If I could turn the page, in time then I’d rearrange just a day or two. Close my, close my, close my eyes. But I couldn’t find a way, so I’ll settle for one day to believe in you. Tell me, tell me, tell me lies. Tell me lies, tell me sweet little lies. (Tell me lies, tell me, tell me lies) Oh, no, no you can’t disguise, you can’t disguise, no you can’t disguise. Tell me lies, Tell me sweet little lies. This song, written by Christine McVie and Eddy Quintela, was released in 1987 by Fleetwood Mac, and was their top 10 hit in the US. It references the harmful effects of the piling on of lies in a relationship.
Tomorrow, the nation’s relationship with President Barak Obama will end, and during his farewell tour, the President and his minions are doubling down on a big economic lie to help garnish his legacy. This is that the Obama Administration saved the country from the worst downturn since the Great Depression (WDTSGD). I’m not going to discuss the President’s economic policies in this post. Throughout Mr. Obama’s time in office, I have given him credit where credit was due and questioned his economic reasoning when it was poor. From now on we can leave that to the history books.
But one thing that we tell our clients all of the time, is that controlling numbers is important, because bad statistics can easily become common knowledge – even though they are baseless. This is the case with the WDTSGD.
Obama operatives state that when the new administration took office, the country was losing 800,000 jobs a month according to the BLS, and the Administration turned this around. This is a statement that cites a true number but gives no context. For example, losing 800,000 trees, or 800,000 elephants is a noticeable thing, while losing 800,000 blades of grass may be less so. And while 800,000 jobs sounds like a lot, it is not in comparison to – well recessions. In fact, when controlling for the size of the labor force, the WDTSGD pales in comparison to even good times in the 1970’s and to about every other recession over the past 50 years. In fact, losing a lot of jobs is what happens in recessions – its normal. Even at its peak (which occurred 2 months after Mr. Obama took office) weekly job losses were not as large as during the peak of the 1991 recession and they were nowhere near an average week during the 1981 recession. So the WDTSGD was not even the worst downturn since 1990 in terms of job losses.
In terms of lost GDP, how did the WDTSGD fare? Well not all that bad. The worst year of the Great Depression was 1932, and in that year, real GDP (that is GDP controlling for inflation) fell by 12.9 percent. This was on the heels of a 6 percent decrease the year prior and a 8.5 percent decrease the year prior to that. In fact, over this three-year period, the economy shrunk by just over 25 percent. During the WDTSGD the economy shrunk by just over 3 percent. Compare this to 1945-1947, when the economy shrunk by 13.4 percent, or 1982 when in one year the economy shrunk by 2 percent. Both of these periods were after the Great Depression mind you, so from the perspective of economic activity, the WDTSGD was in fact, not the worst.
What the WDTSGD did do was usher in one of the longest sustained reductions in labor force participation as millions of workers left the job market. It also occurred during a 6 year period of falling income, something that did not occur even during the stagflationary period of the late 1970s. So the recession itself was not abnormal, what has been disappointing has been the recovery, a recovery that we believe is coming to an end.
If one tells a lie enough it becomes the truth in many peoples’ minds. The bottom line is that if you liked the President’s policies or disliked them, they did not lead to a recovery, and they did not pull the economy out of the worst downturn since the Great Depression if for no other reason than it was not the worst. At best, the Obama policies helped to end a normal recession, while at worst, they caused a normal recession to drag on for much longer than necessary.