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Home Publications Blogs Beat the Press Grading Robert Samuelson's Grading of Obama

Grading Robert Samuelson's Grading of Obama

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Monday, 03 September 2012 04:33

Robert Samuelson gives President Obama a low grade for his economic performance following his initial six months in office (so do I). Let's examine the basis for his assessment.

His main complaint is that Obama pushed the Affordable Care Act (ACA) through Congress. Samuelson complained that this distracted the president from focusing on the economy and created uncertainty. Let's start with the first complaint.

What does it mean to say that the ACA distracted President Obama from the economy? What would Samuelson have had Obama do that he didn't do because he was distracted? Was there some great policy that would have boosted economic growth that he should have been pursuing had he not wasted time and political capital dealing with the ACA?

That is a serious question. Undoubtedly passing the ACA did take much of his staff's time and used up enormous political capital, but that by itself doesn't mean that it came at the expense of policies that might have provided a more immediate boost to the economy. It is necessary to identify those policies and argue that Obama could have pursued them if he had not been occupied by the ACA.

I have my list (more stimulus, work sharing, getting the dollar down, Right to Rent), but I don't see any reason to believe that these policies would have been pushed more aggressively by President Obama if he had not been wasting time with the ACA. Samuelson doesn't even give us a list. What is it that he thinks President Obama would have been doing to create jobs and foster growth had it not been for the ACA? Samuelson doesn't give us any clue.

Turning to Part II, the ACA supposedly created uncertainty and this slowed growth and job creation. This is again one of those throw away lines that makes little obvious sense. First, the ACA has very little impact on employers until 2014. Do we really think that firms were not hiring workers in the summer of 2010 because they might have to pay for their health care or pay a fine in January of 2014?

Think about this one for a moment. A factory is seeing growing demand for its product. A thriving restaurant has more business than it can deal with. Rather than hire the additional employees necessary to meet this demand, these businesses say that they are concerned that in three and a half years they may have to meet the requirements of the ACA.

Does that sound plausible? To throw in one additional possibly relevant factoid, almost 3 percent of the workforce leave their job every month (roughly half voluntarily, half involuntarily). In other words, if our nervous employer is concerned that they will be stuck with unwanted workers when the ACA kicks in on January 1, 2014, they will have ample opportunity to get rid of them before then.

And how bad is the hit? It's a maximum of $2,000 per worker for firms that employ more than 50 full-time workers. Since it exempts the first 30 workers, the penalty for a firm right at the 50 worker cutoff would be $800 per worker. This would be 40 cents per hour for a full-year full-time worker. There is now a large body of research showing that increases in the minimum wage of 15-20 percent have no measurable effect on employment.

This fine would come to approximately 2.5 percent of the wage of an average full-time full-year worker, assuming that there is no corresponding reduction in wages (as economic theory would predict). How large of an employment effect should we expect when the fines actually take effect in January of 2014? How large of an effect should we expect now?

Furthermore, the impact would not be felt evenly across firms. Most employees already receive health care coverage that would meet the requirements of the ACA. Their employers should not be slowed in expansion from the law. Similarly, many smaller firms are well below the size threshold where the fines would be applicable. These firms also should not be slowed in their expansion plans by the law.

While it is popular among opponents of the ACA to claim that it has slowed hiring, no one has presented any evidence that the firms that would actually be affected by its main provisions have been hiring at a slower pace than the ones that would not be affected. A little evidence would go a long way towards helping their case.

Finally, Samuelson says that we are seeing less investment and less consumption than would be the case if not for the uncertainty created by President Obama's policy. He thinks this may have slowed job growth by 25,000 a month or so.

Let's look at this one more closely. Measured as a share of GDP, investment in equipment and software is just a few tenths of a percentage points below its pre-recession level. Given that there is still a huge amount of excess capacity in many sectors of the economy investment is surprisingly high, not low.

