Are You Better Off Under the Obama Administration?

Reagan's Query, Obama's Problem: Are You Better Off Than You Were?
Reagan's Query, Obama's Problem: Are You Better Off Than You Were?

On Monday morning, President Obama told the world that he was running for reelection. The announcement brings to mind something Ronald Reagan asked back in October 1980, when he was running for president. About 100 seconds into this clip, he posed a question that seemed to resonate with voters: "Are you better off than you were four years ago?"

Ask that question of most Americans today, and the answer is likely to be "heck no!"

But a closer look at the statistics reveals that recent years have created clear winners and losers. If you're among the winners -- hedge fund managers, corporations, and owners of commodities -- the answer is an unequivocal yes. For the winners, it's almost as if George W. Bush won a third term in 2008. On the other side, there are the losers: the unemployed, the average American homeowner, the middle class American family -- and, believe it or not, the typical Wall Street banker.

If you think elections effect how America allocates wealth, think again. The fundamental reality is that thanks to a Jan. 20, 2010, Supreme Court ruling, Citizens United vs. the Federal Election Commission, companies can now spend as much as they want on political campaigns. As a result, there is no way to change the split between America's winners and losers without a fundamental change in the way we pay for political campaigns.

Does this have any effect on who will win in 2012? According to Yale economics professor Ray C. Fair, the answer is no -- what matters is how fast the economy is growing during the three quarters leading up to the election. And by that measure, Obama's reelection is virtually assured.

The Economic Winners

Let's take a closer look at the winners and how well these campaign contributors -- Wall Street, for example, gave $5 billion to Washington between 1999 and 2008 -- are doing:

  • Hedge fund managers: $883 million average annual income. Back in 2007, the top 25 hedge fund managers made a total of $22.29 billion, according to Alpha Magazine, in 2010, the top 25 made $22.07 billion, according to AR Magazine. This is down 1% from 2007, but still enough to get by,

  • Corporations: Up 12% to record highs. In 2007, companies made $1.5 trillion in profits, in 2010, they booked a record $1.68 trillion worth, according to the Commerce Department;

  • Owners of commodities: Way up. Gold is up 113% from $670 an ounce four years ago to $1,430; corn spiked 87% from $4.00 to $7.48 a bushel, oil is up 63% from $64 to $108 a barrel, and cotton is up 80% from $0.58 to $1.91 per pound. This is great news for those who own commodities and bad news for people who have to pay for them.

Bad News for the Rest of Us

Too bad we can't all be hedge fund managers. Most Americans are struggling with lower incomes -- if they have jobs -- and the values of their houses and stock portfolios are down. Here are some statistics:

  • Median family income: Down 8.1% in the last decade. The median family income has been falling steadily since 2000 from $60,746 in 2000 to $55,821 in 2009. More recent data are unavailable, but the latest productivity report suggests that the figure has declined since unit labor costs fell 1.5% in 2010. And with 13.5 million people out of work, the pressure to push wages lower remains strong.

  • Stock market investors: Down 8%. Since the first week of April 2007, the S&P 500 is down 8%. But since Obama took office, stocks have skyrocketed an average of 26.5% a year. As I've posted, for families that have suffered a loss of net worth, making up the difference depends on shifting cash from money market funds to stocks,

  • Homeowners: Values are down 30%. The S&P/Case Shiller 20 City Home Price index has fallen from 200 in April 2007 to 141 in January 2011. This 30% bath is terrible news -- particularly for families that borrowed too much money to buy those houses.

  • Wall Street: Average cash bonus is down 37% to $128,530. It may shock you to learn that Wall Street has lost ground in the last four years. But by one measure, it has. Wall Street's cash bonuses in 2007 were $33.2 billion, according to the New York State controller, while in 2010, they totaled $20.8 billion. But those finance industry players shouldn't feel too bad, since they got a bigger portion of their bonuses in stock in 2010. This should be good for Wall Street's long-term survival, because it links banker pay to shareholder performance.

Why Obama Will Win a Second Term

There are plenty of people in this country who would like to see a new president take office in January 2013. However, according to Fair, who has an uncanny ability to predict presidential elections, Obama is likely to be the one taking that oath of office.

As the professor explains, there's a strong correlation between GDP growth in the nine months preceding a presidential election and the incumbent's share of the popular vote. If GDP growth exceeds a certain level during that time, the incumbent gets re-elected; if not, Americans elect a new president. As I've written previously on DailyFinance, Fair predicts 3.69% GDP growth in the nine months preceding the election and 55.9% of the popular vote for Obama.

Will Obama's reelection make you better off? If you're an American winner, the answer is yes. If not, you'll continue to fall further behind.

If I could wave a magic wand, I would vote for a candidate who could lift up America's middle class more skillfully. Until a Republican candidate actually enters the race, I will reserve judgment on who that might be.