Obama Is a Loser Who Wins, Like FDR in 1936

March 29 (Bloomberg) — The loser wins. That's the way it can go in presidential elections. Especially when the ballot involves a likable incumbent who happens to be failing when it comes to his task of helping the U.S. economy.

In the case of President Barack Obama's campaign for re-election, the loser the president most resembles is the one he evokes with his radio addresses: the great radio president, Franklin Delano Roosevelt. Roosevelt came into office in 1933 on a ticket of recovery. Neither employment nor the stock market returned to pre-crash levels by 1936. Yet Roosevelt won that year, taking all but two of 48 states.

A side-by-side comparison of presidential records and the campaigns of 1936 and 2012 suggests how Obama might fare, too — minus the landslide part. The resemblance starts, of course, with the poor quality of the underlying economy in those first four years.

The U.S. grew from 1933 to 1936, but neither the stock market nor the unemployment levels got back to where they had been at the market crash in 1929. Today, our data also sketch recovery, but neither the Dow Jones Industrial Average nor employment is back to pre-crash levels.

The second feature Obama and Roosevelt share is bad policy. More than anything else, the post-2008 economy has required a stable environment where the government stays out of the way. Whether in the automobile industry, in health care or in housing, this administration has preferred to jump in.

Propping Up Prices

People buy and sell when they know that the market sets prices, however low (houses) or high (interest rates) those prices turn out to be. The Obama administration opted to serve consumers by keeping home prices up and pressuring the Fed to keep interest rates down. No one knows what the true price of houses or money is.

The result is our "count me out" problem; businesses that could hire are not doing so; companies that invest would invest more if the market were predictable. A similar "count me out" culture prevailed in the late 1930s. A "capital strike" was what Roosevelt crossly labeled it. The third similarity is that both candidates are especially ready to assign blame somewhere else.

To the quiet concern of his credentialed advisers, Obama recently pointed at machines and globalization to explain our troubles, saying that "if you look at the trend lines, essentially what's happened is that because of automation, because of globalization, you had a lot of manufacturing move out of the United States," he said.

Roosevelt likewise took out his frustrations on automation. Many New Deal works programs emphasized jobs over productivity. This drove some of his credentialed staff crazy. Once Rexford Tugwell, one of his closest advisers, even ribbed the president about a construction project where men used shovels, instead of tractors. If the purpose was jobs, why not use spoons?

Why the victory, then or now? The first is the sympathy vote. Voters were down, and they identified with a president who was embattled; Roosevelt, not a businessman but a lawyer after all, managed to make a dragon of business and the economy when the true cause of the downturn's duration was policy.

Roosevelt also achieved the astounding feat of convincing voters that patience was necessary even though, in his first campaign, he had made speed of change the central issue: the New Deal plan offered in 1933 was not the "100 Months," it was the Hundred Days.

Obama, too, draws sympathy, partly because economics is not his main area, either. The president also seems able to convince voters that long-term improvement will substitute for his early promise of instant delivery. Back in 2008, Obama often cited Roosevelt's speedy legislation. His administration encouraged people to liken its fast work to Roosevelt's Hundred Days.

Patience Required

Now, however, the president talks patience, as in Atlanta this month. "So here's the thing, though — this is not a three-year project. This is an eight-year project. So I need you one more time, too."

Other advantages for the president? Backloading. The worst pain resulting from administration policy is backloaded to occur after November 2012, when tax increases come and Obamacare takes hold. Roosevelt signed Social Security into law in 1935. But only in 1937, after Roosevelt won, did the government levy the new payroll tax. Then there is spending. Roosevelt spent systematically. Each interest group — labor, senior citizens, farmers — got a break. Almost every county was rewarded with a federally subsidized building.

Obama, too, came out spending, starting with the original stimulus outlay, and kept doing so. The spending is the anesthesia that makes you forget the disease.

Stock-Price Fallacy

A final force in play, subtle but important, might be called the "country as stock" fallacy. In the world of stocks and bonds, we are accustomed to looking at snapshots: how much a stock price increased over a year. That's because we can buy or sell the stock in a year's period. The same snapshot habit has carried over to analysis of gross domestic product.

Under Roosevelt, the U.S. economy grew more than 10 percent some years. Great, and better than under Ronald Reagan. But GDP is not a stock. You don't buy or sell it. Most people in the 1930s had stakes in the economy that dated back to the 1920s. So only a return to 1920s levels held real value.

What matters when it comes to GDP is not just the growth rate, it's the basis. Gross domestic product is back, more or less, if you reckon it some ways, which means that's one area where Obama is doing better than Roosevelt before his second election. Which, of course, improves the incumbent's chances of re-election. In other words, we may well witness the triumph of hope over experience.

If Roosevelt is a guide, it's probably not good politics for this president to make that distinction the topic of a radio address.

(Amity Shlaes is a Bloomberg View columnist and the director of the Four Percent Growth Project at the Bush Institute. The opinions expressed are her own.)

© Copyright 2012 Bloomberg

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