Conclusion

The Answer—and What Comes Next


A supporter of Republican presidential candidate Mitt Romney watches during a campaign event at the Royal Oak Music Theatre in Royal Oak, Mich.

Photograph by Joe Raedle/Getty Images

A supporter of Republican presidential candidate Mitt Romney watches during a campaign event at the Royal Oak Music Theatre in Royal Oak, Mich.

To paraphrase another president, whether we are better off now than we were four years ago depends on the meaning of “we,” not to mention the meaning of “better off,” and even the meaning of “four years ago.” Start with “we.” The upper crust of Americans is unquestionably better off as measured by rising incomes and wealth, as this special report has shown. The middle class and poor, not so much. The median household’s income, adjusted for inflation, is down. Interesting, then, that support for President Obama is weakest at the top of the income ladder and strongest at the bottom.

As for “better off”—by what measure? Global warming has continued apace during Obama’s term, so by that important metric we’re all worse off. There’s been no progress on fixing the impending entitlements crisis. America’s schools are falling behind, and its physical infrastructure is crumbling. Meanwhile, U.S. troops are still dying in Afghanistan, albeit far fewer of them. The parade of horribles is long.

On the good side, America is less dependent on foreign energy than it has been in years. U.S. households have, on the whole, repaired their balance sheets. Companies have introduced new products and services, and we shouldn’t discount the genuine improvement in living standards, from smarter smartphones, new palliatives for Alzheimer’s disease, and so on.

If we take “four years ago” literally, it puts us smack-dab in the worst financial crisis since the 1930s. Giant companies were falling every weekend. Today we are weary, perhaps jaded, but no longer bug-eyed with fear. So we’re better off. But that’s not all Obama’s doing. President George W. Bush deserves at least some of the credit for stabilizing the financial system, even if his policies destabilized it to begin with.

If “four years ago” means when Obama took office on Jan. 20, 2009, the calculation changes. The worst of the crisis was over by then, so the right metric is the economy’s performance since. It remains pretty awful. True, this September the unemployment rate finally got back down to 7.8 percent, where it was on his Inauguration Day. But one reason the rate is even that low is that many people have despaired of finding jobs and dropped out of the labor force. The share of the non-institutional population (excluding troops and inmates) that’s employed is still under 59 percent, vs. more than 63 percent before the recession. The downturn and weak recovery have left the nation’s total output nearly $3 trillion shy of where it would have been if it had continued to grow at the average pace of 1947-2007, according to a calculation by Bloomberg Businessweek. Obama won’t climb all the way out of that hole even if he wins a second term.

The economy rises and falls like the tide, just not as predictably. In the long run, it’s sustainability that matters. The frothy prosperity of 2007 was far from sustainable, although most of us didn’t realize it at the time. The weekly Bloomberg Consumer Comfort Index back then showed a public blissfully unaware that it was cruising for an economic bruising. Conversely, the mood during the crisis was too dark. Capitalism was not, in fact, collapsing. Investors who ignored the blood in the street and bought at the bottom have more than doubled their money. Yet painful memories are long: The Consumer Comfort Index is barely off its lows, and skittish small investors who stayed on the sidelines missed a chance to recoup their losses.

James Paulsen, chief investment strategist for Wells Capital Management in Minneapolis, predicts the next four years will be better than the past four simply because the economy will continue its long, gradual rebound back to normality. The U.S. has become more cost-competitive. Inflation is unthreatening. Debt-service costs have gone from historic highs to historic lows. Americans, Paulsen believes, will be happily surprised by the comeback ahead of them. “Our parents were amazed their entire lives by what happened to them in part because they had such low expectations,” he says. “We’re back there, to some extent.” Fairly or not, whoever occupies the Oval Office in the next four years will get credit for the improvement.

Reagan, the Great Communicator, asked “Are you better off?” in the peroration of his final debate with Jimmy Carter in 1980. A few sentences later, he added: “This country doesn’t have to be in the shape that it is in. … All of this can be cured, and all of it can be solved.” What Reagan meant was that Americans weren’t badly impaired, despite high unemployment and inflation; all the country needed to unleash its potential was better leadership. The 2012 election is much the same. The reason we ask whether we’re better off than we were four years ago is to answer the even more important question: Will we be better off four years from now?

Coy_190
Coy is Bloomberg Businessweek's economics editor. His Twitter handle is @petercoy.

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