Will 8.5 percent unemployment be enough to reelect Obama?

November 10, 2010

The Hill sets the economic bar awfully low:

Economists who study the labor market said this week that they expect unemployment in 2012 to average 8.5 percent, down more than a point from the 9.6 jobless rate of today. Heidi Shierholz, an economist at the Economic Policy Institute, said every forecast she has studied predicts rapid job growth in 2012, even though the national number will still be a far cry from full employment. “It’s still going to be so high in 2012, but people are going to be feeling better,” Shierholz said.

Mark Zandi, the White House’s favorite economist to quote because of his advisory role with Sen. John McCain’s (R-Ariz.) 2008 presidential campaign, sees the same picture. Zandi said Obama’s stimulus plan has achieved its goal. The plan, Zandi said, prevented another Great Depression while giving the public sector time to kick in and start hiring, which will be in full effect when Obama is running for reelection.

“The trend is going to be in strong favor of incumbents in 2012,” said Shierholz.

I really don’t think so, though Ms. Shierholz from the liberal EPI would surely like that to be the case.  There is a huge lag between what the numbers say about the economy and what people perceive. Bill Clinton won the 1992 election on the economy (“it’s the economy, stupid”) even though GDP had been growing for six full quarters. According to Gallup, 88 percent of Americans thought the economy was “fair” or “poor” in October 1992 with some 60 percent saying the economy was “getting worse.”

Two years later, it was the Democrats turn to feel the brunt of widespread economic anxiety as the Republicans captured both the House and the Senate. Even though the economy had then been growing for 14 straight quarters and the unemployment rate was down to 5.8 percent, 72 percent of Americans still thought the economy was “fair” or “poor” and 66 percent though the nation was headed in the wrong direction. Hard to believe, but 3 1/2 years after the 1990-91 recession ended, the economy was still a big negative for voters and hurting the incumbent political party.

So let’s say the unemployment rate is 8.5 percent on Election Day 2012. That is twice as high as what Americans have grown accustomed to.  As recently as May 2007, it was 4.4 percent. It was also under 5.0  percent from July 1997 through August 2001.  And before this recession, Americans hadn’t seen 8.5 percent unemployment since 1983. In addition, housing will still be in the tank, and budget deficits will still be in the stratosphere.  Morning in America II? Good luck with that.

3 comments

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‘Hard to believe, but 3 1/2 years after the 1990-91 recession ended, the economy was still a big negative for voters and hurting the incumbent political party.’

When one considers the generally negative view of the economy held by the mass media – in full view during this latest economic ‘crisis’ – and given that most Americans watch FAR too much TV news, it’s hardly surprising that most respondents in the polls cited above would have a negative view of the overall economy, despite several years of steady growth.

Posted by Gotthardbahn | Report as abusive

But people know their own personal financial situation, whether it is improving or worsening

Posted by Pethokoukis | Report as abusive

[...] the question asked by James Pethokoukis today: The Hill sets the economic bar awfully [...]

A better place to start is with the proposition that Obama’s mistake was to first bail out the “big people” and not bail out the “little people”.

Many of these little people had been hurting two or three years back into the W Bush years. A fair case can be made that Obama got elected when the trouble hit and the Republician candidate demonstrated that he did not understand the problems.

Both the big people and the little people did stupid, improvident things. How was the moral standing of the little people held to be so much lower that they got no bail-out (an unemployment check vs. a $3,000/mo. mortgage payment, was not considered a ‘bail-out’) yet the big people (the financial markets et al) got bailed out.

The same as what was done for the big people would have been something like a six month freeze on homestead mortgage payments and then the right, with court help if necessary, to reduce the principal to the fair market value of the home. The government given a lien on the back end to the extent of anything not paid in case property values went up some day.

Such a program would have had “Moral Hazard” flying on banners but didn’t the govenment in effect remove moral hazard for the big people?

The point is that if the little people are still facing foreclosures, 12% unemployment, and like fears are they doing to vote Republician in 2012? Stranger things have happened but I don’t think “feeling better” is going to cut it.

Obama is going to have to propose some sort of tough mortgage foregiveness, the only thing not yet tried*. If the Republicians shoot it down, which they probably will, let that be the debate subject in 2012.

* Obama’s HAMP and similar programs are so bad that they make him look even more like a handiman of the “finance” (i.e., the big people).

Posted by TRTerryJr | Report as abusive