The truth is, neither former President Barack Obama nor President Donald Trump deserve much credit for the decline in unemployment that occurred over the last decade until the pandemic changed everything. The real reasons that unemployment dropped to 3.5 percent by the end of 2019? Demographics, for the most part, and to some extent loose monetary policy and fiscal stimulus.
Let’s look at this chart, which shows historical data on unemployment over the past 11 years ending 2019. The narrative presented around this graph covers both the entire Obama presidency and the first three years of the Trump administration.
When Obama assumed office in 2009 the economy was in the throes of the worst recession since the great depression. America was facing a massive crisis because of widespread failures in the financial system and a collapse in home prices. The economy was shrinking, and layoffs were rampant. Banks and other financial intermediaries facing insolvency were propped up by massive infusions of liquidity from the Federal Reserve Bank (the Fed). Main Street was bailing out Wall Street, much to the chagrin of the citizenry who had lost trust and confidence in the government. While bankers received a generous amount of aid, the public received little help in the face of job losses and collapsing housing prices. Many homeowners were upside down on their mortgage as they owed more on their mortgages than what their homes were worth.
In early 2009, the unemployment rate was at 8 percent and headed higher to 10 percent by the end of 2009. Obama was criticized for not immediately turning the economy around, which was well-nigh impossible given the absence of trust and confidence in the economy.
Recently, economist Paul Krugman argued that, in the distant past, most recessions were induced by the Fed to prevent the economy from overheating and to reduce inflation. The Fed would increase interest rates via various mechanisms in its arsenal to slow economic growth and even put the economy in a recession. Once inflation was bought under control the Fed would loosen the purse strings to stimulate the economy. Rarely did Americans lose confidence because the Fed was in control, the financial system was functioning, few banks were failing and housing prices while stagnant or even declining, were not collapsing. So, the turnarounds were fairly quick.
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Not so in 2009. It took some time for the economy to stabilize and consumers to regain their confidence because of the economic devastation. Early-to-mid 2010 saw the resumption of employment growth and the long-term trend toward lower unemployment. The jobless rate steadily declined from 10 percent in 2010 to 4.7 percent, when Obama left office in January 2017, although as the chart attests, there were a few minor hiccups along the way.
During Trump’s first three years in office the unemployment rate declined from 4.7 percent to 3.5 percent — a 1.2 percentage point decline — quite satisfactory but nothing earth-shaking as his administration would like you to believe. If you look at the chart, 2017-2019 is an extension of the same downward trend (momentum) in the unemployment rate that began in 2010. Moreover, the slope flattens a bit during Trump’s tenure implying that the job creation rate was a bit slower under his tenure. According to Bureau of Labor Statistics data, 6.6 million non-farm jobs were created during Trump’s three years ending 2019, while 8.1 million jobs were created during Obama’s preceding three years.
The Trump propaganda machine would like us to believe that he took a hopeless and hapless economy and swiftly turned it around. As you can see, the data does not bear this out. He inherited a growing economy with unemployment trending down.
In football parlance they would want us to believe that he threw a 50-yard touchdown pass with 10 seconds left to win the game, while in reality he threw a 10-yard pass early on in the game. (Sorry fans, he is no Tom Brady — the GOAT, the greatest of all time, the quarterback we’re counting on to continue his winning ways.) Looking at the chart, most of the unemployment rate decline happened during the Obama presidency.
Mount Rushmore will have to wait to be graced with another president. Salesmanship might be necessary but is certainly not a replacement for great leadership.
Murad Antia teaches finance at the Muma College of Business, University of South Florida (USF), Tampa. In a former life he was a quantitative equity manager at a major bank in Florida.