EDITOR'S NOTE: This post was co-authored by Adam Fowler.
So the midterm election is finally over and, as the pollsters predicted, it was a big win for the Republicans. A major theme emerging from their victory lap rhetoric is the claim that their win is due to President Obama’s failed policies and the impact of those policies on the economy.
They could have a point. After all, the share of underemployed and long-term unemployed workers is close to double what it should be, the gap in economic output trends has yet to close, the Federal Reserve’s balance sheet and Federal government debt look scary-large, consumer confidence remains weak, the housing market is far from a full recovery, the nation is still grappling with new sets of rules and regulations surrounding healthcare, and finance and credit remain tight. All of these have been key Republican talking points post-midterm election.
But this glass-half-empty view of the economy is focusing on levels when what is really important right now are trends, and these seem more than half full. The U.S. economy is clearly picking up steam in spite of a global economy that has slowed. Overall GDP growth is running at 3% plus pace, employment gains are in the 250,000 per month range, incomes are starting to rise, official unemployment is below 6%, and the share of long-term unemployed and underemployed is falling rapidly. In addition, manufacturing output is growing solidly, interest rates and inflation remain low, home prices continue to rise, bank credit is expanding, the stock market and corporate profits are at record high levels, and the government deficit has decreased rapidly in the past 18 months.
Mind you, politicians in general don’t have nearly the control they like to claim they have – or like to claim their opponents have – over short run movements of the economy. But in a world where perception is reality, based on the trends, clearly the Democrats have the stronger case to make to the electorate.
Yet the Democrats seemingly, and incomprehensibly, failed to make hay out of any of this good news. Why? It’s hard to know. What we can say is that perception doesn't always overlap neatly with objective economic measures, and when it comes to elections, perception of the economy matters. In our increasingly shrill and partisan political climate, both parties have devolved into ideological corners where they have to insist that the world is falling apart and that it’s the other party’s fault. Republicans tell us it’s the Democrats love of taxes, regulations, unions, and hatred of the productive class that is crushing the economy. For Democrats it’s all about the fact that Republicans are cronies of corporations and the ‘one-percent’ who are bent on crushing the middle class and destroying the environment in the name of enriching themselves.
Both parties are so committed to these negative outlooks that the state of the real economy becomes almost irrelevant.
As such, this election fell into normal patterns. As with the last few administrations, the American public appeared tired of what was happening in the White House, and this hurt the party in charge. Additionally, in this midterm election, candidates running for Senate were, on average, running in states where Mitt Romney surpassed his national margin. It shouldn’t really surprise anyone that a state where Mr. Romney ran strongly in the last presidential election would give an advantage to the Republican running for Senate, regardless of the economic news. Throw in ISIS and Ebola and well, in short, a big Republican win was in the offing.
But now that the midterm election is over, the presidential election can officially begin and, in a presidential race, the economy always matters. If either party could just stop Wednesday morning quarterbacking long enough to step back, they would realize the U.S. economy is improving despite what appears to be the best efforts of both parties to push us in the opposite direction. Maybe this will be the biennium when lawmakers use logical thinking, engage each other in a spirit of compromise, and have the best interest of the nation at heart.
Yeah—good luck with that.