The Obama Presidency Should Not Be Judged on Normal Criteria

The year 2011 started with the weakest economic growth since 1945, excluding periods of recession. Expectations for 2012 are not much higher. In what economic context will America’s 2012 presidential election unfold, and how will this weigh on the contest?

The unemployment rate within the labor force, which remains the best gauge of the common man’s sentiment, more accurate than the rhythm of economic growth, will without question be between 8 percent and 9 percent on election day. Remember that in November 2008, when Obama was elected, it was only 7 percent. That means that the United States is still far from full employment, and ordinarily, that would constitute a very negative assessment of the incumbent and reduce his reelection chances.

But aren’t the circumstances exceptional this time around?

Indeed, because the United States is experiencing a fundamental change due to the Great Recession of 2008. The American economic system functions in such a way that while it offers little social protection, it also provides a job for everyone when there isn’t a crisis. Yet two and a half years after the end of the recession, the “job machine” has clearly not recovered as it normally does. Under the Obama presidency, American unemployment has transformed into European unemployment, marked by its long duration, weak workforce mobility and an imbalance between labor supply and demand. In short, structural unemployment has grown in the United States. That is why for the last three years, the U.S. administration has continuously extended the duration of unemployment benefits. Might this have contributed to the transformation of unemployment? This is a much-debated subject among economists.

The Obama Administration has handled this crisis by using every budgetary and monetary tool at its disposal in order to prevent the American economy from recession. That said, it has taken risks for the future, including the risk of inflation or of revealing itself incapable of containing the national deficit. Could he be reproached at election time?

The use of unconventional methods to stabilize the economy began towards the end of Bush’s final term and was merely extended under the Democratic administration. It is clear that these methods did not put America back on track as usual, but who can say that the situation would be better without this massive mobilization? The truth is that America is in the process of purging decades of credit growth. The massive debt reduction that began in 2008 could only have a profound effect on the economy. The rise in national debt helped soften the recession’s effects (the GDP has grown 30 points in three years) but poses other problems. This is why it is very difficult to judge the Obama presidency according to the usual criteria. With the crisis, the American economy saw its three motors stall: job creation, household improvement through rising home values and unlimited access to credit. In terms of the economy, all you can attribute to Obama is having helped America avoid another Great Depression.

Even so, he will leave the United States in a critical budgetary situation, with a political class which is unable to reduce the deficit.

There is no reason to believe that the political polarization surrounding budget matters will change in 2012. Nothing leads to compromise. The Republicans will attempt to jam the wheels of the incumbent President, and the latter will attempt to show that the opposition is irresponsible. We could very well see more psychodramas regarding public spending. However, America has room to breathe. In a country where the tax burden is currently among the lowest ever achieved and where health care is one of the costliest in the world, it is possible to straighten out the deficit. It is a matter of political will. The Republican primaries, first of all, and then the general election should be an opportunity to clarify the opposing sides’ positions: partisans of higher taxes on one hand, and those who denounce “big government” on the other. On paper, at least, these are very divisive choices.

Certain Republicans like Ron Paul, who is in second place behind Mitt Romney in the polls, argue for the abolition of the Federal Reserve. Without necessarily going so far, could a change of president translate into radical restructuring of monetary policy, even if the Federal Reserve remains officially independent?

Ron Paul wants to abolish the Federal Reserve, but even if he were elected, I do not believe he could succeed in doing it. In fact, whatever the result is, the Federal Reserve will continue to fabricate extremely flexible monetary conditions, with low borrowing rates and an expanded balance sheet. Given the current unemployment, inflation is not a threat, so I do not see the Fed softening its politics in response to the demands of a candidate or a new president.

Will the issue of how to deal with banks be discussed in the presidential campaign?

At times, President Obama has been reproached for having several ex-bankers in his circle. Could it be that meritorious people often comes from large banks as it does in France from large schools? When the financial question becomes a campaign issue, it will be focused on inequality. The disparities of revenue and capital have not stopped widening for the last 30 years in the United States, a trend simultaneous with the growth of the financial sector. It does not seem that the gap has narrowed during the Obama presidency. This will be one of the heavy campaign issues.

For Europe, will this election present an economic issue?

When the number one global economy enters an election year and there remains much uncertainty regarding the results, this cannot be meaningless to other nations. This is especially true for for Europe, which has been of little interest to a president more concerned about his economic, cultural and geopolitical rivalry with China and which has much to fear from a G2 established between Washington and Beijing. Does multilateralism still have a future? This is a question that European leaders are faced with. Perhaps this will be less of a concern for the next American president.

On the other side, is Europe a real issue for the United States, which has shown itself rather ambivalent since the start of the Euro Crisis? Will this issue carry any weight in the election?

Yes, it will be an issue if the crisis worsens and leads the entire global economy into recession, which fortunately is not the case now. There is an old feeling of isolationism in American politics, and it must be said that the average American voter is indifferent towards Europe’s problems. At the same time, America knows how to be pragmatic. It is the principal interest of those Americans who will determine the United States’ position on the Europe question.