Why It Doesn’t Matter Much that Obama’s Jobs Record is Better than Bush’s

The great partisan squabble of 2011 over the economy begins this week with the new Congress.  Even if some of the rhetoric seems fresh, the core issues likely to become the stuff of real political fights – the terms of entitlement spending, the shape of the tax code, and the value of public investment -- are all familiar from battles during the previous two administrations.  There is one important difference, however, which will startle both sides.  When we probe the economics and politics, it appears that the real issue for most Americans isn’t jobs and unemployment, but incomes and wealth. 

The first clue lies in public data which have been almost universally ignored:  George W. Bush’s record on jobs was much worse than Barack Obama’s.  Both men took office during recessions which had taken shape under their predecessors, but with quite different effects.  So far, we have 21 months of jobs data under Obama, from February 2009 to November 2010:  Over that period, as the administration took numerous steps to support the economy, American businesses shed a net of 1,975,000 jobs.  George W. Bush’s approach was much simpler, relying almost entirely on large tax cuts.  Yet, even though the 2001 downturn was barely a blip compared to what Obama would face eight years later, Bush saw 2,852,000 private-sector jobs disappear in his first 21 months.  The job losses in Bush’s first two years, then, were nearly 1 million larger than during Obama’s first two years.  Set aside the first six months of each president’s term, before their policies could take effect, and the comparison grows even starker.  In those subsequent 15-month periods, American business under Bush shed 1,772,000 jobs, compared to job gains of 715,000 under Obama’s program. That doesn’t include the most recent developments, including a report today from ADP Employer Services estimating that private employment jumped by 297,000 in December.  By any economic measure, then, the Obama approach has been much more successful with regard to jobs than the Bush program which congressional Republicans now want to repeat.  

But the Bush program was much more successful politically, judging by the 2002 and 2010 midterm elections.  To be sure, the Bush White House managed to change the subject from its dismal jobs record to terrorism and Saddam Hussein, which helped a lot.  But the huge Democratic losses last November, despite Obama’s much better record on jobs, tell us that the main issue for most voters – at least those with jobs -- probably wasn’t unemployment at all, but rather their overall economic condition.  In this regard, Bush was as lucky as a Rockefeller:  He inherited an economy which under Clinton had produced large income and wealth gains for most Americans, giving them a critical cushion to muddle through the 2001 recession without having to cut back much.  Obama, on the other hand, had the misfortune of inheriting a much weaker economy from Bush, one which had left most Americans treading water even before the financial crisis and Great Recession of 2007-2009 eroded their assets.   

Let’s retrace the real conditions.  Throughout the Bush expansion, most Americans experienced no income gains, although their wealth appeared to increase.  Here, the stock market isn’t very important.  The Federal Reserve reports that the top 20 percent of Americans control 93 percent of the value of all financial assets, including pension and retirement accounts.  With 80 percent of the country holding only 7 percent of the nation’s financial assets, the falling stock markets of 2000-2001 and 2007-2009 had little direct effect on most people economic condition.  But one asset is widely held by Americans: Nearly 70 percent of the country owns their own homes.  Bush’s legacy to Obama, then, included not only a half decade of stagnating incomes, but also wealth losses for most people amounting to between 25 and 30 percent of the value of their homes.  Layer a deep recession on top of all that, and voters grow very cranky.

The truth is, most people are prepared to live with large job losses that affect others, so long as their own economic conditions remain decent.  But wipe out a good slice of their assets, so that most of them have to cut back, and whoever is in office will pay a big political price.

Where does Washington go from here?  The GOP wants to replay the Bush program, which is no more likely today to lead to sustained income progress and wealth gains than it was in the last decade.  This time around, they also want to layer on deep cuts in public spending, an approach likely to cut the legs off of the fragile expansion which just now is beginning to take hold.

The administration’s alternative looks a lot like Bill Clinton’s program, which did help promote broad income gains.  In his State of the Union address and budget proposal, President Obama will likely call for targeted, new public investments in infrastructure, R&D and education, additional steps to expand foreign markets starting with the free trade agreement with Korea, and measures to bring down the deficit very gradually by restraining defense, Medicare and overall discretionary spending.   This agenda may not usher in another historic boom, but it would provide a more solid foundation for long-term income progress.

It’s also time to help Americans rebuild their assets through new public steps to finally stabilize housing values.  The best way to do that is to provide direct loan assistance to those facing home foreclosures, since high foreclosures are the most powerful force still driving down housing prices in most places.  Otherwise, the voters may prove to be quite cranky again in 2012, endangering second terms for scores of congressional Republicans and perhaps even President Obama.

Employment increased by 297,000, exceeding the highest projection in a Bloomberg News survey, after a revised 92,000 rise in November, according to figures from ADP Employer Services. The median estimate in the Bloomberg survey called for a 100,000 gain last month.