While many factors affect the nation’s economy, much of the credit or blame for economic conditions at any given time goes to the president and his party. This has led to a question as we approach the midterm elections: Why are the Democrats getting little benefit from increasingly good economic news?

Unemployment has dropped substantially since the middle of 2009 when the economic stimulus began to take effect. Stock market prices are up by more than 250 percent since March 2009, when we announced our plans for dealing with financial markets. America is by far the most favored place in the world for foreigners seeking to protect their money. Inflation remains at a negligible level.

This does not mean that everything is as we would like it to be. But America is doing much better than other developed economies by a considerable degree. In fact, the sluggishness of economic activity in many of those countries has been a major obstacle to our growing even more quickly because we cannot sell to people who are not buying.

Two aspects of this situation require comment. Ordinarily, an improving economy is very good news for the president in power and his party, but that has not been working for the Democrats this year. Secondly, the fact that we have seen substantial improvement since the depths of the post-crash recession in 2008-09 is relevant to the debate about what Americas economic policy ought to be. Things have gone much better than predicted by the conservative critics of the administration’s policy choices.

I will address the first question next week. Today my focus is on how recent economic performance sheds light on three of the issues that have been seriously debated between liberals and conservatives during the Obama presidency.

The first is the policy known as quantitative easing by which the Federal Reserve made much more money available to the economy than conservatives thought prudent. The latter have for years been inaccurately predicting that this would lead to serious inflation and a debasement of our currency. Today, inflation is negligible and if there is any reason to be concerned about the dollar, it is because it is very strong, approaching the point where it interferes with the ability of Americans to export. The policy initiated by Ben Bernanke, himself initially a Bush appointee, and continued by Obama appointee Janet Yellen, has been so successful that when it is suggested that the Fed may be about to ramp it down, the stock market falls. The business community in America votes with its pocketbook very much in favor of what the Federal Reserve has been doing. It has been so successful that the European Central Bank has begun to emulate it.

The second economic argument that has been settled by the facts in favor of the Democratic position is the question of the effect of raising the 39 percent tax rate on the highest earners. Under Bill Clinton, Democrats set that at 40 percent, George Bush then got the Republican Congress to reduce it to 35 percent, but the Democrats were able to get it back up to 39.6 percent, although at a higher cut-off – $400,000. Go back to the debates at the end of 2012 about this question. Many of the same people who predicted that there would be runaway inflation if the Fed did not stop trying to help expand economic activity argued that raising the rate on the high earners would have a seriously negative effect because it would dampen down the most productive element in our society.

To the contrary, there has been no sign of any diminution of any activity caused by this increase. It has produced more revenue for the federal government – not as much as I would have liked because we should have had the marginal rate apply at $250,000 – but it has helped reduce the deficit, while all economic indicators have gone up.

There was some negative impact last year from an increase in tax rates but it came from the fact that we ended the suspension of the payroll tax, which finances Social Security, and which falls entirely on people whose incomes are below $100,000 a year. Consumption in that range declined some. Purchase by high-end earners showed no drop at all.

Finally, the argument that we needed drastically to reduce our debt to avoid economic collapse – for example from the Simpson-Bowles commission – has also been refuted by the facts. The deficit is coming down, as military expenditures have dropped, although not by nearly enough, and as economic performance has picked up, generating more tax revenue.

But we are still far from the drastic reductions in domestic spending that the doom-predictors demanded. Once again there has been no negative economic effect. The opposite is the case. To the extent that deficit hawks succeeded in cutting $80 billion off the economic stimulus program of 2009, they slowed our economic recovery. Increased public spending at a time when the economy is in deep recession is helpful, and our problem in 2009 was that we had too little of it, not too much.

The makeup of the employment figures further documents this. The conservative argument that an expanding public sector would choke off private sector activity, got the facts exactly backward. Job growth in the private sector since Obama took office has been vigorous, comparable to past recoveries. The major reason that the unemployment rate stayed above 6 percent for so long is the conservative insistence on cutting government spending, particularly at the state and local levels. Had state and local employment simply remained stable, our employment numbers would be as good as any recent recovery period.

On three counts – the role of the Federal Reserve in expanding money available to the economy; the question of a higher marginal tax rate on the very wealthy; and the role of public spending during a recession – the liberal side has prevailed. This does not mean that everything is good; what it does mean is that things are better than they would have been had the conservatives won any or all of their three points.

Barney Frank is a retired congressman and the author of landmark legislation. He divides his time between Maine and Massachusetts.

Twitter: @BarneyFrank

– Special to the Telegram

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