Two events of major historical significance defined the year 2008. The first was a recession with a level of severity unmatched by any economic downturn since the Great Depression. The second, the election of the nations first black president a president who was elected at a time when the economy was hemorrhaging 700,000 jobs each month and who has since helmed an economic recovery that, while sluggish and susceptible to criticism, is still inching along.
Despite that progress, President Barack Obama faces the very real prospect of losing his re-election. Poll numbers have the President neck-and-neck with his opposition, former Massachusetts Governor Mitt Romney, who asserts that his breadth of experience in the economys private sector will allow him to steer Americas economy forward.
Much of what contributed to the severity of the 2008 recession President Obama inherited was that it was coupled with a financial crisis, according to Assistant Professor of Economics Arthur Chiang.
Theres a lot of evidence that recessions that follow complicated financial crisestend to take longer to unwind, he said. In terms of what [Obama] was dealing with, its not your garden variety recession.
To deal with an economy in freefall, Obamas administration quickly enacted an $825 billion stimulus package, the logic behind which was to invest in projects that would create demand for new jobs, Chiang said. Jobs lead to increased income, which theoretically leads to people spending more money on goods and services, hopefully pulling the economy out of its downward spiral.
Similar rationale was the basis for Obamas 2010 extension of both the Bush tax cuts and of the payroll tax cuts more disposable income as a result of lower taxes would allow for increased spending, while the payroll tax cuts act as an incentive for hiring, according to Department of Economics Chair Daniel Richards.
The payroll tax is something that employers have to pay when they hire you they pay you a wage and they pay you a payroll tax, Richards said. If they dont have to pay you a payroll tax, then that makes it a little bit easier for them to hire you.
Richards added, however, that in a recessionary period, the uncertainty of the economy means that people tend to save more and spend less. Therefore, money saved from tax cuts goes into savings accounts, not back into the market.
Obamas economic policies have not been without heavy criticism, most notably the assertion that they have continued to drive up the federal deficit. This is normal, though, according to Chiang.
Its sort of by construction that youd associate a stimulus period with an increase in the deficit, he said, explaining that increased spending is necessary for growing the economy.
Its the wrong time to worry about [cutting the deficit] when were still roughly in the recovery of a recessionary period, Chiang said. You should take care of growing the economy first in terms of jobs and GDP [Gross Domestic Product] and thenonce things are really booming, then you have to be responsible.
Other criticisms of Obama, though, hold more weight, Richards said. The administrations initial predictions for recovery were far too optimistic and underestimated the severity of the recession, according to Richards.
They made statements during the first year that people could hold them to, he said. That was unfortunate, becausethe economy that they inherited from the Bush years was in much worse shape than they initially thought.
Richards added that he felt the Obama administration was far more accommodative than it should have been to push the kind of economic policy that was necessary.
It became fairly clear early on that the Republicans were going to block a lot of things, and I think [the administration] should have, instead of trying to appease them, they shouldve said, Okay, nothing we do is going to please them, and then just been a bit more bold about what they were going to do, he said.
Chiang agreed that Obama should have been more aggressive in pushing through a more effective stimulus, and added that another critique is that Obamas priorities have not been as concentrated on the economy as they could have been focusing on passing healthcare reform while simultaneously dealing with nine to ten percent unemployment, for example.
Its kind of like putting out the fire before you work on building an extension to your house, he said.
Despite criticisms, the economy is moving forward unemployment dropped to 7.8 percent nationally last month from a high of ten percent in Oct. 2009 and Obamas stimulus package has had a major effect on that, according to Max and Herta Neubauer Chair and Professor of Economics Yannis Ioannides.
The [only other option] would have been to have the economy languish for years and years, just as Japan has for the last nearly 20 years or so, unable to get out of it, Ionnides said. But the United States economy is moving, the unemployment is going down.
Although the economy is showing slow signs of growth, there are outcries for a new fiscal policy that immediately addresses the still high unemployment rate and creates more growth, faster. Romney has outlined a five-part plan addressing energy independence, trade, the deficit, small business creation and investment in skilled workers which he says will be responsible for the creation of 12 million new jobs.
One of the cornerstones of Romneys economic policy is a 20 percent cut of the marginal tax rates across the board, the idea being to free up money that can be used to encourage entrepreneurship, according to Richards.
