Archive for the ‘Economics’ Category

It’s Not the Stimulus It’s the Regulation

Saturday, August 13th, 2011

Marco economics is an observational science. It is difficult to construct controlled experiments. There always seems to be enough differences from situation to situation to introduce doubt. Nonetheless, sometimes unfair, or at least unsupported, conclusions can enter the conventional wisdom. The concept of a Keynesian stimulus may suffer this fate.

The Keynesian approach suggests that during a recession the government can stimulate the economy via spending to replace economic demand from private markets. An alternative approach championed by Milton Friedman suggests that monetary policy is more important than fiscal policy.

Democrats have traditionally favored a Keynesian approach, in no small part because it provides an additional excuse for the government to initiate spending programs to address Democratic priorities.

When President Barack Obama came into office, it was natural for the progressive to institute a massive, nearly trillion-dollar stimulus. So confident were Democrats in the efficacy of the stimulus that they promised that unemployment would not exceed 8%. We were warned that if no stimulus were instituted, unemployment would reach 9%. We now know that following the stimulus, unemployment blasted past 10%. Moreover, growth remains anemic and unemployment two-and-half years after the stimulus still exceeds 9%. More disappointing is that the officialunemployment value would be far higher if so many people had not given up hope of finding a job. The lack of growth and employment has reduced revenues exacerbating the deficit.

It is rhetorically convenient to declare in the face of these facts that Keynesism is dead, believe by only those immune to the evidence. I lend far more weight to the Friedman approach and would love to offer our current situation as definitive proof.

However, let me offer a slightly heretical view. While the current situation lends no support to the Keynesian idea of stimulus, the regulatory anchor on growth makes it impossible to tell whether the stimulus has indeed failed. Perhaps It is economic uncertainty that is restraining the economy irrespective of the stimulus.

Companies are uncertain because of a massive influx of regulations. Obamacare has passed, and mountains of rules based on the legislation are still being written. Companies, particularly small ones, are reluctant to hire uncertain of what Obamacare would require of them. The Dodd-Frank bill to regulate financial markets has introduced new banking regulations. Until these are finalized and better understood, there will be a backward tug restraining lending. This is not to mention the new regulatory aggressiveness of the the EPA anxious to implement policies bureaucratically that could never be passed legislatively. The EPA has more regulatory actions pending that the Department of Human Services which is responsible for implementing Obamacare.

Imagine the metaphor of the stimulus package being a foot on the accelerator of the economic car, with a chain of regulations strapped to the bumper. The stimulus accelerator may or may not work, but the regulatory chains make it impossible to diagnose whether the accelerator is functioning properly. The Keynesian approach may deserve death, but the current situation cannot be said to have inflicted the true final blow.

Bytes of the Apple

Sunday, July 17th, 2011

There are some US companies that are doing extremely well. In 2002, Apple’s market capitalization was a couple of billion dollars. Now a couple of billion dollars is a round off error in its over $300B market capitalization. In the consumer market, Apple has such cachet that it can ask for an receive a premium for the Apple logo. Bloomberg predicts that Apple revenue may grow by 50% next year.

On the other hand, most companies are not doing as well. As unemployment hovers at about 9%, the typical response is to erect barriers to keep jobs in the US. That was certainly the motivation of the Smoot-Hawley Act of 1930 that exacerbated and prolonged the Great Depression by curtailing international trade with high tariffs.

Since that experience it has been conventional economic wisdom that free trade increases the wealth of both trading partners. Nonetheless, there is concern about how many jobs are being out-sourced overseas. A recent study published in the International Journal of Commerce and Economics by Linden et al.
carefully traced the jobs and their valued added for Apple’s Ipod.

The study found that the production of the Ipod yielded nearly twice as many jobs overseas as in the US. However, the bulk of the value-added and consequently the wages went to Americans. Moreover, the bulk of the salaries in the US went to engineers and managers. This does not count the value to US investors and to US consumers.

In other words, the jobs that went overseas where largely low-skilled manufacturing jobs that could not support an American worker salary. Moreover, many of these low-skilled jobs will soon be automated. The out sourcing of jobs to low-wage countries is typically the step right before automation.

As production becomes more efficient, fewer more highly skilled workers are used. It takes far fewer workers to produce a car than it used to. Indeed, since 1950 manufacturing production has accounted for a nearly constant 15% of the gross domestic product, while the number of workers in manufacturing has decreased by half from over 30% to less than 15%.

