a year after President Obama sworn in) at 11.458 million jobs
• Increase from 1/1/2010 to 8/1/2012 (turnaround to present): 512 thousand, a 4.5% rise

But When Did Those Jobs Disappear, Mitt?

The state of industry speaks for itself better than some candidates do. When Mitt Romney in Toledo on the 26th of September, 2012 said, "we see manufacturing jobs disappear", he neglected to mention that most of that disappearing happened during the tenure of a President who implemented the same policies that Romney himself is pushing. He also neglected to mention that under the current President they're not disappearing anymore. Under the current President, we've seen manufacturing jobs grow again.

In manufacturing in specific, manufacturing jobs moved mostly sideways through the first quarter of 2006, creeping to a peak in April of that year. From the April 2006 peak, 1.844 million manufacturing jobs were lost under the Bush II administration by the first full month of President Obama's term. From the floor in January 2010, we've recovered 512 thousand manufacturing jobs as of August 2012. There's still a long way to go, but adding half a million manufacturing jobs since January 2010 is growth, not "disappearing".

Clinton's Convention Speech in Images

On the argument for President Obama's reelection:

Are we doing better than that today?

Job scoring:

Republican economic policies:

Trickle-down:

President Clinton's Convention Speech: highlights from the prepared text

Highlights from the prepared text for President Clinton's Convention Speech:

"It turns out that advancing equal opportunity and economic empowerment is both morally right and good economics, because discrimination, poverty and ignorance restrict growth, while investments in education, infrastructure and scientific and technological research increase it, creating more good jobs and new wealth for all of us."

...

"In Tampa, the Republican argument against the President's re-election was pretty simple: we left him a total mess, he hasn't cleaned it up fast enough, so fire him and put us back in."

...

"I like the argument for President Obama's re-election a lot better. He inherited a deeply damaged economy, put a floor under the crash, began the long hard road to recovery, and laid the foundation for a modern, more well-balanced economy that will produce millions of good new jobs, vibrant new businesses, and lots of new wealth for the innovators."

...

"The Recovery Act saved and created millions of jobs and cut taxes for 95% of the American people. In the last 29 months the economy has produced about 4.5 million private sector jobs.  But last year, the Republicans blocked the President's jobs plan costing the economy more than a million new jobs. So here's another jobs score: President Obama plus 4.5 million, Congressional Republicans zero."

...

"Now there are 250,000 more people working in the auto industry than the day the companies were restructured.  Governor Romney opposed the plan to save GM and Chrysler. So here's another jobs score: Obama two hundred and fifty thousand, Romney, zero."

...

"The Republicans call it Obamacare and say it's a government takeover of health care that they'll repeal.  Are they right? Let's look at what's happened so far. Individuals and businesses have secured more than a billion dollars in refunds from their insurance premiums because the new law requires 80% to 85% of your premiums to be spent on health care, not profits or promotion.  Other insurance companies have lowered their rates to meet the requirement.  More than 3 million young people between 19 and 25 are insured for the first time because their parents can now carry them on family policies.  Millions of seniors are receiving preventive care including breast cancer screenings and tests for heart problems.  Soon the insurance companies, not the government, will have millions of new customers many of them middle class people with pre-existing conditions.  And for the last two years, health care spending has grown under 4%, for the first time in 50 years."

...

"Both Governor Romney and Congressman Ryan attacked the President for allegedly robbing Medicare of 716 billion dollars. Here's what really happened. There were no cuts to benefits. None. What the President did was save money by cutting unwarranted subsidies to providers and insurance companies that weren't making people any healthier. He used the saving to close the donut hole in the Medicare drug program, and to add eight years to the life of the Medicare Trust Fund. It's now solvent until 2024. So President Obama and the Democrats didn't weaken Medicare, they strengthened it."

...

"Remember, Republican economic policies quadrupled the debt before I took office and doubled it after I left. We simply can't afford to double-down on trickle-down."