In their view, if Im a businessman, and Im going to go into business, and Im going to get taxed 35 percent at the margin, then thats going to be a discouragement for me to earn any income, he said. [If I] only get to keep two-thirds of it at the margin ... I wont go in ... and start a new business and hire new people.
This stands in contrast to Obamas tax plan, which promises to keep tax rates the same on the lowest four income tax brackets, while raising the marginal rates on the highest earners in the top two brackets.
The Obama administration has said we would like to see any spending cuts accompanied by some tax increase, and in particular, tax increases on the wealthiest because the wealthy have done extraordinarily well over the last 20 or 30 years, Richards said.
Richards foresees several problems with Romneys plan.
Unless it spurs an enormous amount of hiring and growththe conventional estimates suggest that by 2015, itll be losing about $480 billion a year in tax revenue, he said. If we just have the kind of growth that we think were going to have, well be taxing that income at a lot lower rate, and there will be a much bigger hole in the deficit.
Although the Romney campaign has promised to both cut the deficit and cut taxes, it is still unclear how Romney will implement both in an economically sound fashion.
I actually agreethat we have to bring the taxes down, Ioannides said. But its very difficult to reduce taxes at a time that you need tax revenue to sustain the economy.
Richards added that to counterbalance the loss of tax revenue, Romney would have to eliminate a significant amount of tax deductions.
Romney has not specified which [reductions] he would eliminate, but you have to eliminate a lot to cover the $5 trillion deficit [that will be the result of his tax cuts], he said. Thats been some of the criticism, because [Romney] hasnt specified which ones.
Another point of criticism with Romneys tax plan is its skew in benefitting the upper income tax brackets. Although everyone will receive a 20 percent cut under his plan, 20 percent back of a 35 percent tax rate in the highest bracket equates to a lot more than 20 percent back of 10 percent in the lowest.
If you give them [20 percent back], for those people [earning] over $390,000, youre talking about a lot of money, Richards said. Someone in the top income tax bracket, the average person might make $4 or 5 million a year. They might get back something like $200,000.
A commonality between the two candidates economic plans, however, is a long-term investment in skilled labor. Ioannides stressed the importance of doing so as well as investing in education and research and development.
Thats what is going to put us back, keep us actually at the forefront of the international division of labor, he said. Being able to train the best people, the best engineers, the best computer scientists, the best doctors this is what keeps the U.S. economy what it is.
He added that Obama has advocated for skill development and research, but needs to begin to more effectively implement his ideas if re-elected.
I think [Obama] needs to translate into policy all of these ideas about access to education, access to financing of education, access of firms to high technology products, investment of high technology industries, including investment in environment-related industries and energy-related industries, Ioannides said.
No matter who is elected in November, though, it is unlikely that either of the candidates individual plans will have a substantial negative impact on the economy.
My guess is the economy is in recovery now and barring a dramatic shockthe economy is going to stay in recovery no matter who is elected, Richards said.
The president has a lot less control over the economy than either side would like to admit, Chiang added.
As the economy continues to recover and more jobs open up, recent college grads will look to fill them. In fact, employers expect to hire 13 percent more college graduates from the Class of 2013 than from the Class of 2012, according to the National Association of Colleges and Employers.
Furthermore, the national unemployment rate for recent college graduates, defined as those between the ages of 20 to 24, has, along with the overall unemployment rate, dropped to 6.3 percent last month, down from 8.3 percent in Sept. 2011, and 9.4 percent in Sept. 2010, according to the Bureau of Labor Statistics.
Despite the positive outlook, Director of Career Services Jean Papalia warned that finding a job in a still-recovering economy will not be easy, and that students should concentrate on differentiating themselves in the job market.
By gaining experience through internships, research, campus activities, jobs and volunteer work, students can hone in on their career interests and develop marketable skills along the way, Papalia told the Daily in an email. Tufts students, in particular, understand the value of internships as a differentiator in a job search.
Ioannides emphasized that those who are well educated and highly skilled will always find it easier to navigate in a job market that rewards a broad skill set.
The employers I talk to admire most inour graduates that they haveanalytical skills, writing skills, quantitative skills, he said. They are open to capturing a problem, translating it into writing, presenting it in front of people. All of these skills are extremely important in the labor market.
Chiang added that college graduates individual economic situations as well as that of well educated workers in the labor force will always win out over the nations overall economic health.
If youre a person whos highly skilled, well educated and has personal skills and attributes that are employable and productive, youll do well in terms of the job market, even if the overall job market is depressed, he said.
