WASHINGTON – Democratic presidential candidate Hillary Clinton just declared that the Obama administration deserves an “A” when it comes to its (stellar?) management of the US economy.
A loyal Democrat
Yes, you can say that this is to be expected. After all, she is a Democrat. As Secretary of State during Obama’s first term, she was part of the team. Therefore, no wonder that she gives the President whom she served a high grade.
The new normal
Fine. Except that this absurd exaggeration does not raise any eyebrows, even among competent practitioners. No outcry from serious economists. And the reason for this is that these days mediocrity is the new gold standard.
We all know that this has been the worst recovery that we have had in modern American history. Notwithstanding rivers of liquidity supplied by the Fed, and stupendous, trillion dollar plus, budget deficits in the first few years after the recession, economic growth averaged only 2% during this long but painfully slow recovery. This is 30% less than the historic US 3% average.
This is hardly inspiring. On the other hand, if 2% growth is the same as 3%, then Obama did well. Likewise, if the lowest labor participation rate in modern history, stagnant wages, and millions of Americans on food stamps are totally acceptable, then Obama did well.
A recession?
That said, what if we get into a recession next year, right before the elections? As the defender of Obama’s policies, Clinton would be a tough spot. The possibility of a recession is not a fantasy. GDP growth decelerated to only 1.5% in the third quarter of 2015. The US consumer has no more discretionary cash. And, if we look at the global economy, we do not see many prospects for a fast pick up.
China is dealing with the devastating consequences of its own immense over capacity, and it stopped buying stuff. Most of Europe, QE notwithstanding, is in stagnation or decline. Japan is not out of the woods. Brazil, Canada, South Africa and Australia have been hit hard by the collapse of commodity prices. Russia is doing poorly on account of truly depressed oil prices. Saudi Arabia is dealing with fiscal deficits also caused by reduced oil revenue. And let’s not even talk about Venezuela, literally on the verge of collapse.
Beyond that, many developed countries have devalued their currencies in order to boost their exports, while emerging nations have seen their currencies lose altitude because of their shrinking economies. Hit by highly unfavorable exchange rates and non performing economies, these nations are not going to buy a lot of American products. And forget about hordes of new visitors coming to America for a vacation, given the high dollar.
No good signs
In the US we have had a significant inventory build up in the second quarter, while consumers do not have much discretionary spending any more. And major exporters are doing poorly. For example, due to the global slow down, Caterpillar’s sales abroad collapsed. And thanks to the dramatic oil prices drop, the entire US energy sector, one of the key drivers of the recovery, is now in recession.
So, there you have it. Excess inventory and soft demand at home. US exports, already down, are headed south. In the meantime, the US will be hit by a new wave of Chinese imports sold here at discounted prices. (This is how China will try to get rid of its excess inventory). This will put already struggling US producers at a further disadvantage.
Given all this, a US recession in 2016, while not certain, is not a fantasy scenario. And what are the political implications? It is quite simple.
Clinton will be in a tough spot
Hillary Clinton, running as a defender of the Obama glorious record on the economy, will find herself in the embarrassing position to distance herself from this administration, after she just said that they deserve an “A” on the economy, while arguing that she will follow a similar course, if elected President.
This should help the Republicans
If this were a reasonable world inhabited by rational people, should the US economy enter a recession in an election year, this should really help qualified Republican candidates.
The Republican Governors, (John Kasich, Ohio), or former Governors (Jeb Bush, Florida), who have a proven record as capable chief executives and competent stewards of their states’ economies, should be able to capitalize on this.
They should be able to argue, with some vigor, that they have both the sound policy remedies and the demonstrable leadership skills necessary to get the US economy back on track.
Irrational voters
Well, they may try this. But I would not count on such solid arguments getting any traction. God knows what people respond to. We are now in an era in which emotions and whims dominate. Records, substantive programs, policy platforms, and proven leadership skills –the very foundations of competent and sound government– do not matter that much.
These days, people follow strange instincts. And these instincts are often divorced from reality.