Here’s a scary thought for the already demoralized Republican party: If consensus economic forecasts are correct — and of course that’s always a big if — the 2016 Democratic nominee will appear to have a strong case for a de facto third Obama term. A new forecast from IHS Global Insight is more or less typical: The firm sees GDP growth averaging roughly 3 percent a year from 2014 through 2016. Now, that would hardly be a Reaganesque or Clintonesque boom; it would fall well short of the sort of growth normally expected after a deep downturn. But such an acceleration would make the final years of the Obama presidency the strongest since the financial crisis
And it would be far from a jobless recovery. Unemployment in that presidential-election year would average 6.3 percent, according to IHS. A little back-of-the-envelope math suggests that unemployment could dip under 6 percent by Election Day 2016. Hitting that mark would mean the Democratic nominee, such as, say, Hillary Clinton, would able to claim that Obamanomics created a net 13 million new jobs since the labor market started to recover. Stay the course, America.
At least Republicans could argue the boomlet is unsustainable, a mirage built on trillion-dollar deficits, right? Well, they could try. But the Congressional Budget Office predicts the budget deficit in 2016 will be $476 billion, down a whopping two-thirds from where it was in 2009, and just 2.5 percent of GDP. Federal debt as a share of the economy will have more or less stabilized around 75 percent of GDP (if only temporarily, before the entitlements deluge). And despite Obamacare, total federal spending as a share of the economy will be down nearly 15 percent since the end of the Great Recession. The Obama legacy: More growth, more jobs, less debt, smaller government. And universal health care.
Now, surely the American public would see right through this shameless, context-free cherry-picking of economic factoids, right? Maybe not. Just look at how the media spun last week’s February jobs report. The New York Times headline writers chose these words: “Unemployment at 4-Year Low as U.S. Hiring Gains Steam.” No matter that those lower unemployment rates are the result of a collapse in labor-force participation. (If workers were as active as they were just a year ago, the unemployment rate would be 8.3 percent.) And ignore that, at the heightened pace of job growth the past three months, it still would take until late 2021 before employment reached pre–Great Recession levels. Expect the media to be effective messengers of New Normal expectations for U.S. economic growth and job creation. That effort will jibe nicely with the understandable Democratic economic argument: After a decade of bubblenomics, slow and steady is okay.
Maybe this slightly rose-tinged economic scenario won’t happen. Maybe Obamacare and a continuing flood of regulation will slow growth more than IHS thinks. Or perhaps the Fed’s attempt to wind down its quantitative-easing program will cause a bond-market massacre not seen since 1994 (not a great year for Democrats, you’ll remember).
Those are real possibilities, no doubt. But so is the so-so scenario. And the “meh” growth forecast doesn’t take into account America’s shale-energy boom. Nor does it factor in the pro-growth effects of a slow, quiet realignment in the U.S. economy that’s been happening despite Obama’s best efforts. As economist Michael Darda argues, government consumption and investment as a share of the economy — the “G” in GDP — has fallen back to pre-recession levels. Since 2010, the share of U.S. workers going to government jobs every day has shrunk. Thanks to the Budget Control Act and sequestration, the trend in size of government is right even if the absolute number is not, and that means more productive resources in the hands of the private sector.
In 2016, Republicans can’t make the same bad assumptions they did in 2012. They shouldn’t count on Americans to reject Democrats due to a continuing subpar economy. They shouldn’t count on a debt crisis to stir voters into demanding Medicare reform. But the good-enough macro numbers will hide deeper problems, such as rising college costs and student debt and a still-unaffordable health-care system gobbling up take-home pay. The GOP will need to embrace a plausible, marketable policy agenda to both boost growth and increase upward income mobility. Given the possible situation in 2016, they might want to get started.
— James Pethokoukis, a columnist, blogs for the American Enterprise Institute.