The reality of the Obama economy

The media is filled with reports about how things are turning rosy in the economy. Yesterday, I read an article about how the economy was even becoming a net positive for the Obama re-election campaign. The article made me wonder if the reporter had been using drugs while writing.

Here is the key fact that no one should forget about the American economy under Obama: it is just not growing. The official figures on real growth in the economy during the three years of Obama (until the end of 2011), show that total real growth during that time was 4.2%. That is not an annual figure; it is the total. The annualized figure would be roughly one-third as much or a real annual growth rate of 1.4% for GDP. The last time that the US economy showed a three year real growth rate of 1.4% or less was during the Great Depression of the 1930's.

To be clear, I am using the real growth rate rather than the nominal one. Real growth rates control for inflation; after all, there is no actual growth if the only change is that prices rise. The official figures adjust for the price increases measured by the CPI.

The truth is that even using the real growth rate, the number is a bit overstated due to price increases. For example, when Obama took office, the price of oil was $38. It is about $108 as I write this. That $70 per barrel increase in price added about $150 billion to US GDP figures even though the amount of oil being produced is still about the same. Something like 20 to 25% of the increase in real GDP under Obama comes just from the increase in oil prices. Without considering the oil price rise, the annual rate of real GDP growth is between 1% and 1.1%.

The cost to the country of this slow rate of growth is enormous. First, let's talk about some of the more obvious consequences. A growth rate this slow is too low to create enough jobs to keep up with population growth. In other words, slow growth explains why unemployment has not gone down at all since Obama took office. Slow growth also makes companies more hesitant to invest in new ventures. Since investment is the lifeblood of the economy, sustained slow growth makes it much harder for America to return to robust growth and prosperity. Slow growth also means that government revenues do not grow and government expenditures increase. Had Obama been able to get the economy moving with even four percent annual growth after the steep recession, the federal deficit would have been cut by at least half a trillion dollars this year with no changes in tax rates.

Slow growth also reduces American power. We have less money to accomplish our national goals. We have a less optimistic people to push forward with national essentials. We face a staggering debt which increases day after day with no signs of letting up.

So next time someone tells you how rosy the economy has become, remember the reality. The numbers do not lie. The pundits pushing Obama, unfortunately, do.