To be sure, President Barack Obama is receiving the lion's share of the anger about the state of the U.S. economy. His approval rating is near its all-time low; his handling of the economy is rated even lower.
That's understandable: Unemployment stands near 10%, home prices continue to founder, job growth has stalled, and consumer confidence is falling again. Just 22% of those polled by CBS News recently believed the economy would improve anytime soon. And with the midterm elections less than a week away, there's a flock of opposition candidates to help the electorate focus on Obama's shortcomings.
But how much of the blame he deserves for this economic malaise is debatable.
Though Obama inherited a mess, there are certainly things he could have done differently. More of his $787 billion stimulus package might have focused on fast-acting personal and business tax cuts. Obama himself conceded recently that "there's no such thing as shovel-ready projects," in reference to the infrastructure spending he proposed to stir the economy. And yes, he could have toned down the anti-Wall Street rhetoric.
So while the electorate appears determined to punish Obama and the Democrats, it's not so clear how much punishment they deserve.
The Obama upside
In fact, some facets of Obama's economic strategy deserve credit.The recession officially ended more than a year ago. Nearly 1.6 million jobs have been created over the past year -- more than in the previous decade. The effects of the financial crisis of 2007-09 are fading as credit starts to flow again. Despite long odds, the economy was pulled back from the precipice, dusted off and put back on an upward path thanks to the bank bailout (which turned a profit for taxpayers, by the way) and Obama's stimulus package.
Between summer 2009 and spring 2010, in fact, the situation was almost rosy. Consumers were reducing debt burdens. Banks were working through loan losses. Businesses were rebuilding inventories. The stock market was roaring.
Then the global debt crisis struck. And the BP (BP, news, msgs) oil spill. And the government's lawsuit against Goldman Sachs (GS, news, msgs). The U.S. dollar moved higher as the euro plunged. This took the wind out of the U.S. economy's sails, sent stocks reeling and damaged exporters. Businesses hoarded cash instead of hiring and investing. The Obama administration's "summer of recovery" looked more like a winter of discontent.
This punch in the collective stomach came at a vulnerable time: The economy was going through a typical midcycle slowdown as the rapid rebound from the recession's low transitioned into slower, more-normal growth. But before business investment and consumer spending could kick in, confidence was shattered. There was little a politically weakened Obama could do besides scramble.
Along with all this short-term trouble, the truth set in that some of the biggest issues the economy faces, such as long-term unemployment, are due to structural problems -- something I discussed in a recent column. These issues will be much harder and take much longer to fix.
Included are things such as skill mismatches, the loss of productivity for idled workers and the difficulties involved with relocating the nation's work force when so many homeowners are "underwater" on their mortgages and can't afford to sell and move. A recent International Monetary Fund paper finds that up to 1.3% of the increase in the unemployment rate is attributable to this last factor alone. All that means the "natural rate" of unemployment could now be as high as 6.5%.
That's the bad news.
Fortunately, it's becoming increasingly clear that after drifting through the economic doldrums, America is ready to grow again thanks to the export-boosting power of its weakened currency. The dollar has plunged more than 25% against the euro since June. That should provide a boost to third-quarter gross domestic product numbers (due to be released Friday) and job creation in the months to come, just as a weakened euro helped Europe bounce back earlier this year.
Moreover, as far as the stock market is concerned, elections during a president's second year in office tend to mark the start of a rip-roaring bull market run. That should provide a boost throughout 2011.
The Obama downside
None of this will come fast enough to keep Democrats from being punished at the polls next week. Obama owns the current economy in the minds of voters. It didn't help that his advisers had sworn his stimulus plan would keep the jobless rate below 8% but were painfully wrong.There are certainly areas where Obama has damaged the recovery, mainly because of uncertain policies on taxes and regulation. For example, his predecessor's tax cuts will expire at the year's end, and we don't know what will replace them. That's a terrible environment in which to do business and make big spending decisions.
These are same concerns that sapped confidence in the depths of the Great Depression in the 1930s. And that's what has Allan Meltzer so worried.
Meltzer, a Carnegie Mellon University professor of political economy and the author of "A History of the Federal Reserve," told me over the phone that he believes the current obsession with more economic stimulus from the Fed (something he views as dangerously foolish) is the result of policy errors by the White House. Indeed, he boils it down to a simple equation: Obama's missteps are causing Fed Chairman Ben Bernanke's missteps.
Meltzer believes more fiscal stimulus is the answer. He suggests a moratorium on tax increases and new regulation. That would let businesses and households stop worrying about increased costs for energy, health care or financing and instead focus on growth. It would also take a lot of uncertainty off the table.
Continued: Parallels to Franklin D. Roosevelt
