Obama’s economic record: A half-baked stimulus?

LAKEWOOD, Colo. — Summer Tangeman embodies the Rocky Mountain lifestyle and the independent spirit of voters in the suburban areas that make up the swing vote in this closely divided state.

A 38-year-old physician’s assistant, she runs, loves the outdoors, identifies with neither political party and finds the partisan bickering of Washington disgusting, especially when she looks at her own economic situation. She’s been laid off twice in the last 18 months, most recently in May.

Tangeman doesn’t blame President Obama. But she’s having a hard time getting over the fact that, for her, there’s simply been no recovery.

“It’s not been so good for me,” she says, her face drenched in sweat after a long morning run along the trails of Green Mountain.

Her assessment captures the mood of many voters as they contemplate the central issue of the 2012 presidential campaign: Obama’s record on the economy. Republican leaders blame Obama for unemployment stuck at the highest levels in decades. Democrats counter that no president could have overcome the worst economic crisis in more than 60 years in just one term and that Obama’s policies prevented the country from sliding into a full-scale depression. Like Tangeman, many voters in the middle express ambivalence.

They have good reason. Obama, facing entrenched opposition in Congress, came up with efforts to stimulate growth and create more jobs that ended up as mostly half-loaves and pared-down programs. The result reduced some of the pain without curing the underlying disease.

That halfway pattern characterized Obama’s approach to some of the biggest economic issues he faced.

As Obama took office, at least some of his economic advisors thought the recession so dire that as much as $1.8 trillion in stimulus would be needed to fix it. The president and his top aides thought Congress would never approve anything that large, proposed less and eventually settled for about $800 billion in tax cuts and new government spending. The stimulus was big enough to incite intense political opposition, but in the view of many Democratic economists, not big enough to get the job done.

Similarly, the administration’s efforts to help homeowners who owed more on their mortgages than their homes were worth never fully got off the ground. Part of that failure came from fear of political opposition to any plan that might be called a bailout. But part came from putting other priorities higher, including helping rescue big banks and corporations. In the last year, the administration has taken several steps without Congress, which have helped some, but the housing market is only now starting to revive.

Obama struggled to get a grip on the problem of the nation’s large and growing debt. He accelerated spending in the short term to boost growth and talked of the need to simultaneously find ways of bringing down the deficit in the long term. But he didn’t clearly articulate how to do both, nor did he forcefully lay out a plan to reduce the deficit over the long haul, partly because that likely would involve cuts in politically sensitive areas such as education, Social Security and Medicare.

Administration officials can claim some success with manufacturing, where exports and overall employment have expanded. But their record is poorer on small business, which has been particularly hurt by the problems of the housing market since many owners of small companies use their homes as collateral to get loans.

Many of those effects, for both good and ill, can be seen in this city of 144,000 in Denver’s western suburbs. Mayor Bob Murphy said about $2 million from the stimulus program, known formally as the American Recovery Act, went directly into his town, to fix playgrounds and sidewalks and put energy-efficient systems in public buildings. Residents also benefited from $170 million in stimulus money to renovate the Denver Federal Center, a 90-building campus in Lakewood where 6,200 government employees work.

“I shudder to think of the scenario absent the stimulus plan,” said Murphy, a registered Democrat although his position is nonpartisan.

Yet things remain tough for many. Unemployment is stuck above 8% in Colorado and for the U.S. as a whole. And with good jobs scarce and housing prices still soft, many families are continuing to lose ground. More than 2,800 K-12 students in Lakewood and other towns in Jefferson County are considered homeless, up from 2,200 two years earlier.

Jared Bernstein, chief economist to Vice President Joe Biden in the administration’s first three years, is among those who regard the 2009 stimulus package as a major success despite the continuing problems in the economy. The stimulus law did save the nation from a second great depression, he said.

“The economy was cratering at a rate of 9% in the fourth quarter of 2008, and literally a few quarters later, it was growing and has been growing since,” Bernstein said. “Not fast enough, but that is unquestionably the signature accomplishment” of Obama’s presidency.

Nearly all Republican elected officials reject that position.

“This bill was better at creating punch lines for late-night talk show hosts than jobs,” said Senate Republican leader Mitch McConnell of Kentucky.

Republican critics advance two principal arguments. One is that the stimulus failed to produce a significant number of jobs. Economists overwhelmingly reject that position. In February, when the University of Chicago’s Booth School of Business surveyed leading economists who spanned a wide range of political views, 80% said the stimulus law had resulted in lower unemployment; only 4% disagreed.

