How Much Credit Does Obama Deserve for the Stock Market Recovery?
For a president who is supposedly bad for business, Barack Obama has been surprisingly good for business.
In his term, the S&P 500 is up 80%. The Dow has gained nearly 70% -- "the fifth best for an equivalent period among all American presidents since 1900," according to the New York Times.
How much credit does the president deserve for the stock market?
Obama's inauguration interrupted a financial meltdown that had already destroyed a third of the Dow's value in 2008. There was catch-up growth to be had, but only after the president attended to the crisis. Some Obama critics claim the president talks too much about his first few months on the job. This is a little like telling a hero-firefighter to shut up, please, about the father, mother, baby daughter and seven kittens he rescued from that burning house, once. The president parachuted into the worst financial conflagration in 80 years, saw a million jobs disappear in his first two months, passed a stimulus, expanded TARP, instituted stress tests, and got the economy back to growing after only months.
That is something to talk about and take credit for.
The stimulus probably pulled growth forward a few months. But it's the stress tests -- and their implicit promise that government capital stood ready to rescue banks that couldn't find money in the private market -- that put a hard floor under the financial crisis. Years from now, when a fuller history of the government's response to the recession is written, the coordination between the Federal Reserve and the Bush/Obama administrations will likely go down as a hallmark of fast and effective crisis relief. The Obama administration clearly deserves credit as a part of that team.
But what about the next three years? Some conservative critics have said Obama played a good firefighter but a bad executive. It is the economic version of the "good war-time president/bad peace-time president" argument.
There is scarce evidence that the president's most important pieces of legislation -- financial reform and health care reform -- are having much of an impact on growth or employment. In fact, the most important drivers of growth or uncertainty are utterly out of the president's hands. China and Europe have scared multinational companies and hurt global trade, but there's not much a U.S. president can do to clear China's housing stock or reform the EU. Since the Recovery Act, the president has come up empty with pleas for more stimulus, settling instead for extending and expanding tax cuts passed under Bush.
Most of the stock market growth in the last three years has occurred neither because of, nor in spite of, the president's policies. This shouldn't come as a huge surprise. The president controls one branch of government and the federal government accounts for merely one-fourth of GDP.
Most of the stock market recovery has reflected natural (if unsatisfying) growth both here in the U.S. and abroad, where U.S. multinational companies are expanding and economies are growing sometimes twice or three times faster than the U.S. Weak job growth has helped to keep labor costs down, improving profits. Finally, in the last six months, the news from Europe and China has mellowed from quasi-apocalyptic to merely-extremely-concerning and some of that relief has probably buoyed stocks.
In the last two or three years, the market has been driven by catch-up growth, fairly strong global trade, a dash of medicine from Ben Bernanke and Co., and now (we hope) a real-honest-to-God housing recovery. The administration deserves tremendous credit as being part of the team that oversaw the stabilization of the U.S. economy -- but they're not entirely responsible for the jittery ascent of the stock market. Basically, Obama set the floor and some stocks used it as a trampoline.
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