The problem is not out sourcing of jobs to other countries, the problem is that we do not have enough companies like Apple who make high quality products with Americans adding the highest value to the products.

It would be impossible to legislate more companies like Apple, but it would be foolish and all too easy to create trade barriers that would hobble such companies.

Net Neutrality

Sunday, May 1st, 2011

The Internet began under the auspices of the military’s ARPANET and was later augmented as the National Science Foundation sponsored links to educational institutions. For the most of the 1980’s the Internet was a robust network largely closed to everyone not involved in governmental or research activities. Many enjoyed this exclusivity and limited access. There was resistance to opening up the Internet to commercial activity. To many this bow to the market would taint the nobler aspirations of a publicly-developed, open communications shared among particularly educational institutions.

Once the Internet allowed for commercial activity its public adoption exploded, first with the availability of modem connections via telephone lines, dedicated cable lines, and now wireless connections. For a while, there was talk of a social-class based “digital divide’’ that separated the computer/Internet haves and havenots. Almost before people conjure up government programs to address this crisis, the falling costs of computer and Internet connections have largely alleviated this perceived problem. There are still pockets of the world with limited connectivity, but wireless communications may cause these areas to leapfrog the desktop computer Internet connection to almost exclusive wireless cell phone Internet connectivity.

Now that the Internet and Internet applications have become ubiquitous, the newest worry is “net neutrality’’. The concern is that the relatively few very high speed Internet providers will use their positions for unfair competitive advantage. For example, some Internet service providers also provide Internet-based telephone services. It is conceivable that they might prevent or handicap rival companies from using the Internet connection offering an alternative telephone service. Now that one of the major Internet providers, Comcast, owns NBC, the fear is that Comcast might some how give speed or connection preference to NBC content.

The concern is real and possible abuse plausible, but there have been few instances of abuse to point to and it seems premature to begin regulation. Nonetheless, the Federal Communications Commission (FCC) proposed net neutrality regulations, which were recently rejected by Congress.

Republicans have been largely against compelling net neutrality via regulation in no small measure because they distrust the FCC. Liberal members of the FCC have suggested that they would like to re-institute the “Fairness Doctrine’’ as a means to balance political content radio broadcasting. Conservative view this as unnecessary given the many available communications channels, and as a means of silencing popular Conservative radio talk show host like Rush Limbaugh and Sean Hannity. The mistrust caused by these efforts explain part of the reluctance of granting the FCC authority to regulate Internet content.

Concern over Internet service providers exploiting monopoly or near monopoly positions to control content and access need not be the concern of the FCC, but rather the Federal Trade Commission (FTC). In general, Internet service providers have an economic interest in allowing broad access to online services. If they begin to use non-competitive practices, the FTC can intervene under its anti-trust authority. In the meantime, the best role for government would be to provide conditions necessary to mitigate monopolies. Such conditions might be the availability of more wireless spectrum to allow more competition with wired services, or making available public rights of way so that additional providers might be able to provide wired access.

Governments too often have embarked on regulation for the benefit of the consumers have succumbed to the temptation of protecting incumbent business. Even Edward Kennedy and Jimmy Carter saw that regulation of trucking and airline fees were largely hurting consumers and deregulated trucking and airlines. The result has been lower trucking fees and availability of air travel to a broader range of consumer income levels.

Prudence and history suggest that we wait and see how the Internet develops before leaping to regulate it even under the auspices of “network neutrality.’’

Growth May Not Be Enough

Sunday, March 13th, 2011

This year the budget deficit will be $1.6 trillion. Total spending will be $3.8 trillion. For every dollar we spend as a country we will have to borrow 42 cents. This level of debit accumulation does no seem prudent or sustainable.

A budget deficit is the consequence of the difference between the amount of spending and the revenues generated. A plot of revenues and spending over time, shown below may be revealing. The red curve represents spending, and the blue curve represents revenues. Since 1980, the spending has been generally higher than revenues. Fortunately, at the end of the 1990’s there was a surplus. During the period of the surplus, spending increases moderated, but not much. The increase in revenues caused by increased growth bringing in increasing revenue largely accounte fro the surplus.

The recession in the early 2000s reduced revenues, and spending did not abate, so we had widening budge gap. However economic growth kicked in an we approached a balanced budget. For all intents and purposes we were in near balance. It is hard to believe that the budget deficit was only $160 billion in 2007, less than the budget deficit accumulated this month alone.