How about consumption? Here's the consumption share of disposable income. In fact, consumption is also unusually high, not low, relative to disposable income as shown below. (Adjusted disposable income has to do with the statistical discrepancy for those nerds out there.)

consumption-disp-income-09-2012

 Source: Bureau of Economic Analysis, National Income and Product Accounts, Tables 2.1 and 1.7.5.

The consumption share of income has not risen back to the peaks of the stock or housing bubble, but given the massive loss of wealth, it would be shocking if it did. Furthermore, since a substantial chunk of disposable income is due to tax cuts which are supposed to be temporary, that economic theory tells us should not be spent, we should expect the consumption share of income to be lower than normal, not higher as the graph shows.

In short, it doesn't seem that Samuelson has much of a case here. It doesn't look like he's going to get a very good grade on this column.

Comments (20)Add Comment
Any Fool Can Understand the Certainty of Trade-Offs, Even Samuelson
written by Last Mover, September 03, 2012 8:22
What is it that he thinks President Obama would have been doing to create jobs and foster growth had it not been for the ACA? Samuelson doesn't give us any clue.


Baker just can't accept that Samuelson is a zero sum kinda guy who believes absent uncertainty, everyone in the labor force is fully employed including himself and Obama, therefore whatever he or she is doing has an opportunity cost of the next best employed activity given up once uncertainty clears up.

Any fool knows that if Obama had not created uncertainty with the ACA, it would not have offset the already weak stimulus in the opposite direction to result in zero net new jobs. But Samuelson did not write that column because he knows it would effectively admit the stimulus created new jobs if not wiped out by the ACA.

Any fool knows as well that when Samuelson wrote this column, the trade-off included others he did not write, like the one that would have explained how the stimulus didn't work anyway because it didn't create full employment, or how the stimulus didn't work anyway since it crowds out private sector jobs, or how the stimulus itself creates uncertainty in the private sector and zeros itself out at the getgo.

Had it not be for the ACA, what would have Obama been doing? Creating more uncertainty and unemployment in other areas of course, unlike Samuelson who creates the certainty of uncertainty through trade-offs constructed out of thin air.
Hmmm.
written by David, September 03, 2012 8:41
ACA attempted to fix a wasteage amounting to 10% of GDP (and growing). That is being concerned with the economy.

Corporate profits are at an all time high. Some of that would have gone to jobs if balance sheets (demand) had recovered.

Samuelson is the one who is distracted, nay, ignorant.
Time Warp?
written by Downpuppy, September 03, 2012 8:46
Is this a rerun of a 3 year old post?
Robert Samuelson gives President Obama a low grade for his economic performance following his initial six months in office

& no link. Baffled I am, although the rest seems oddly familiar.
...
written by skeptonomist, September 03, 2012 9:43
Leaving Samuelson aside (a good idea in general), it's really hard to believe that Obama's focus on getting a health-care bill passed - any bill - did not lead to neglect of the economy. This may have come in from the very beginning, in making Obama less likely to appreciate the seriousness of the recession. If his priority was making himself the President who brought in universal health care, he would probably would have been more likely to listen to those of his advisors - some of whom were directly involved in the policies which led to the crash - who argued that the economy would turn around with only a minimal stimulus. Maybe he even planned before being elected to concentrate on health care and to leave economic policy to Summers and Rubin.
...
written by SS, September 03, 2012 9:50
THE POST OUT ON ITS FAVORITE LIMB, AGAIN?

Dean, I don't know if you noticed or perhaps I am becoming delusional, but it appears to me that the main stream media including surprisingly the business media has finally recognized how extreme and dysfunctional their own Republican Party has become. As most of our elites do not want war with Iran, tax cuts that leave the fiscal deficit growing, austerity that further erodes growth and frays the social fabric and policy assaults on women and gays, they have begun to expose the Republicans for what they are rather than their usual apologia for what is after all the party created by and for their class. News outlets like Market Watch, CNBC, the Economist, Business Insider, USA Today, CNN and Reuters all seem to be trotting out a new realistic approach to the current political scene, actually finally presenting crazy ideas for what they are. Even WAPO until this weekend seemed to be flaunting some unusual balance as their new mantra. The WAPO readership has certainly caught on if one is to judge by how far the comments have veered toward a realistic appraisal of the status quo from their past divisive bitterness. It's to hope that the paper doesn't do the whole region a disservice by veering back into their habitual right wing cant under their black veil of pious sentiments masquerading as liberal, when are anything but.
Not being fair to Samuelson
written by AndrewS, September 03, 2012 9:58
You say he doesn't back up anything he says - "Samuelson doesn't give us any clue.".

