The Motley Economy

Morgan Housel, the "Motley Fool," has published an article in which he rates the most recent nineteen presidents - that is from Theodore Roosevelt to Barack Obama - on five economic criteria.Here are his ratings, with some commentary of my own. Statistics for October 2012 are not included.

1. Best president for stock market performance. Stocks went up more rapidly when Calvin Coolidge was president than for any other president on the list. Stocks averaged a 29.1 % growth rate during his tenure, easily outdistancing the runner-up, Gerald Ford, whose time in office saw stock market gains of 16.7%. Barack Obama is fourth at 15.2%.

Presidents, the Fool reminds us, are often given too much credit when the economy improves and take too much blame when things go badly. In that light, it's interesting to note that the worst stock market performance occurred when Coolidge's successor, Herbert Hoover, was in office, pursuing the same economic policies as Coolidge had.

President Obama's statistics are clearly improved by the steep market decline near the end of the Bush era of comparative laissez-faire.

2. Corporate profits. Readers might be surprised to find that corporate profits have been higher during the Obama presidency than at any time since 1901.

The Motley Fool notes, "A word here: Corporate profits were incredibly depressed from the financial crisis in January 2009, when President Obama entered office. That low starting point makes growth through today look massive. If, instead of January 2009, you use January 2008 profit levels as a starting base, average annual corporate profit growth under President Obama is 6.8%." Even allowing that, however, places Obama fifth among the nineteen presidents.

The two presidents Bush ranked seventeenth and eighteenth.

3. Real GDP per capita. Here President Obama did not do so well, ranking eleventh with a growth rate of 1.4%. The leader by a rather large margin was another Democrat, Franklin Roosevelt.  Like Obama, Roosevelt inherited a financial crisis, but unlike Obama, Roosevelt also was president during a major war that undoubtedly spurred income growth and productivity. Interestingly, second place on this list went to the now largely forgotten Warren Harding, also the beneficiary of a wartime boom.

The top ten split evenly between Democrats and Republicans, including Jimmy Carter in ninth position. The Bushes, father and son, are near the bottom of the list again. Only two presidents had negative growth, Theodore Roosevelt at -0.4% and Herbert Hoover at -8.2%

4. Inflation. Here a high number is not a good number. The president whose term experienced the highest inflation rate was Jimmy Carter, at 10.1% annually. To be sure, presidents must cope with all kinds of problems that affect the inflation rate. Wars, severe weather, depletion of resources or discovery of new resources are all largely outside the control of any president.

Having said that, the inflation rate during the Obama term is 2.2%. Economists mostly agree that some inflation is a desirable thing, if only to make things a little easier for debtors and as a way off making deflation less likely. Deflation, they say, is much worse than inflation, in that it shuts down bank lending and crushes debtors under the double burden of paying off loans that carry interest with money that becomes more and more valuable. The Obama rate comes just between Bush the Younger at 2.3% and Theodore Roosevelt at 2.0. There actually was deflation during the 1920's with Presidents Harding, Coolidge and Hoover. President Nixon, who was almost obsessive in his stated desire to fight inflation, saw an average annual rate of 6.2%.

5. The unemployment rate. Mitt Romney has based much of his candidacy this year on the unemployment problem, but statistics indicate the unemployment rate at the end of September 2012 is exactly the same as it was in January 2009 when Barack Obama took office. Eight presidents saw a falling unemployment rate during their terms and nine presided during years when the unemployment rate went up. Once again, Franklin Roosevelt had the best record, but his performance must be mentioned in the context of the terrible situation he inherited and World War II, when there was virtually full employment.

Holding the line at 7.8% as President Obama has done, might not seem like much of an achievement, but as the campaign ads claim, the economy was contracting drastically in January 2009. It rocketed up to 10% within a few months. That being the case, it's clear that the unemployment rate has been falling slowly during the last three years of the Obama term.

Unemployment is a lagging economic indicator. Employers don't hire until existing inventories are nearly all gone and cash on hand is growing. Both the stock markets and the corporate profit rates indicate that has about happened now. Whoever wins the presidential election can expect a lower unemployment rate next year. A simple look around at the increasing construction pace confirms it.

So, how do we sum up?  I'll do it in one sentence. There really is no economic case for replacing President Obama.