The Obama administration also pushed to expand programs that aided poorer families, including food stamps and unemployment benefits, which helped to hold the nation’s poverty rate last year at 15% despite the impact of several years of high unemployment.

The other argument advanced by critics divides economic experts more closely: that the long-run impact of the stimulus will be negative because it significantly increased the federal debt. Federal debt levels were already large when Obama took office, in part because of big deficits run up during the George W. Bush administration, but Obama’s efforts to get the economy moving by spending more money and cutting taxes made those deficits even bigger. The total national debt has grown to $16 trillion, compared with just under $12 trillion when Obama took office.

Given the immensity of the economic problems he faced, however, many economists say the scaled-back stimulus spending Obama ended up with wasn’t nearly enough to ignite a robust recovery. Stronger growth, by making the overall economy bigger, would have made the debt load easier to bear, those economists say.

Since the nation officially emerged from recession in June 2009, the economy has grown on average at an annual rate of just 2.25%, too feeble to bring down unemployment in a meaningful and timely manner. Median household incomes nationwide have fallen almost 5% since the recovery, to $50,964 this June, after adjusting for inflation, according to Sentier Research’s analysis of Census Bureau data.

With business and the economic outlook still shaky, Bill Meyer, 50, who manages a bike store in Lakewood, sees a further slide in real incomes for himself and his wife next year.

“There won’t be any raises for us this coming year,” he said.

Even if Obama somehow had managed to overcome the political opposition to a larger stimulus bill — or had succeeded in passing a second $450-billion stimulus last fall — he might still have been unable to achieve robust growth. Economists who have studied major financial crises say the recessions they cause are harder to bounce back from than more run-of-the-mill downturns. Financial crises tend to produce weak economies that last for a long time as banks shut off credit and consumers clamp down on spending as they seek to reduce debt. Obama had the added misfortune of economic shocks from Europe, the Middle East and Japan.

Those problems don’t explain, however, why Obama was slow in tackling some other key ills — the plight of millions of homeowners with underwater mortgages being a prime example.

It wasn’t until last fall that officials made serious efforts to overhaul underperforming housing assistance programs.

Current and former administration officials say they were restrained by concerns of “moral hazard” — the worry that helping people in financial difficulties could encourage some to get into even deeper trouble. In the case of housing, the fear was that bailing out homeowners who had taken out risky, speculative mortgages might encourage more risky borrowing the next time prices started to rise.

Politically, administration officials feared a backlash against measures that would help homeowners who had defaulted on their loans, but not others who were struggling but current on their payments. The administration did push for programs that would allow homeowners to refinance loans at lower interest rates, but many banks were slow to comply and administration officials were slow to push them.

“Maybe they were too reluctant to take on the big banks as they were in financial regulation,” said Alice Rivlin, a Brookings Institution scholar who was a Federal Reserve vice chairwoman during the Clinton administration.

Failure to solve the housing market’s problems hurt many small businesses, said Denny Dennis, a senior research fellow affiliated with the National Federation of Independent Business, a small-business lobbying group.

That, in turn, had a measurable effect on hiring, he said. While Obama tried to help start-ups and proposed other ideas to aid mom-and-pop firms — efforts sometimes blocked by Republicans — “one of the true mistakes of this administration is that they never understood the inability of many small businesses to get financing as tied to real estate,” Dennis said.

Julie Gates, who owns a jewelry store at Colorado Mills, Lakewood’s largest shopping mall, is representative of the small-business owners who have been hurt by a lack of loans for expansion. “It seems like when I needed it most, the banks cut back on credit. I could have used low-interest loans to get us through the tough times,” she said.

Gates has watched two of her rivals across the hall shut down in the last two years, and she is on the verge of closing too. She is running a close-out sale of 50% off on many items, and she figures if things don’t get better, she won’t make it past Christmas.

She used to employ five part-time workers, but now it’s just Gates; her elderly father, who opens the store in the mornings; and her daughter, who comes in once a week to help make ends meet after her husband lost his commercial construction work. Gates also has a 25-year-old son; he too recently lost his job and has gone back to college.

And, yet, for all that, Gates also stands as an emblem of Obama’s political resilience. Despite the hard times, she plans to vote for him, saying in a recent interview: “I think Obama at least has a heart for the middle class.”

don.lee@latimes.com

This is one in a series on the record of the Obama administration.