Thursday, August 30, 2012


 Note: I wrote this column for The Roanoke Times, where it appeared on the op-ed page on Saturday, August 25, 2012. 

In 1980, candidate Ronald Reagan  asked: "Are you better off today than you were four years ago?"

    In 1980, presidential candidate Ronald Reagan famously asked voters: “Are you better off today than you were four years ago?”
    The tactic worked well for Mr. Reagan.
    Mr. Reagan’s question itself was not quite precise, however, since a new president’s policies don’t take effect until at least six months after he takes office. As election day 2012 approaches, it’s more reasonable for voters to ask, “Are we better off today than we were three years ago?” With that in mind, let’s look at the Obama administration’s economic record over the last three years. (The facts that follow come from nonpartisan sources accepted by both parties, such as the Bureau of Labor Statistics and the Bureau of Economic Analysis.)
     Jobs: Three years ago, in September 2009,  the U.S. had jobs for 139 million employed workers. As of July 2012, the U.S. has jobs for 142 million employed workers. That means new jobs for more than 3 million workers have been created in the last three years. Verdict: If you’re looking for work, the American job market is better today than it was three years ago.
     (Note: More than 4 million jobs were lost in the first six months that President Obama was in office, a continuation of the recession that began before he took office. In their campaign advertising, Republicans blame the President for those early-term job losses. Whether that blame is fairly directed I leave it to the reader to decide.)
     Unemployment rate: In October 2009, the unemployment rate was 10%. Today, it is 8.3%. Verdict: Your chances of finding a job are 17% better today than they were three years ago.
     Investments: In September 2009, the Dow Jones Industrial Average hovered around 9,500. Today, it hovers around 13,200. Verdict: If you invest in average stocks, your nest egg is 38% larger than three years ago. If you rely on a stock-invested pension plan, your economic security is more assured than it was three years ago. 

This chart shows the rise in the Dow Jones Industrial Average over the last three years. In that time, the value of retiree stocks and pension plans has risen about 38%. The rise in the stock market also reflects the optimism of professional investors in the future of the nation's economy.
     Corporate profits: The after-tax profits of U.S. corporations in October 2009 came to $1.35 trillion. The after-tax profits of U.S. corporations in 2012 amount to $1.67 trillion—an all-time high. Corporate profit margins and cash reserves are also at or near an all-time high. Verdict: If you invest in or work for an average U.S. corporation, you are 23% better off today than you were three years ago.
     Inflation/deflation: In 2009, overall prices fell 0.4%. Falling prices are known as “deflation.” In 2011, prices rose 3.2%. (The annualized inflation rate last month was 1.4%.) The current level of inflation is historically on the low side. According to economists, a drop in prices—deflation—is far more dangerous to an economy than mild inflation. (Why? Because in periods of deflation, consumers buy less, waiting for prices to drop further, and the economy stagnates.) Verdict: If you are a consumer, the prices you pay remain relatively low, but you no longer need fear deflation.
     Mortgage rates: In August 2009, a 30-year mortgage carried a 5% interest rate. In August 2012, a 30-year mortgage carries less than a 4% interest rate. Verdict: If you want to buy a home, you are in a better position today than you were three years ago.
     Housing prices: The median price for a single-family home in August of 2009 was $177,700—a steep drop from the $225,000 it had been in 2006. The median price for a single family home in the first quarter of 2012 was $181,500. Verdict: If you own a home, its value has stabilized and even risen a bit in the last three years.
     Income: In September 2009, per capita disposable personal income in the United States was $34,960. As of June, 2012 (the latest month available) per capita disposable personal income in the U.S. was $37,971. In September, 2009, the average American worker earned $756.31 per week. As of July, 2012, the average American worker earned $811.44 per week. Verdict: If you are an average American, you are a bit wealthier and earning more today than you were three years ago.*
     By these measures, the average American is better off today than he or she was three years ago. If one is to accept Ronald Reagan’s reasoning, then, it is clear who should be elected—or, more exactly, reelected—this November.

The answer to Reagan's question today is "Yes." By Reagan's logic we should reelect President Obama.


Explanation of deflation:  (Note: Krugman is probably not an unbiased source acceptable to both parties, but his explanation of the problems with deflation nevertheless is clear and accepted by 99.9% of economists.)

Mortgage rates: (original source: Freddie Mac)

and (original source: National Association of Realtors)

Income: (original source: Bureau of Economic Analysis)

and  (original source: Bureau of Labor Statistics)

*After this column appeared, a reader sent me the following link, to an article in the Wall Street Journal (WSJ): .

The WSJ column refers to a recent study that shows household income falling over the last three years, under the Obama administration—a fact which seems to contradict my claims about how income has risen in the last three years.  Here is my response to my reader, whose name is John:

     This is interesting, John. I got my figures from the Bureau of Economic Analysis. The article you sent gets its figures from the Census Bureau. 
      As you'll see in the tables, according to the BEA, per capita personal income is up since June of 2009. (I prefer to compare to October 2009, when Obama's policies had time to take effect. The beginning of 2010 is probably even fairer.) Personal income is up even in constant dollars, meaning it's ahead of inflation.    
     The problem with the Census Bureau's "household income" figure, in my opinion, is threefold: 1) it measures household income, not individual income, 2) it does not count capital gains and other sources of income, 3) it is based on "estimates" that result from phone surveys and what people tell surveyors over the phone—a poor way to determine income. As for #1, if the number of households increases, but people are making the same amount of money, then the income per household goes down. Does that seem a sensible measure of whether the economy has improved or deteriorated? Not to me. And aren't capital gains (which have shot up under Obama) a real source of income for millions of people? (They are for me and Mitt Romney!) The BEA approach also has its weakness, but I think it is better than the Census Bureau approach. . . .
     As you can probably tell, I am a liberal and an Obama supporter. I disagree with several of the conclusions in the article you sent. For example, it claims the weakening of unions has not hurt the economy. If you read major economists like Stiglitz and Krugman, you'll get a very different analysis. One of the reasons Germany is doing so well, for example, is that they have very strong unions, respected by the government, with consequent higher wages, a strong middle class, and less economic inequality. I wish strong unions would come back. But that's another issue.
     Thanks for sharing this. It caused me to think about things even more deeply—always a good thing.