That's not really fair. If he ever gets a clue I am sure he will share it with us,
Peterson agenda
written by Peter K., September 03, 2012 10:46
Samuelson would cut Social Security and Medicare and then give tax breaks to the rich.
...
written by Aaron, September 03, 2012 1:44

"..Samuelson would cut Social Security and Medicare and then give tax breaks to the rich...."

That's not really fair to Samuelson. He would cut Social Security and Medicare and then attempt to balance the budget (ruling out any possibility of defense cuts), and only them would he give additional tax breaks to the rich.
How Samuelsonthink Works
written by Aaron, September 03, 2012 1:55
Samuelson believes that, in economic terms, the number one priority for the United States should be to reduce the deficit. He rules out military spending cuts, so that pretty much means slashing entitlements. He doesn't need Social Security or Medicare (he'll take them, but he doesn't need them), he's capable of tapping away at a keyboard well into his seventies, and his peer group is composed of people like him - people of wealth who have gold-plated health insurance plans, plenty of money to cover any uninsured costs without any concern for depleting their retirement savings, and little if any experience with physical labor.

The lack of understanding (or, to the extent that understanding is present, lack of empathy) results in an attitude that it's "no big deal" if the insignificant (to him) Social Security retirement benefit is cut, eliminated, or means tested; and if Social Security is transformed from entitlement to welfare, all the better - because you can get considerable middle class support for cutting welfare benefits. Medicare? It costs a lot, the obvious solutions (i.e., following the model of any other developed nation, if not provide a permanent solution, to obtain significant, immediate savings and preserve Medicare for additional decades while we continue to work on solutions) are not politically acceptable to Samuelson and his peers. So... label it an "entitlement", correctly state that the status quo appears unsustainable, and then take a damn the facts approach and argue that the only solution is to burn it to the ground.

Samuelson may be attempting to put an economic spin on his argument about the ACA, but it's actually a political argument - and that's why it doesn't make a lick of economic sense. To Samuelson, by definition any attempt to preserve and perpetuate Medicare or Social Security is a distraction and waste of time, and all you need to do is follow his logic around in a circle to see why: If the President is not focusing on how to balance the budget by cutting Social Security and Medicare, he's allowing himself to be distracted to the detriment of the nation.
Begs The Question
written by SS, September 03, 2012 2:25
"No cuts to military spending" begs the question of whether levels are appropriate or not. Does the fact that we spend more on the military than all the other countries of the world combined and still can't win a war, even against peasants in flip-flops and pajamas, argue for more or less spending?
Thanks!
written by argeec, September 03, 2012 2:40
Hey Dean,

I have long meant to tell you that I appreciate your blog and the effort you put into it - so thanks!
MSM recognizes how far to right side cliff the Republican party has gone.
written by Ethan, September 03, 2012 4:56
Ditto SS at 8:50
Even the Chicago Tribune, not exactly a progressive firebrand, has begun calling out the current Republican agenda -- or actually lack of an agenda. The paper recently pointed out that it's great to say "close the tax loop holes" or "balance the budget", but without at least SOME suggestion of what would be done to accomplish those goals it is a lot of "sound and fury, signifying nothing".
Maybe the dawn is coming.
Samuelson reminds me of a once-famous Quaylism...
written by low-tech cyclist, September 03, 2012 5:33
...the one that goes "what a waste it is to lose one's mind, or not to have a mind. How true that is."
Why is this a surprise?
written by John L, September 03, 2012 5:45
Has Samuelson ever said anything that wasn't conventional right wing positions (in all their arithmetically challenged glory) decorated with a little chin stroking?
Too Funny
written by Brian, September 03, 2012 6:45
My favorite line in the piece is Samuelson's assertion that Obama should have easily predicted that his attempt to push forward a Heritage Foundation inspired, Newt Gingrich proposed and Mitt Romney implemented framework for health insurance reform would cause the Tea Party to rise up and threaten to cause a national default.
...
written by liberal, September 03, 2012 9:30
skeptonomist wrote,
...it's really hard to believe that Obama's focus on getting a health-care bill passed - any bill - did not lead to neglect of the economy.


