“It's the economy, stupid.”
Let's back up a little bit...
Unemployment and Presidential Elections:
The last three presidents who failed to win second terms - Gerald Ford in 1976, Jimmy Carter in 1980, and George H. W. Bush in 1992 - all lost when unemployment was between 7.1% and 7.5%.
As of last month (December 2010), the unemployment rate under President Barack Obama is 9.8%.
Predictably, this statistic is causing as much mourning among liberals as it is crowing among conservatives, as each perceives it as a harbinger of as Obama’s impending political demise.
(1a) In 2008, the year in which Barack Obama defeated John McCain (serving, politically speaking, as a stand-in for George W. Bush), unemployment rose from 5.0% (January 2008) to 6.6% by Election Day (November 2008), a rise of 1.6%. This undoubtedly contributed to Obama's election.
(1b) In 1980, the year in which Ronald Reagan defeated Jimmy Carter, unemployment rose from 6.3% (January 1980) to 7.5% by Election Day (November 1980), a rise of 1.2%. This undoubtedly contributed to Reagan's election.
(2a) When Obama was inaugurated in January 2009, unemployment was at 7.7%.
(2b) When Reagan was inaugurated in January 1981, unemployment was at 7.5%.
(3a) Twenty-three months into Barack Obama's presidency (December 2010), unemployment has risen to 9.8%, an increase of 2.1%. Obama's approval rating is at 46%.
(3b) Twenty-three months into Ronald Reagan's presidency (December 1982), unemployment had risen to 10.8%, an increase of 3.3%. Reagan's approval rating was at 41%.
Considering how many so-called experts believe Obama’s low approval ratings and high unemployment rate guarantee that he will not be reelected in 2012, one would assume that Ronald Reagan had lost his reelection bid in 1984. After all, Reagan’s predicament was at least as bad as, and arguably worse than, the one confronting Obama right now. However…
(4a) Ronald Reagan was reelected by a landslide, winning 58.8% of the popular vote (the fifth largest percentage in American history) and picking up the electoral votes of forty-nine states (losing only in Minnesota and Washington, DC).
This is made especially noteworthy by the fact that unemployment was at 7.4% in the month when Reagan was reelected (November 1984), which was not only much higher than the rates in recent history’s “winner” range (5.2% to 5.6%) but smack dab in the middle of recent history’s “loser” range (7.1% to 7.5%). Indeed, the unemployment rate was virtually identical to what it had been when the last presidential election took place (7.5%), in which its size had been one of the main reasons Jimmy Carter lost to Ronald Reagan in the first place.
So why was Reagan able to win anyway?
The answer has a great deal to do with the power of perception in shaping political reality. As early as the initial months of 1983, there were signs that unemployment was beginning to fall, with rates hovering between 10.1% and 10.4% during the first half of the year. However, in spite of this progress, Reagan’s approval ratings continued to linger between 35% and 42% (only occasionally getting as high as 45% or 46%). Even though conditions had stopped getting significantly worse, the fact that they weren’t perceptively improving caused a continual resentment against the president.
That changed in July 1983, when unemployment plummeted to 9.4% that month from 10.1% in June. From there it continued to drop at a rate of 0.2% - 0.4% per month for ten of the next twelve months until, by July 1984, it had reached 7.2%. At that point it steadied out, neither rising nor falling at any important rate for the rest of the year.
While this may not seem very meaningful, the fact that the economy was perceived as having improved between July 1983 and July 1984 worked to Reagan’s benefit. Rather than focusing on how things were not significantly different from what they had been before Reagan took office, voters were instead swept up by the fact that conditions had recently been getting better. As a result, the president who had seemed like a surefire loser for more than half of his first term suddenly found himself so popular that his approval ratings in 1984 were almost always above 50%.
The implications to Obama’s situation are clear:
(4b) If the economy begins to show significant improvement over the course of the next year – i.e., if unemployment falls at a substantial and consistent rate – then Obama’s reelection chances, like those of Ronald Reagan before him, will dramatically increase.
So will the economy improve under Obama as it did for Reagan? Despite the pessimistic attitude that remains prevalent on both sides of the aisle right now, the likelihood is that the answer is “yes.”