A combination of high gas prices and an over-leveraged mortgage market caused a large decrease in GDP with a loss of revenue. The government decided to increase spending to stimulate economic growth, but growth has been anemic, with only very modest increase in federal revenues. Spending rolls on and the deficit balloons.

If we had revenues equivalent to what we had in 2007, this years deficit would be $1.2 trillion. If we maintain the same revenues as 2007, and same rate of increase in spending from the previous few years, the current budget deficit would be $500 billion, very large, but a third of the current deficit. Therefore, spending increases more than revenues shortfalls have been the primary cause of the current deficit.

It is clear from the graph, that spending has risen too quickly and revenues have not. It would seem that the wisest course at this point to reduce the rate of spending increase. However, even if we had no increase in spending for the next few years, we would require very high levels of economic growth to narrow deficit to more historic levels.

We have a $14 trillion GDP and the federal government brings in revenues equivalent to 20% of GDP per year. We gain an increase in revenues of about $30 billion per year for every 1% increase in GDP growth. If we can grow by 4% a year over 10 years that would represent a $1.4 billion revenue increase. Remember, the long-term growth rate of the US has been about 3.5% and it may be hard to achieve such a rate as more people move to retirement.

In other words, a very high ten year growth rate of 4% per year would balance the budget only if we froze spending at current levels for a decade. However, given that Social Security and Medicare costs will inexorably grow just because of the entrance of new retirees into those systems, and the increase debt payment will have to be paid, all other government programs from the military, to education aid, to food stamps would have to undergo dramatic decreases to maintain a freeze.

No one expects government spending to be constant over ten years, given only modest increases we will still need extraordinary rates of growth to bring total debt levels to even a more reasonable fraction of GDP. It used to be we could endure deficits, because growth would rescue us from ourselves. We are rapidly approaching spending levels , where no reasonable rates of growth can bends the two lines in the curve back together.

The Right Level of Income Inequality

Sunday, February 27th, 2011

Overtime, income inequality in the US has experienced an increase, at least in comparison to other Western countries. Some of this has been the consequence of high income women marrying high income men spreading the household income distribution, as well as the move away from heavy industry to a emphasis on new high-tech skills sets. The question posed here is: If people are freely able to sell their labor at whatever price others freely accept – a natural meritocracy – what would be the level of inequality?

One traditional measure of inequality is the Gini index. The index varies from 0 to 1 where 0 is total equality, everyone makes the same income and 1 is one person making all the income. The index is not linear and one can find its definition here.

There must be a natural Gini index associated with a open meritocracy. If the actual Gini index is much higher or lower than this natural value, it takes an outside force like that of the government to compel a different result. At one end, a government could claim all income and distribute it equally, yielding a Gini of 0. At the other extreme, a government could force most people to receive little income and a bulk of the income could be distributed to a few people, probably with political pull. A government could also force an intermediate result.

The US Gini index for income was stable, a little less than 0.40 from the end of World War II until about 1980. From that point, there has been a steady increased to about 0.47 in 2006. More recently there has been a small dip in the Gini index.

The US is always compared unfavorably to our European friends for having a higher Gini index. Their Gini indices tend to be in the 0.30 to 0.35 range, with notable exceptions like Sweden in the 0.25 range. However, that complaint begs the question. What would the optimum Gini index be? The actual Gini index is a complex function not only how much the government determines wages, but of the age and cultural distribution of a society, of the variety of different industries, of geographical diversity, and whether there exist new industries growing rapidly with the need for specialized labor. A growth in the Gini index could be a positive or negative result depending on the cause.

One way to estimate the natural Gini index is to look at sports, which is as close to a meritocracy as we can expect. For Major League Baseball with no salary cap and with free agency, the Gini index is about 0.50, far more unequal than the US general population. In individual sports like golf and tennis the inequality can be greater. Indeed, in some studies the more unequal the distribution in a team’s payroll, the better its performance.

The point here is not to argue exactly what the level of inequality there should be in a society, but simply to caution that it is not necessarily true that the narrower income distribution the more equitable or more optimal.

