DEFINITION: “Obamanomics” is a colloquial term referring to the economic policies pursued by the administration of US President Barack Obama between 2009 and 2017.
USAGE: When Barack Obama assumed office in January of 2009, he inherited the effects of the worst international economic collapse since 1929.
The financial crisis had erupted about four months earlier, in September of 2008, when a growing worldwide recession that began in 2007 culminated in the simultaneous failure of dozens of financial institutions, notably, Lehman Brothers, the fourth-largest investment bank in the US at the time, which filed for bankruptcy protection on September 15, 2008.
The underlying reason for the Great Recession (as it came to be called) and the 2008 crisis is much debated. However, many observers attribute it to an unsustainable asset bubble in real estate prices that had been encouraged by various federal banking policies.
All in all, it is estimated that the financial crisis wiped out some $10 trillion in economic output.
The outgoing administration of President George W. Bush had already intervened to bail out some banks and to inject money into the economy in a desperate effort to turn the recession around.
In short, Obama inherited an economic shambles when he took the oath of office on January 20. 2009.
Upon the advice of his Secretary of the Treasury, Timothy Geithner, Federal Reserve Chairman Ben Bernanke, and others, Obama decided to double-down on Bush’s bail out–stimulus approach to the crisis.
Accordingly, Obama sent a legislative package to the US Congress, which came to be known as the American Recovery and Reinvestment Act of 2009. This Act provided an overall stimulus package with a price tag of some $830 billion, including a bailout for the US automobile industry to the tune of $13 billion.
While Obama’s policies did save many of the nation’s largest industrial and financial institutions and did put the US economy on the road to recovery, it came at a high cost in trust of the country’s institutions, over and above the cost to the country’s balance sheet.
The criticisms of Obamanomics may be divided into three categories.
First, there is the empirical fact that, while Obama’s policies were undoubtedly successful in the short term, in that they prevented the emergency from spinning further out of control, leading to many more bankruptcies and a much deeper recession, over the longer term they were not in fact very successful.
That is to say, the recovery during Obama’s two terms in office was anemic by the criterion of historic recoveries. The growth rate in the gross national product (GDP) on the day Obama left office eight years later, January 20, 2017, was just 1.7%.
Second, there is the theoretical criticism by advocates of the free market, who see Obamanomics as a gross and harmful increase in government spending, regulation, and taxation.
Such critics argue that in the long run it would have been better to forgo the stimulus and the bail outs, since—even though the recession would have been deeper—it would have been shorter and the subsequent recovery would have been far more robust.
For the free-market critics, though, the worst thing about Obamanomics was that it set a terrible precedent. It essentially “privatized sucsess” and “socialized failure,” thus amounting to a massive exercise in inflating moral hazard beyond all previous bounds.
Finally, critics argued that Obamanomics badly exacerbated the already-growing economic inequality plaguing US society.
For example, between 2007 and 2010, there were nearly four million foreclosures on American homes, while the immensely wealthy and powerful financial institutions that had made these bad loans in the first place almost all walked away from the crisis having been made whole.
Thus, in addition to being a terrible precent, as already mentioned, Obamanomics also represented a gross violation of simple justice.