I completely agree with that, and everything else in that comment.

Despite uncountably many rationalizations by O-bots to the contrary, it was a terrible political blunder on Obama's part.
What about Transportation?
written by Jeffrey, September 03, 2012 11:01
I largely agree with Dean Baker on his criticism of Robert Samuelson's piece, but I do think there might be one significant piece of legislation that might have been pursued in the place of ACA - Transportation reauthorization. SAFETEA-LU expired in September of 2009, and only recently was there a two year law adopted (MAP-21). I recall very clearly Jim Oberstar (former representative from MN), had a released a transportation bill in June of 2009 - a 6year $500 billion bill that would have made significant investments in transportation. I think it even had the support of the republican ranking member of the transportation and infrastructure committee, John Mica. The bill went nowhere. I don't know why exactly, though I think it would have likely passed the house and possibly the senate. My main point is that I don't think Obama pushed this bill at all, Pelosi didn't push it, and neither did Reid on the senate side. Maybe the pre-occupation with ACA was the reason, maybe not. But if this bill had passed, the large investment in the country's roads, bridges, and transit systems would have served as a second stimulus, and would have likely boosted the economy in 2010, 2011, and 2012.

I don't think it was wrong for the Obama administration to tackle the healthcare problems in this country, but I think it's fair to examine the trade-offs associated with doing so. If there was any piece of legislation that had a decent change of passing and having a positive impact on the economy, it was the Oberstar bill.
Oberstar's transportation bill
written by S.D. Jeffries, September 03, 2012 11:41
Jeffry;
If I recall correctly, the Oberstar bill called for a hike in the gasoline tax to pay for part of its $500 billion cost. You may believe that both the House and Senate would have voted in favor of raising the gas tax in the spring of 2009, but I don't.
How much more obvious does this have to be for you to get it?
written by Nick R, September 04, 2012 5:53
"What would Samuelson have had Obama do that he didn't do because he was distracted?"

Isn't this obvious? Obama chose to enact ACA over the protests of the business sector instead of focusing like a laser on convincing the private sector to regain confidence.

The ACA was a giant leap in the wrong direction. It created significant uncertainty about future developments, it heated up philosophical disagreements about the proper role, size, and scope of government to the boiling point, and it also caused business leaders to give up on the recovery and grow cautious due to "Ricardian" concerns about higher taxes in the future. Believe it or not, business planners do look out beyond 3 years, when they consider Capex allocations.

Obama's blunder is directly responsible for choking off the nascent recovery. It boggles the mind that you cannot comprehend that his "distraction" was costly.

...
written by Bloix, September 04, 2012 11:12
Obama didn't push through the ACA in his first 6 months in office. He did virtually nothing on the ACA during the spring and summer of 2009. It was not finally passed in until March 21, 2010.

One of Obama's mistakes in his first year was that he allowed a group of conservative Democratic senators to "negotiate" - ie stall - with Republicans during 2009, almost killing the ACA, which came very close to falling victim to a filibuster after the election of Scott Brown in Massachusetts in January 2010.

After Brown's election, Rahm Emmanuel and the White House were ready to give up on the ACA. It was only Nancy Pelosi's leadership in the House, which passed the version of the bill that the Senate had already enacted in December 2009 (thus obviating the need for a second Senate vote) that saved the ACA.

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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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