Egypt: Reason for Optimism

Sunday, February 13th, 2011

Given the recent chaos in the Egypt, the short term outcome has been about as positive as one could hope to expect. Authoritarian strong man Hosni Mubarak was forced to leave office with little violence. The military has taken control providing stability and vowing to honor peace agreements with Israel, accompanied with the realistic hope of early elections. However, the final outcome of revolutions is difficult to predict with certainty. The American and French Revolutions occurred in the same era and employed much the same language. The American Revolution brought us George Washington, while the French Revolution resulted in Napoleon Bonaparte.

Fortunately, we have experience over the last hundred years or so that points to optimism in the case of Egypt. This case for optimism must overcome some serious concerns. Although the peaceful revolution came from the streets, that the radical Muslim Brotherhood did not seem to lead, they are perhaps the most organized and passionate party. One could easily imagine that they use the current instability to move Egypt to a theocracy rather than a liberal democracy. Moreover, if Zogby is to be believed, Egyptians cling to some disturbing ideas. About 90% believe that Israel is a threat to them, and a strong majority believe åçthat clerics should play a larger role in government. However, consider the reason for optimism.

The number of democratic countries has exploded. Polity IV, of the Center for Systemic Peace and Colorado State University, scores countries on a scale of -10 to 10, where -10 is an hereditary monarchy and +10 is a stable democracy. The plot below shows the number of countries scoring higher than eight from 1800 to 2003. Clearly, while not always successful and with setbacks, the move to governments underpinned by the consent of the governed is Zeitgeist of the last century or so.

Studies of this growth in democracies suggest that economic development and the presence of a middle class are the determining factors on longevity. A 1997 study by Adam Przeworski and Fernando Limongi of the world from 1950 to 1990 concluded that if the per capita income of a fledgling democracy was less than $1500, the democracy had a life expectancy of less than 10 years. Above $6000 in per capita income, a democracy essentially lives indefinitely. Indeed, they found that the “relation between levels of development and the incidence of democratic regimes’’ could explain 77% of the observations. Some of the deviations from the relation have to do if the wealth is associated with a middle class. In cases where a country’s wealth comes primarily from natural resource extraction as opposed to more diversified commerce, per capita income did not necessary translate into a middle class.

Egypt currently has a per capita income of $6200. Even with inflation, this gives Egypt a reasonable chance of achieving a long-term democracy. Despite wide-spread poverty, if the middle class is large enough the tendency to authoritarian rule can be mitigated. The depressing part of this sort of analysis is not related to Egypt. Iraq and Afghanistan have a per capita incomes of $3600 and $1000, respectively. The prospect of long-live democratically-based regimes in these countries would appear to be dependent upon rapid economic growth.

Total employment

Saturday, February 5th, 2011

This week were were all pleased to learn that the unemployment rate plunged to 9% from 9.4%. If the unemployment rate continues to fall at a similar pace for another year or so, the economy will be in unequivocal good shape. However, the unemployment rate value over the short term is often difficult to interpret. It represents the fraction of people of people who are actively, but unsuccessfully, looking for work. Discouraged workers are not counted.

If fewer people are looking for work the unemployment rate could go down, but that would still not be a positive economic indicator. On the other hand, if people perceive that more jobs are available and flood into the market, this could be a good sign even if the unemployment rate rises temporarily. This last month, total employment did not rise very much, while the increase in people looking for work was anemic.

Rather than the unemployment rate, It is less ambiguous to look at total employment. The graph below from the Bureau of Economic Statistic is a time history of total nonfarm payroll employment. Although, there are other jobs besides payroll jobs, payroll jobs are easy to count and good proxy for all employment. The gaph shows that the number of jobs is at least not dropping as fast as before, but it still seems to be bouncing on what we hope is the bottom. To see where the economy is going, keep an eye on total employment not the unemployment rate.

Economic Statistical Hackery

Sunday, December 19th, 2010

Economies are gigantic beasts, growing, shrinking and wreathing in sometimes unexpected ways. Government policies can have a profound effect on employment and growth, but the best policies can be thwarted by external effects or the natural business cycle. Similarly, the winds of growth can mask even the poorest steering of the ship of state. Part of the skill of political operatives is to spin economic statistics to make political opponents look foolish and political allies appear wise. The creative use of economic statistics is often internally inconsistent and often unintentionally humorous.

A comparison of the Democratic rhetoric during the President Bush and President Obama Administrations is illustrative. The graph below shows the actual non-farm payroll from the tail end of the 1990’s to the present.

