Bryan Caplan  

Did Obama Restore Confidence?

The Fiscal Policy Lag... Orszag and Hanson on McAllen's...
One non-Obama-loving economist I know nevertheless gave him credit for "restoring confidence."  I agree that confidence is coming back.  But does Obama deserve the credit?  The obvious alternative is that panic, like grief, normally fades away a few months after bad news hits.  As a wise women in Jet Li's Fearless once said, "Cry when you are sad.  When the tears are gone, life will move on."

There's plenty of sophisticated econometrics you could use to test whether Obama restored confidence.  But is this story even superficially plausible?  Well, on October 4, a month before Obama was elected, the Dow stood at 10,325.  On election day, the Dow closed at 9,625 - rebounding from a low of 8,144 a week earlier, when Obama's victory was already nearly sure.

Then what happened?  Two weeks after Obama's election, the market hit a new low of 7,507, then rebounded to close at 7,949 on inauguration day.  It doesn't look like Obama's impending arrival did much for confidence.

Perhaps we need to actually experience Obama's hypnotic leadership to have our confidence restored?   It sure doesn't look like it.  After six weeks of legendary oratory, the Dow had crashed all the way down to 6,516.  Since then, we've had a big rebound, but we're still lower than we were on election day.

Bottom line: If Obama restored confidence, it looks like he did so only after shattering it first.  Some accomplishment.

Comments and Sharing

COMMENTS (13 to date)
Matt writes:

That's not what I see.
Real news and info makes the Dow move bigtime(downward in these cases), but Obama's big-win days helped it rise a little bit. I think it shows that he has helped confidence.

Bill Woolsey writes:

It would be so nice to think that people's "confidence" about the economy is connected to reality, but think about the polling that shows that partisan affiliation strongly impacts what people think is happening to the economy. That is, when there is a Republican President, Republicans believe the economy is doing well and Democrats believe it is doing badly and vice versa.

So, partisan affiliation was changing, with Republicans losing ground to Democrats. The "team" mentality that says that our side must be doing good starts to have adverse effects on "confidence" as Bush continued to rule and become less popular. When Obama takes power, then now, the Democrats are suddenly more confident because they are being loyal to their team.

The stock market evidence might not work if stock traders are more likely to be Republicans than Democrats.

8 writes:

A President can only restore confidence with bold, unexpected action. Otherwise, their actions are discounted by the market. Furthermore, even Reagan's tax cuts weren't confidence restoring because they were preselected. The voters chose him because they wanted to be confident, he could only destroy confidence by acting differently. Now, people are not confident and they will continue to feel that way, regardless of these short-term blips. Unless Obama announces a radical policy shift, such as abandoning health care reform or extending the Bush tax cuts, his actions will have no psychological effect.

Given the way he's governed, in a broad sense he's destroyed confidence because his supporters see little change from the Bush Admin policies. People who thought bailouts and overseas wars were "wrong track", and spent 8 years screaming about Bush, now see Obama acting the same way. Right-wing confidence fell after the election and Obama failed to lift left-wing confidence to offset it.

Greg Ransom writes:

Is there _anyone_ who isn't lying to himself about Obama?

People simply refuse to see reality about anything having to do with Obama -- a result Obama has worked hard to achieve.

J Cortez writes:

I don't think he's restored confidence. And even if he had restored confidence, what does that mean? Market confidence isn't always the same thing as market soundness. Currently, the market is not sound and the policy decisions they've made are going to cause more trouble in the long run, no matter what confidence, if any, has been restored.

Greg Ransom writes:

This sounds like another instance of the fallacy of aggregation.

Business cycles have a geographic dimension.

Here in Orange County people SEE the bust, the SEE "For Lease" signs in business windows all over town. They SEE neighbors loosing their homes and moving away. The SEE people lose their jobs. Etc.

Who the President might be has nothing to do with it.

R.T. Dalimov writes:

You're forgetting the basics, hope not intentionally. The reality is as such that the US economy during previous US presidency became ill: houses bubble, highest ever oil price forced by invasion of Iraq,unprecented US military expenditures and many more. B.Obama has announced that he will have peace in Iraq by taking US soldiers out of this state. Immediately after he was selected, an oil price went down. So militarized US economy has slowed down. That is the picture of reality. Obama as the US president has restored confidence, but any significant growth will start only after lowering current warfare expenditures of the US - and an easiest and moraly justified thing to do it is to stop making war in Iraq. writes:

We here in America use a fiat currency. Meaning, it has no backing other that the "word" of our government. The people that print this money for us is the Federal Reserve. The Federal Reserve is Not! a government agency. It is a private central banking system connected with the International Money Fund and the World Bank. They print the money and loan it to us to use and just like any other loan we pay interest. That's right, we get money from the Fed and we pay it back AT INTEREST! It has been the biggest problem facing the nation since it inception in 1913. Also in 1913, alongside the Federal Reserve Act came the Income Tax. The purpose of the income tax is to pay the interest on the money that our government has the right to print without interest all by itself. You heard me, not one cent of that tax is used to pay for the services we expect from our government. I hope you all understand this. The Federal Reserve is not needed and it has been enslaving the nation ever since the world’s private bankers bribed congress to pass it into law during Christmas break in 1913. The bill that congress passed had not even been ratified by the appropriate number of states but it was passed anyway. I hope you all understand that the President, his cabinet, all of the legislature and God himself do not control the value of the money in America. It is the Federal Reserve. Take a look at the Federal Reserve, the Trilateral Commission, the Council on Foreign Relations, the World Trade Organization, and the United Nations and you will see that the same names and same families belong to these groups. After you do a little research you will start to see who is running the show. If you made it this far in reading my segment then you just may survive this world crisis. Educate yourself to the fullest extent possible. Knowledge is power, or so the adage goes.

DKN writes:

"Bottom line: If Obama restored confidence, it looks like he did so only after shattering it first. Some accomplishment."

Isn't this the same strategy taken to cut the deficit in half in X years?

cak writes:

I'm sure during the next election (which he should start campaigning for anyday), we'll here often about how many jobs the Obama administration has created with little mention of the number they haplessly destroyed during the first year of his presidency.

Josh writes:

Remember, Obama campaigned on a platform of fear. "The fundamentals of this economy are NOT sound."

For months he kept pounding at this one simple message. He has finally stopped, so that in itself is a positive. When the POTUS is yelling fire, it's got to kill confidence.

Alyssa writes:

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Jon writes:

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