Obama is in for 4 more years!

The results are in, mostly. Barack Obama will reside in the White House for 4 more years, democrats will retain control of the Senate and republicans will keep the House of Representatives. After what seemed like an endless campaigning war, did the electorate provide a clear mandate? On the surface, it would seem like we went through this whole exercise and came out changing nothing. After all, the composition of the government has not changed as a result of this election. However, I find myself more optimistic for the following reasons:

(1) In re-electing Barack Obama, the electorate has made a clear choice on who they think would be more adept at the country’s helm now. This is important considering that Obama won re-election in an economy with the unemployment rate at 7.9%. To find an incumbent who won under such conditions would require us to go back to the days of FDR. In exit polls throughout the country, voters identified the policies of George Bush as the main reason for our current economic woes. To me, this indicates either a more informed electorate.

(2) Anyone who looks at the margins of victory in both presidential and congressional races will agree that the country is extremely polarized. As a result, the composition of government has not changed a lot. Most moderate candidates were either forced to retire (for instance, Olympia Snowe) or were ousted in the 2010 elections/2012 primaries (Richard Lugar, for example). While this is disappointing, it also forces us to find new ways of compromise. Either democrats and republicans will learn to forge working solutions together or more independent candidates will/should likely be elected in the future. The northeast has already provided us with two such examples in the Senate.

(3) In a controversial decision in 2010, the US Supreme Court cleared the way for large undisclosed contributions to further muddy the already distasteful process of electoral campaigns. The current election cost nearly $ 6 billion (a small stimulus package), almost two-thirds of which was spent by super PACs! In light of the current results, I hope these donors conduct a cost-benefit analysis of their investments. I also hope that this misadventure will pave the way for some necessary electoral reforms.

Overall, I was happy with the results, especially in the presidential election. It’s time to take a deep breath and begin anew.


It’s Election Day!

The day is finally upon us…the last day on which ads ending with “I am so and so, and I approve this message” will end…until they start campaigning for the 2014 midterm elections!… It’s time to vote!

Obama’s Performance On The Economy

This election is a referendum on Obama’s stewardship of the economy. What has Obama done on the economy? To address this question, I first considered a few numbers that inform the conditions under which he assumed office: (1) On Jan 20, 2009, the day of Barack Obama’s inauguration, the S&P500 closed at 805.22 and had lost about 40% of its value over the previous 6 months; (2) According to the Bureau of Labor Statistics, the unemployment rate in February 2009 stood at 8.3%; only a year ago, in February 2008, the unemployment rate had been 4.9%; (3) In January 2009 alone, employers in the private sector had shed 818,000 jobs, and they would cut 2.2 million more jobs over the next 3 months; (4) The federal deficit for the fiscal year 2009 was $1.4 trillion, whereas the deficit for 2008 was $440 billion.

Together, these numbers define the challenge on Obama’s hands. The challenge becomes even more tenuous when one considers that Obama had no money at his disposal. For years, his predecessor, George W. Bush had been running budget deficits. The wars in Afghanistan and Iraq cost about $1.5 trillion dollars during his tenure, to which his tax cuts added another $1.8 trillion. Moreover, due to the recession, government revenue from individual and corporate taxes in 2009 dropped by 20% and 54%, respectively, compared to the previous year. Taking this into account, it becomes obvious that no matter what Obama did, he wouldn’t be able to avoid increasing the federal deficit.

So what did Obama do? Many things! In this post, I will focus on one example. On February 17, 2009, less than a month after taking office, Obama signed into law the American Recovery and Reinvestment Act, better known as “the stimulus”. With a goal to create and save jobs, the bill disbursed a total of $840 billion into the following areas:

  • $297.8 billion went into various tax benefit programs. Some major highlights include: (1) the American opportunity tax credit that allowed individuals to claim on undergraduate educational expenses for either themselves or for their dependents; (2) a first time homebuyer’s tax credit, which was an attempt to stabilize the collapsing housing market which had largely contributed to the recession in the first place (3) a $400 tax credit for working individuals, and (4) Numerous tax incentives for businesses that hired new employees, including veterans.
  • $244.3 billion went towards various government contracts, loans and grants. The biggest chunk of the funds in this department went towards providing aid to states and preventing them from cutting back on education services (about $91 bilion). Other major recipients were grants to improve transportation and infrastructure (highways, bridges, railroads, airports, expanding broadband infrastructure etc).
  • $235.7 billion went towards entitlement services. Again the biggest chunk of this money was given to states to allow them continue providing services for medicaid recipients (about $90 billion). About $60 billion went towards providing unemployment benefits for those who lost their jobs during the recession. Another $43 billion went towards providing assistance to needy families, including food stamps, child care, and foster care and adoption assistance.

One impressive aspect regarding the recovery act is that the Obama administration has provided extremely detailed information on how the money was exactly spent. In fact, projects that were funded by this act can be searched by zipcode.

More importantly, did the stimulus succeed in its objectives? A clear majority of studies conducted by leading economists (7/9) arrived at the conclusion that the stimulus did in fact spur economic growth and may have saved and created thousands of jobs. In addition, a number of these studies have attempted to quantify the success of the stimulus by trying to estimate how many dollars of economic activity was produced for every 1$ in stimulus spending (a.k.a how much bang for the buck?). Here is an estimate from a paper by Alan blinder (Princeton University) and Mark Zandi (Moody’s Analytics):

It is interesting to note that of all the policies that were part of Obama’s stimulus, spending measures such as food stamps, aid to state governments, increased infrastructure spending, and extending unemployment benefits were found to produce the most effective  results. On the other hand, measures such as making the Bush tax cuts permanent, cutting  corporate taxes, capital gains taxes, and the alternative minimum taxes, all of which are the central tenets of Mitt Romney’s plan for economic growth were found to be the least effective.

Finally, what of those numbers that I mentioned at the beginning of the post? How have they changed? (1) On Friday, the S&P500 closed at 1414.20, a 175% gain over its close on Jan, 20, 2009; (2) The latest jobs report on Friday found the unemployment rate at 7.9%; (3) the economy added about 171000 jobs this October. Here is a chart depicting job creation numbers over the last 4 years:

Overall, given the economic circumstances under which he assumed office, the political climate, and the extent of control a president can have over the economy, I personally think that Obama has performed rather well, especially during his first year in office. Are there things that could have been done better? Certainly. Is there room for improvement in the president’s policies? Absolutely. But are republicans under Mitt Romney poised better poised to grow the economy and employment? I think not.