Unemployment Rate Changes Put In Perspective

Let's put the levels of unemployment at this point in the Presidential cycle into perspective.

The above chart tracks the point changes  in the unemployment rate since the first full month of each of  the current and previous Presidents' terms. For President Obama, the numbers show unemployment brought back down to where it was as his watch was just getting started. For President Bush II, the numbers at the equivalent point in his first term show unemployment significantly worse than where it was as his watch was just getting started.

Socialist Presidents? Who Comes Closer: FDR, Obama, or Reagan?

We seem to have a resurgence of folks worrying about socialism. Those claiming rampant socialism have particularly fretted about certain Presidents, but more on that later. First, let's get an overview of private industry's percentage of all payrolls since 1939 via the BLS data to put it into broad perspective. If there's one clear, defining trait of socialism, it'd be that folks work for the government rather than private industry. After all, to qualify as socialism requires social ownership of the means of production. Private employers aren't socially owned. So the private % of payrolls tells us just how much we're still a [mostly] capitalist society.

What do we see here? Rather little change in the broad perspective. Clearly we'll need to get a close up in order to see any differentiation from President to President. Let's get right to looking at how they stack up. Sadly, using the BLS data only gets us back as far as 1939, so that'll have to do.

Up there we've got a picture of the average % private industry occupied of total nonfarm payrolls during each President's active years. With a high of 86.64% and a low of 80.95%, it's a rather tight range. It takes a close up to see a difference. But while it's neck and neck, Truman gets the high mark. Honorable mention should obviously go to that bastion of small government, Franklin D. Roosevelt, with an average of 86.08% private payrolls during the latter part of his term (1939 onward). Ironically, the low mark goes to a man who bore the same surname as an auto industry magnate, President Ford.

Many have focused on the current President lately. In particular, there's a virtual cottage industry for discussing President Obama in the light of things said by President Reagan. So let's focus on how those two compare.

The private share of payrolls under President Obama rises a bit above the private share under President Reagan. So if President Obama were a socialist as alleged, that'd make President Reagan a socialist ... and an even more effective one at that. Not that President Reagan really was, of course. But this should make it quite clear to anyone who isn't arguing from an unreasoning bias that President Obama has maintained the largely capitalist nature of America. In his first three years, President Obama has presided over a mostly growing private share of payrolls that has averaged higher than that under half of the preceding Presidents since JFK.

Pawlenty vs FDR

Sustained five percent growth? One might ask when we could possibly find an example of that sort of growth in American history.

From "Pawlenty’s 5 Percent Growth Solution Makes Historical Sense"

"So, yes, the U.S. economy has indeed shown an ability to grow at an average of five percent over a 10-year period. The problem for Pawlenty, and for many other modern-day politicos who believe they know the secret to rapid growth, is that all this growth came under Franklin Delano Roosevelt.

In the 1930s, as Roosevelt and his allies saved American-style capitalism from its own gaudy excesses and pathetic failings, Republican opponents, business interests and trade groups stomped their feet. They accused FDR of being a Socialist, of burdening the economy with regulations, of scaring investors by fomenting uncertainty, of hampering investment by instituting a new safety net, of placing restrictions on a bankrupt Wall Street and banking system. These crazy Keynesian schemes would never work. Why, they would turn the U.S. into a weak clone of the U.S.S.R., unable to compete in global markets, lead, or stand up to external enemies. (Plus ca change. . .)

Of course, the exact opposite happened. In the 1930s and 1940s, the U.S. economy (and its stock market) got back on its feet, rediscovered its capacity to grow, expanded and then led the world to victory over Fascism."

Sadly, Pawlenty is no FDR. Despite all the Republican grumbling about President Obama, sadly, President Obama is no FDR either. But who knows? Maybe there's a chance we voters will get our act together in 2012 and elect a Congress full of FDRs in response to what the Republicans have been trying to do. That's the only way we'd be likely to see that sort of sustained growth any time soon.