Question

What is the likely long-term impact of Obama's fiscal policy actions on unemployment? On inflation? On the public debt? If fiscal policymakers focused just on long-run consequences, what actions should they have taken in 2009?

Answer 1

The fiscal policy undertaken by Obama was marked by modest tax hikes on higher-income households of America, intended to finance health care reform, minimize the federal budget deficit, and reduce income inequality. The policies have long-term impacts on unemployment. Between the period 2009 and 2017, the U.S. was able to add 11.6 million jobs in the private sector. Calculated from the recession peak in 2010, the US was able to add a total of 16.1 million jobs in the private sector. This is the record of the longest continuous job creations under the private sector in America’s economic history. But in the long term situation is taking a different direction. As time passes by participation volume in the labor force is reducing. While the economy moved to achieve full employment, a lower workforce participation volume among the working-age population accounted for a huge share of the shortfall. Some critics want to say that Obama's fiscal policy actions are destroying full-time employment and creating Part-Time America and this will last in the long term. However, till now full-time employment has been increasing and voluntary and involuntary part-time employment has been declining.

Obama's fiscal policy actions have been leading to inflation rate reduction after some time but it will result in stagnant growth in the long term. Data record also shows this trend.

Obama is leaving behind a budget with higher pension spending, lower capital spending and slightly lower net interest rates than initially expected. When interest rates return to regular levels, the ballooning national debt leaves taxpayers responsible for exorbitant debt service costs. In fact, the volume of budget deficits has been increasing day by day more than what projected.

If the fiscal policymakers focused just on long-run consequences then they should have taken some actions in 2009. Obama’s fiscal measures were mainly taken for tackling the Great recession and Subprime Mortgage Crisis that started in 2007. This included a big package of stimulus, financial supervision and a thorough overhaul of he alth care. In reality, policymakers should concentrate on longer-term investments to improve the US economy's potential growth and productivity. But this was felt unnecessary and less urgent at that time. They should have concentrated far too long on public services, and invested in the capabilities of the potential workforce.