What ended the recession in 1983 was the ability of a Democratic Congress to push through spending programs that stimulated the economy while the Federal Reserve (led at that time by Paul Volcker) kept interest rates at an artificial low. Although the Democratic stimulus measures did cause an explosion in the budget deficit (due to Ronald Reagan's insistence on cutting taxes for the wealthy and increasing spending on the military-industrial complex in conjunction with them), that deficit failed to cause rapid inflation due to the Federal Reserve's actions. At the same time, the stimulus succeeded in triggering a period of massive job creation sufficient to constitute what many perceived as a "recovery." In short, even though Ronald Reagan's specific policies (tax cuts for the wealthy and increased military spending) were at best unsuccessful and at worse exacerbated the problem, he lucked out by having other people in power - namely Paul Volcker of the Federal Reserve and Democrats in Congress - pursue policies that would cause a recovery just in time for him to be reelected.
These same factors will quite likely work to Obama’s advantage, although the pieces have fallen into place in a slightly different way:
- The Federal Reserve has been keeping interest rates at the lowest possible level, thus minimizing the risk of inflation for Obama just as it did for Reagan.
- Less than one month into his presidency, Obama passed a $787 billion economic recovery package, of which $500 billion was dedicated to the type of stimulus spending that has helped during unemployment crises in the past. The good news is that this amount was sufficiently to stabilize national unemployment rates, which after rising at an average rate of 0.4% per month since August 2008 have stayed between 9% and 10% since May 2009; the bad news is that the stimulus package was woefully inadequate to the task of actually reducing the national unemployment rate, a problem detected at the time by economists including Paul Krugman, Robert Reich, and Joseph Stiglitz.
- That problem has since then been addressed by Obama’s compromise economic legislation with Congressional Republicans. Although unpopular among liberals for extending George W. Bush’s tax cuts on the wealthy, the deal Obama reached with conservatives also allowed him to spend an additional $450 billion on stimulus, an amount that economists across the ideological spectrum – from Robert Greenstein on the left to Charles Krauthammer on the right – agree should cause unemployment to drop between 1% and 2% in 2011.
There are potential ramifications to all of this apart from the ones which can be deduced arithmetically. If unemployment starts to fall at the projected rate, the view of positive momentum could cause a gradual restoration of confidence among businesses and consumers, with the resulting increase in hiring and spending (from businesses and consumers, respectively) adding fuel to the cycle of growth and helping it not only continue, but become self-sustaining. Even if that doesn’t happen, however, historical precedent suggests that the sheer fact of a rapid decline – particularly one that brings national unemployment back down to roughly the rate at which it had been when Obama took office – could be enough to improve the president’s political fortunes.
One Last Point:
Even when the economy is doing poorly, that isn't always a death knell for incumbent presidents. Although both Richard Nixon and George W. Bush had unemployment rates that were reasonably low when they were up for reelection, those rates had still increased noticeably since each of them had taken office. Fortunately (for them), other factors came into play during the election cycle that helped them win in spite of their liabilities on economic issues.
The factor that benefited Bush (i.e., a sense of national solidarity behind the president due to trauma over a recent national tragedy) is unlikely to apply to Obama, if for no other reason than a terrorist attack would most likely lead to charges of incompetence against him rather than work to his benefit. On the other hand, the variable that helped Richard Nixon - that is, the fact that Democrats nominated a candidate (George McGovern) with political weaknesses so severe that they wound up overshadowing Nixon's own vulnerabilities - could easily take place again under Obama. Indeed, of the top four contenders for the GOP nomination (Mitt Romney, Mike Huckabee, and Sarah Palin), only one of them (Romney) is bereft of the kind of toxic candidacy that could single-handedly destroy the Republican Party's chances. Since Sarah Palin's political flaws are well-known, there is no need to document them here.
For a closer look at Mike Huckabee's issues, see:
For a closer look at Newt Gingrich's issues, see:
Obviously the reliability of any political or economic prediction is limited both by the presence of unforeseeable external variables and by the personal weaknesses of the predictors themselves. That said, while this general rule of thumb has been repeatedly used to discredit those who venture forth optimistic appraisals of Obama’s political chances, it is very often discarded the instant bleaker forecasts are offered. Given that a logically and factually plausible case can be constructed supporting Obama’s reelection chances, this oversight is intellectually indefensible, proving once more that conventional wisdom is often neither conventional nor wise.