President Obama has staked a great part of his legacy on the idea that he skillfully engineered a great recovery from the financial crisis. The Obama-friendly media routinely parrot the idea. But in fact, as a shocking new study from the nonpartisan U.S. Council on Competitiveness and the Gallup organization suggests, the so-called recovery doesn't exist.
As recently as Oct. 11, less than a month before the election, the online publication The Hill ran this headline: "Obama's economic legacy ensures Democrats decades of success." No kidding. But it's a bit unfair to single them out: Others have run with similar themes. The point is, it's not true.
The reason Obama's chosen successor, Hillary Clinton, didn't win a third straight presidential term for the Democrats was that they actually seemed to believe their own propaganda, while Middle America didn't. For most Americans, the much-hoped-for recovery has been nonexistent. That's why they voted in droves for Donald Trump in normally Democratic strongholds.
The new study, "No Recovery — An Analysis of Long-Term Productivity Decline," provides strong clues as to why that is.
"Conventional wisdom — as reported in many major newspapers and media — tells us the U.S. economy is 'recovering,' " wrote Gallup Chairman Jim Clifton in a surprisingly blunt foreword to the study. "Well-meaning economists, academics and government officials use the term 'recovery' when discussing the economy, implying that growth is getting stronger. The study finds there is no recovery. Since 2007, U.S. GDP per capita has been 1%."
It's even worse when looking at a trend line. From a range of about 2.6% to as high as nearly 3.5% a year during the late 1960s, per capita GDP has steadily declined over time. This year, the report shows, per capita GDP will be a pathetic 0.5%. Per capita GDP is important, since it's a common measure of living standards around the world. When it's not growing, neither is your standard of living.
Put another way, at the late 1960s growth rate it took about 24 years for the average American to double his or her standard of living; at the 2016 growth rate, it would take 144 years.
Or, put yet another way, "If 1% growth continued for the next 35 years, per capita GDP would increase from $56,000 in 2015 to just $79,000 in 2050. With 1.7% growth, GDP per capita goes up to $101,000 by 2050, and with 2.4% growth it enlarges to $129,000," the report notes. The difference between 1% growth and 2.4% growth is enormous.
In an executive summary, the report's authors note the economy's problems didn't start with President Obama, but they didn't end with him, either, as the media and White House frequently suggest. The study makes a devastating case that something has gone very wrong with the U.S. economy in the past 20 years or so.
"For decades, the nation's income, measured as GDP, has barely grown overall; on a per capita basis median household income peaked in 1999; the subjective general health status of Americans has declined, even adjusting for the aging population; disability rates are higher; learning has stagnated; fewer new businesses are being launched; more workers are involuntarily stuck in part-time jobs or out of the labor force entirely; and the income ranks of grown children are no less tied to the income ranks of their parents," the report said, listing a litany of woes that now bedevil the economy.
The main reason for the slowdown is a decline in productivity growth, which is in danger of "stalling completely," says the report. That, in turn, is in large part a result of just three sectors in which inflation has been high but quality increases have been low: health care, housing and education. As recently as 1980, the report notes, just 25% of all GDP was spent in those three sectors; today, it's 36% of GDP, and rising. Without the inflation since 1980, per capita GDP growth would have been a robust 3.9% — not 1.7%.
Poor K-12 education, soaring costs for college without an increase in educational quality, "slight gains" in Americans' overall health, declining labor-force participation by adults, and high housing costs have been afflicting the U.S. economy for years, damaging the dreams of many who seek to climb the economic ladder of success.
That's the bad news.
The good news is, it can be fixed. But it will take radically different policies and the political will to buck the special interests, lobbyists and crony capitalists that stand in the way.
As such, whether you like him or not, President-elect Donald Trump is beholden to no one but the voters for his unlikely victory in November. He may be ideally suited for the difficult, but necessary, job of reforming the economy to restore its once-extraordinary growth. Let's hope so. If not, the next presidential campaign is just 36 months away.