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March 17, 2016

A Picture of the Obama Economy

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Introduction

The old saying is that "a picture is worth a thousand words." Well, economic graphs are "pictures" where data-driven lines, bars or circles tell a story—and sometimes tell that story better than the raw data.

So the Institute for Policy Innovation decided to pull together several charts that tell a story about how the economy and current economic policies are working. It’s not a pretty picture.

We have focused on five different areas, with two graphs for each: the employment and unemployment rates; total federal debt; income and poverty levels; the growth in welfare participation rates; and public opinion. There are certainly other topics we could have included, but we wanted to keep it short and accessible.

We think these 10 graphs tell a story: President Obama’s economic policies have led to years of tepid economic growth.

Ironically, those who the president claimed he wanted to help the most—the poor and lower-income workers—have fared poorly under his policies, while those he hoped would provide the funds for his massive income-transfer schemes have done well.

Not even the largest expansion of government spending in history—along with the added federal debt—could achieve the economic growth the president repeatedly promised. That’s because private sector investment, not government spending, is the catalyst for economic growth.

Rather than develop the graphs ourselves, we relied primarily on widely available sources, especially the Federal Reserve Bank of St. Louis, whose graphs are helpful because they include shaded areas that identify past recessions. As several of the graphs demonstrate, many negative trends preceded the Obama administration, but accelerated under Obama.

As an economic policy organization we strongly resist any narrative that Obama’s slow-growth economy is the "new normal." That will only be true if his policies of high tax rates, massive government spending, hyper-regulation, and mandated increases in wages and benefits that have led to high levels of business-climate uncertainty become the new normal. Reverse those policies and we believe high rates of economic growth will return—soon.

U.S. Employment

The unemployment rate depicted here has been trending down since 2010, and is currently under 5 percent. But that number may not be the positive indicator it is usually thought to be—at least this time.

That skepticism is because the labor force participation rate—i.e., working-age people who are employed or actively looking for work—has declined so dramatically. Thus the low unemployment rate may be almost entirely due to the low participation rate. People aren’t considered unemployed if they have given up looking for work.

As this graph shows, the labor force participation rate was about 67.3 percent in 2000. It fell during the recession in 2001, but leveled off when the economy began to pick up. It started to decline, understandably, during the 2007- 09 recession, but that decline has continued at an unprecedented and troubling rate.

Some explain the decline in part by suggesting that baby boomer retirements—the oldest boomers turn 70 in 2016—are playing a role. But according to the St. Louis Fed (in a different graph) the labor force participation rate of those age 65 and older has increased since the end of the recession, from 21.7 percent in June 2009 to 24 percent in November 2015.

The more likely explanation for the labor force decline is that millions of frustrated Americans have simply given up looking for work in the Obama economy.

Federal Government and Federal Reserve Bank Debt

This graph shows the rapid increase in total federal debt to more than $18 trillion—and that figure excludes long-term federal obligations for Social Security and Medicare.

The increase began under President Ronald Reagan, steadily increased under Presidents George H.W. Bush, Bill Clinton and George W. Bush, but then exploded under President Obama. However, that upward spike began to level off once Republicans controlled both houses of Congress.

Beginning in 2009 the Federal Reserve banks dramatically increased their holdings of federal debt—to $2.8 trillion—in an effort to stimulate the economy.

Income and Poverty

President Obama has spent the past seven years trying to help the middle class. As this graph shows, he has failed miserably. Median household income is lower today than when he took office. It is common for median incomes to drop preceding a recession—notice the decline about a year before a recession (the shaded areas) begins. But the decline after the last recession lasted much longer—and has apparently returned.

This graph shows that the number, as well as the percentage, of Americans living in poverty have increased during Obama’s presidency. It is a remarkable outcome, given the president’s concerted efforts to transfer wealth from higher-income workers to the poor. A reasonable conclusion is that Obama’s policies have not helped the poor and may have actually hurt them.

Welfare Participation and Transfer Payments

Obama will leave office with millions more Americans on welfare than when he started. And, ironically, he will be proud of that fact.

Much of the welfare population growth has been due to Medicaid expansion, and one of Obama’s real regrets is that he couldn’t get even more Americans on this welfare program. However, while participation in most means-tested welfare programs spiked during the 2007-09 recession and continued increasing for several years after the recession’s end, most of them have leveled off by now or have begun to decline.

Not Medicaid. About 20 percent of the country now participates in this worst-of-all, government-run health insurance programs—and if Obama had his way it might have reached 25 percent to 30 percent.

Prior to passage of the Affordable Care Act, nearly half of the population received some type of transfer payment from the federal government—though millions of those are seniors on Social Security and Medicare, which arguably they paid for with their FICA taxes. But with perhaps 8 million or 9 million Americans receiving Obamacare subsidies, we have probably crossed the 50-percent tipping point. As the graph shows, we now spend nearly $2 trillion on transfer payments—nearly two-thirds of the $3.25 trillion actual federal revenues for 2015.

Entitlement spending is a fiscal train wreck, especially since so much of it (e.g., Social Security, Medicare and Medicaid) is on autopilot and not part of discretionary spending. The entitlement-spending explosion began long before Obama entered the White House, but he has exacerbated the trend.

Public Opinion

Economic numbers tell a story, but so does public opinion. Obama came into office claiming he wanted to restore trust in government—by which he meant more government spending and big-government programs—by demonstrating that government can be both effective and efficient. He failed. As the graph shows, trust in government is at an all-time low.