A equitable description these data was that strong economic growth during the Clinton years drove employment numbers steadily upward. This growth was buttressed by the Internet “Dot Com’’ boom. This boom collapsed at the end of Clinton’s term. During the early months of the Bush Administration, a recession began. The recession was exacerbated by the uncertainty following the 9/11 attacks. Whether because of the Bush tax cuts or not, a couple of years later employment, a lagging economic indicator began a steep rise. This rise continued unabated until 2008. The severe financial crisis associated with collapse of the housing market and credit default swaps initiated the steep decline we are in now. When President Obama came into office we were still in a steep decline. The employment numbers stopped their drop, but there has yet to be significant increase. Whether Obama’s policies accelerated or abated this decline is not directly answered by the graph.

Judging presidents by the change in economic conditions as measured from the moment they entered office is usually not fair. Most times the earliest time a president can directly impact an economy is his first year budget, which will not go in effect until October following inauguration in January. New tax law usually does no go into effect until the following January. The consequences of the policy will take some time to be felt through the economy. Even though Barack Obama had his stimulus package enacted in February after inauguration as an emergency measure, one would still expect there to be some lag time before effects are observed.

In light if the graph above, it is interesting to return to 2003 to see what Democrats were saying about Bush’s economic policies. According to the Democratic Senate Staff Budget Committee:

“Under the Bush administration, we are seeing the slowest economic growth of any administration in 50 years. Economic growth has averaged an anemic 1.6% since the President took office.’’

Measuring, as the Senate Staff Budget Committee did, from the beginning of the Obama Administration as the Democratic Senate Committee, we could note that the Obama Administration achieved even slower growth average of 1.3%.

That same committee wrote in 2003:

“Disturbingly, 3.1 million private sector jobs have been lost since January 2001, and more than 300,000 jobs have been lost in five consecutive months of decline from January 2003 to June 2003. Between January 2001 and June 2003, the unemployment rate has climbed by 2.3 percentage points. The Bush administration is on track to be the first administration in 70 years – since Herbert Hoover during the Great Depression – to experience a decline in private sector jobs over its term in office.”

If we were to indulge in similar hackery we could accurately write that: Under Obama, the unemployment rate as climbed to a high of 2.4% above what is was when he entered office and remains 2.1% above what he inherited. A total of 3.9 million jobs have been lost (more if we count only the private sector). The US will have to experience extraordinary economic growth for the Obama Administration to achieve a net increase in jobs over this term.

Perhaps it is unfair to pick on the Democrats in this regard, except for the fact that they often generate the factoids that are picked up uncritically by the press. The Democratic Senate Staff Budget Committee was certainly aware that they were deliberately spinning the facts in an unfair way. There is no excuse for such hackery for either party.

Unemployment Unabated

Sunday, December 5th, 2010

The unemployment rate is a lagging economic indicator. When the economy enters a downturn, employers are reluctant to let go of workers. As the economy recovers wary employers, the pain of releasing workers still fresh, are slow to re-hire until they are certain the economy is in recovery.

The unemployment rate is also affected by the fact the only workers who are actively looking for employment are counted. As the economy picks up, more formerly discouraged workers enter the labor pool. Ironically, a recovering economy, in the short term, can face increased unemployment rates.

Despite these caveats, the current monthly increase to unemployment to 9.8% is worrisome, and suggests that current economic policies are not sufficient. Unemployment rates seems flat with little signs of significant reductions in the near future. Current employment rose rapidly in 2009 about has remained stubbornly high for about two years. Usually, when the unemployment rate rise quickly, it retreats quickly. This is not the case for this recession.

Consider the included graph. It represents the monthly unemployment rate for the current recession and the last recession with similar unemployment rate in the early 1980s. We have shifted the time so the month 17 represents the peak unemployment rate. The current recession has shown a flat unemployment rate, while at this point in the recession of the early 1980s, the unemployment was rapidly falling.

By most measures, the recession of the early 1980’s occurred under less favorable economic conditions. Inflation was at double digit levels. To reduce inflation the Federal Reserve had to impose double-digit interest rates. Currently, both inflation and interest rates are at historically low rates. The economy ought to be primed for a much faster rebound than occurred in the 1980’s.

The difference is that in the 1980’s recession, President Ronald Reagan slashed taxes and tried to easy regulatory restraints on growth. By contrast, the current Administration simply spent nearly $1 trillion dollars and focused its attention to health care reform. Whatever, the merits of the Democratic health care changes, its institution during a recession has introduced so much uncertainty that hiring for small businesses has been frozen.

