Leaving the Obama Economy Behind

By at 28 September, 2018, 11:38 am

by Raymond J. Keating-

There is very good news on the economic front, and hopefully more good news to come. But none of the current period of growth has anything to do with the policies of President Barack Obama, who tried to grab some credit earlier this month.

In a recent speech, Obama said, “So when you hear how the economy is doing right now, let’s just remember when this recovery started.”

True, but let’s also point out that the economic recovery/expansion that began in mid-2009 grossly under-performed.

For example, the real GDP growth rate from mid-2009 to the end of 2016, averaged a mere 2.3 percent, compared to a post-WWII average of 3.2 percent. For good measure, during periods of recovery/expansion, real GDP growth normally ran in excess of 4 percent.

The Obama recovery/expansion in terms of actual economic growth ranks as one of the worst on record. Why?

The key reason was policy. Specifically, the Obama years were marked as years of tax increases – such as under ObamaCare and the tax increase of 2013 – and a period of hyper-regulation. It should have surprised no one that piling additional and considerable burdens onto the backs of entrepreneurs, businesses, investors and workers resulted in a poor economy.

In contrast, on the tax and regulatory front, the Trump administration has turned federal policymaking in a different, positive direction. Regulatory policy has been largely focused on stopping the imposition of additional regulatory burdens, while also rolling back assorted burdens that were imposed or were on the way.

The current direction of policy, is a welcome change from the Obama administration’s anti-business, pro-regulation emphasis, having the immediate benefit of stopping the bleeding, working to encourage investment and innovation, and shift actual resources away from counter-productive regulatory matters to productive efforts.

As for taxes, the business tax relief and reform signed into law in late December 2017 clearly moved tax policy in a new direction by, for example, reducing income tax rates for U.S. businesses, and enhancing incentives for capital investment.

We’ve started to see results in the economic numbers.

For example, at the start of 2017 and since, the U.S. has experienced strong growth in business investment. Specifically, real private nonresidential investment has grown at an average rate of 6.2 percent. That six-quarters average is a striking upturn from the previous six-quarters average, which was a lowly 1.8 percent. For good measure, the 6.2 percent growth rate in business investment since the start of 2017 was notably higher than the 5.3 percent rate prevailing throughout the entire Obama recovery/expansion period from the third quarter 2009 to the end of 2016.

Investment, of course, drives current and future economic growth. Real GDP growth took a major step up in the second quarter of this year, hitting 4.2 percent. That was the first quarter of growth topping four percent since the third quarter of 2014. For good measure, real GDP in excess of four percent was achieved in only four of the 30 quarters from mid-2009 to the fourth quarter of 2016. Looking ahead, a variety of forecasts point to real GDP hitting 4 percent once again in the third quarter of this year.

In the end, policy matters. While there are concerns regarding trade and immigration policies under President Trump, the directions on tax and regulatory policy clearly have been positive – and that’s notably different from the Obama years. In fact, a wide array of tax and regulatory policies from the Obama years persist in working against advancing entrepreneurship, investment and economic growth. So, the effects of President Obama’s policies still are being felt, but not in a productive sense.

Related SBE Council content:

“The Effects of Regulatory Policy and Its Effect on the Economy and Business Growth,” Testimony of SBE Council president & CEO Karen Kerrigan before the Subcommittee on Regulatory Affairs and Management, Committee on Homeland Security and Government Affairs, United State Senate, September 27, 2018

“Empowering a Pro-Growth Economy by Cutting Taxes and Regulatory Red Tape,” Testimony of SBE Council president & CEO Karen Kerrigan before the House Financial Services Committee, June 21, 2018.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

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