Tough Task for Obama: Convince Country That If Not for Govt., Things Would Be Worse

Also, as Northeastern University economist Andrew Sum told Bob Herbert of the New York Times, during the depths of the recession, businesses cut payrolls by 6 percent even as output dropped 2.5 percent. Wages stagnated or dropped for those who remained, and they were expected to do their jobs as production picked up without their employer hiring more workers to help. That created what Sum called ​“the most lopsided gains in corporate profits relative to real wages and salaries in our history.” And it keeps unemployment and economic insecurity high.

In many ways, this recession labor market just continues the pattern of the past several decades — which worsened in the first decade of the millennium — of workers not sharing in the economy’s productivity gains. So the average family resorted to credit to keep demand alive, an option now closed to many.

But Obama’s brief Volt test drive offers a metaphor of a different sort as well – pointing toward an economic success story that simultaneously has been a political failure so far.

The economic success: The Obama administration pushed for restructuring GM and Chrysler, and offered financial support through loans, grants and investment to the troubled companies and future-oriented parts and car production. Now a company – and an industry – that was on the verge of collapse is back. GM and other auto companies are hiring more workers (55,000 since the middle of 2009), making profits, and producing – however tentatively – vehicles that are aimed at future, growing markets and competitive pressures, not just short-term profits. By 2015, the administration claims, the U.S. will have the capacity to produce up to 40 percent of the world’s lithium-ion batteries for vehicles, up from producing just 2 percent of advanced batteries in 2008.

In 2008, the auto companies cut 334,000 jobs, and if GM and Chrysler had collapsed, even the Bush administration projected an additional loss of 1.1 million jobs (with other estimates up to 3.3 million lost jobs). The failures would have sent a riptide through the parts industry, crippling other auto manufacturers. 

Now, besides saving jobs, much of the money has been paid back early, and the likely value of the government’s common stock, according to the federal Office of Financial Stability, is equal to what the federal government invested – $60 billion. It can be recovered, potentially with a profit, after the upcoming initial public offering of stock. 

The auto bailout had its downside: workers were forced to take extremely deep concessions, such as wages that are only half the prevailing wage for newly hired workers. But it is working better than most people expected.

Indeed, despite the remaining, real problems, and despite the many shortcomings of the government’s interventions in the economic crisis, the overall effort has worked. Princeton economist Alan Blinder and Moody’s economist Mark Zandi concluded that the total policy response ​“averted what could have been called Great Depression 2.” 

Without government intervention, GDP this year would be 6.5 percent lower than it is, employment would be down by another 8.5 million, and the economy would be in a dangerous deflation that would make recovery even more difficult Bad as things are, without an extraordinary intervention something like what the federal government did, we would be much worse off.

But only 45 percent of Americans approve of Obama’s performance, according to Gallup and an average of other polls. As Obama was touting his auto success story in Detroit, CNN reported that 61 percent of polled adults agreed that government is doing too much that should be left to private individuals and business.

Obama is not taking the hit alone. Hart Research, in a poll analyzed by Guy Molyneux and Ruy Teixeira for the Center for American Progress (CAP), found public confidence in government is at a record low, and approval of other major economic players, from corporations to unions, is down, according to several polls.

But the CAP report finds that ​“clear majorities of Americans of all ages want and expect more federal involvement in priority areas such as energy, poverty, and education…Americans want a federal government that is better, not smaller.”

But most Americans don’t realize how the government interventions have helped with a wide range of problems, including this economic crisis. The shortcomings — such as giving too much ground to the financial industry — of policies largely stem from making concessions to conservative Democrats and unresponsive Republicans. CAP concludes that people will support more efficient, effective government, but that’s not the whole story: typically Americans give high marks to the military, the most wasteful branch of government by far. And Head Start has long been proven efficient and effective but still is underfunded.

Many Americans distrust government because thy are falling behind, feeling less secure, and working harder with less to show for it (as the Financial Times reported in a typical story of lost American dreams). Obama – like Congress or labor unions–suffers largely because of a mixture of long-festering frustration as well as cyclical economic problems, best captured by the unemployment rate but much more pervasive. 

But Obama has taken much of his actions, such as saving the auto industry, as if they were distasteful measures, not really what government should do but unfortunately had to do. He has not offered – and may not believe in – a full-throated defense of government playing a larger role in the economy. 

Unfortunately, not even such advocacy would pay off until the results are more obvious to the average citizen. Now Obama is gearing up at least a slightly more vigorous defense of his actions and an activist federal government. Late, perhaps, but better late than never.