If newly elected Republicans can manage to keep tax rates low, and at least mitigate the worst effects of Obama’s health care legislation, they may help the economy sufficiently recover that it will insure an President Obama re-election. If the Left has its way, and tax rates increase and spending continues unabated, and “Obamacare” is implemented unchanged a one-term Obama presidency will probably be secured.

Will the Economy Recover in Time for Obama?

Saturday, August 14th, 2010

While most Democrats will concede in moments of honesty that this year’s Congressional elections are likely to be very tough on Democrats, many like console themselves by citing President Ronald Reagan’s experience in his first term. Reagan came to office in difficult economic times with unemployment rising to double digits. In the first Congressional elections (1982) after Reagan’s election, Congressional Republicans paid the political price for poor economic times. Democrats gained 27 seats in the House. Republicans faired better in the Senate with the balance between the political parties remaining essentially the same. The analogy most heartening for supporters of President Barack Obama is the fact that as the economy recovered, Reagan’s popularity exploded as he won re-election in 1984 in a landslide taking every state except Minnesota, the home state of his opponent Walter Mondale. Reagan even came within 0.18% of the popular vote of winning Minnesota. Mondale was able to carry the District of Columbia, as Reagan secured the electoral college 525 to 13.

For history to repeat itself in Obama’s favor will require more than the poor a Congressional showing in the mid-term election. That’s the easy part. The economy will have to enjoy a strong recovery. It is interesting to determine if the pace of current recover with match itself in speed and magnitude with Reagan’s 1983-1984 recovery. A political potent measure of the economic recovery (though a lagging indicator) is the unemployment rate. Below is a table of the unemployment rates for the Reagan and Obama. The table begins on the data of the highest unemployment for each of the presidents.

Reagan   Obama  
Date Unemployment Rate Date Unemployment Rate
Nov-82 10.8 Oct-09 10.1
Dec-82 10.8 Nov-09 10.0
Jan-83 10.4 Dec-09 10.0
Feb-83 10.4 Jan-10 9.7
Mar-83 10.3 Feb-10 9.7
Apr-83 10.2 Mar-10 9.7
May-83 10.1 Apr-10 9.9
Jun-83 10.1 May-10 9.7
Jul-83 9.4 Jun-10 9.5
Aug-83 9.5 Jul-10 9.5
Sep-83 9.2 Aug-10
Oct-83 8.8 Nov-10
Nov-83 8.5 Dec-10
Dec-83 8.3 Jan-11
Jan-84 8.0 Feb-11
Feb-84 7.8 Mar-11
Mar-84 7.8 Apr-11
Apr-84 7.7 May-11
May-84 7.4 Jun-11
Jun-84 7.2 Jul-11
Jul-84 7.5 Aug-11
Aug-84 7.5 Sep-11
Sep-84 7.3 Oct-11
Oct-84 7.4 Nov-11
Nov-84 7.2 Dec-11
Dec-84 7.3 Jan-12
Jan-85 7.3 Feb-12
Feb-85 7.2 Mar-12
Mar-85 7.2 Apr-12
Apr-85 7.3 May-12
May-85 7.2 Jun-12
Jun-85 7.4 Jul-12
Jul-85 7.4 Aug-12
Aug-85 7.1 Sep-12
Sep-85 7.1 Oct-12

Interestingly, for both Reagan and Obama unemployment fell to 9.5% about eight months after the peak. However, unemployment had to fall from 10.8% rather than 10.1% for Reagan. At this point after the peak unemployment for Reagan, GDP was growing at at rate of 9% with the economy rapiding regaining jobs. The growth now rate is at best 3% and probably lower. In order for unemployment to abate at the same rate for Obama as during the Reagan recovery unemployment would have to fall to 8.5% by the end of this year. No one anticipates this. Indeed, the latest estimates from the Obama Administration suggests an employment rate over 8% when Obama stand for re-election. By contrast, on election day 1984 unemployment stood at 7.2%, over 3% points below its peak.

Obama has more about one more year than Reagan did for his recovery to take hold before his bid for re-election, but Obama’s recovery thus far has been at a lower rate. Obama will at best have an unemployment rate a full percentage point above what Reagan faced on election day.
To maximize chances for re-election, Obama needs to implement policies to increase economic growth. Thus far, high levels of government spending have done more to spook business than encourage it.