As President Barack Obama begins his second term, there's one important thing that will occur more naturally than it did during his first four years: job creation.
Obama first took office in January 2009 as a year-old recession was deepening and companies were shedding jobs. The recession officially ended in June of that year, but it took another eight months for the economy to stop cutting jobs and start adding them.
Even then, job growth was painfully slow, which created one of Obama's biggest first-term vulnerabilities. While making the case for the big stimulus plan that passed less than a month after he took office, Obama's team projected with the stimulus, the unemployment rate would peak at 8 percent in 2009 and drop to about 5 percent by the beginning of 2013. Instead, it peaked at 10 percent in 2009 and is still at 7.8 percent today, making the stimulus plan—which added nearly $1 trillion to the national debt--seem ineffective.
Obama's mistakes were underestimating the severity of the recession and overstating what the stimulus plan could accomplish. He certainly won't do that again. But he probably won't have to worry about it, because the economy seems likely to create many more jobs during Obama's second term—regardless of what his policies accomplish.
Forecasting firm IHS Global Insight predicts the economy will add 10.3 million new jobs between now and the time Obama's second term ends in 2017. That would be 22 times as many jobs as the economy created during Obama's first four years. And IHS says its projection would have been the same if Mitt Romney won, because job creation will come from the underlying economy, not from what's happening in Washington.
If anything, Washington is now a net drag on the economy, since it's rolling back tax cuts and stimulus spending that helped keep the recession from being worse. Generous provisions that expired as part of the fiscal cliff deal at the start of the year could detract about 1.5 percentage points from GDP growth in 2013. Bigger spending cuts could still be on the way. The continual brinkmanship in Washington over budget issues probably harms the economy even more, by undermining confidence and demonstrating the chronic inability of political leaders to solve basic problems.
Even so, employers managed to add 155,000 new jobs in December, a time when the headlines were filled with scary stories about what would happen if Congress pushed the nation over the "fiscal cliff." IHS and other forecasters expect job growth to continue at about the same pace for the next several months, even as there are new standoffs over extending Washington's borrowing limit, $110 billion in spending cuts are set to go into effect, and the need to approve new funding to keep the government functioning is still on the table. If we get over those hurdles, job growth could accelerate to 200,000 new jobs per month or even higher.
That wouldn't be too shabby. During Bill Clinton's second term, the economy added more than 250,000 jobs per month on average, a high-water mark. It takes more new jobs to keep up with population growth these days, but 200,000 would still be enough to gradually lower the unemployment rate.
That rate of growth wouldn't solve other challenges, such as widening income inequality, a bifurcated economy that marginalizes those without the latest skills, and the slow growth caused by an overindebted federal government. But with the economy adding jobs on its own, Obama will be less bound to pursue many of the go-nowhere job-creation programs Congress balked at following the underwhelming performance of the 2009 stimulus plan.
That could free Obama to pursue bigger ideas to help reestablish America's foundering leadership as the world's most dynamic economy--tax and entitlement reform, a more effective regulatory regime, an immigration solution, or a pragmatic way to address climate change. Better job growth won't guarantee Obama will go big, but it will give him the opportunity to do so.
Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.