James Pethokoukis

Politics and policy from inside Washington

Economy poised to make Obama a one-termer

Aug 22, 2011 17:51 UTC

Just how much would a continued weak economy hurt President Barack Obama’s 2012 reelection chances? There are a few different ways of looking at this — and none of them seem particularly promising for the man currently occupying the Oval Office:

1)  Slow Economy. Yale economist Ray Fair has a well-known election forecasting model that uses three economic variables to makes its call: a) growth rate of real per capita GDP in the first three quarters of 2012; b) growth rate of the GDP deflator in the first 15 quarters of the Obama administration, c) number of quarters in the first 15 quarters of the Obama administration in which the growth rate of real per capita GDP is greater than 3.2 percent at an annual rate.

Now Fair, who also has an economic forecasting model, is pretty bullish on the economy (at least as of July 31), predicting real per capita GDP growth of  3.6 percent and sharply lower unemployment. (In recent years, the economy overall has grown about a percentage point faster than GDP per person. So Fair is talking about 4 percent-plus GDP growth). The academic sees an Obama victory:

The prediction of an Obama victory with 53.4 percent of the two-party vote is conditional on the assumption that there will be strong growth between now and the election. According to the July 31 forecast from the US model, by election time the economy will have been growing well for five consecutive quarters, with the unemployment rate down to 7.9 percent. The economy will have turned around, and the vote equation predicts a victory for the incumbent party.

But most big bank economists aren’t nearly as optimistic. Take JPMorgan, for instance. Its economic team sees the overall economy growing just 1.3 percent next year with an unemployment rate of 9.5 as Election Day approaches. Plug in JPMorgan’s numbers and you get a decidedly different result. Under that scenario, Obama would get just 47.7 percent of the vote. And while that is a popular vote number, it is unlikely Obama could win the electoral college trailing that badly in the popular.

2)  Miserable voters. Obama’s chances also look dodgy if the electorate is as gloomy in November 2012 as it is in August 2011. There are different measures of consumer confidence. One is put out by the Conference Board, and it currently stands at an extremely low 59.5. If that index is at 100 or higher, going back to 1968, then the incumbent party is quite likely to win. (Whether it was accurate for the 2000 election depends if you judge using the electoral or popular vote.)  If not, then the opposition party wins (graphic via the National Association of Realtors):

Another index is compiled by Thomson Reuters and the University of Michigan. And it’s as low today as it was during the Jimmy Carter nadir:

Consumer sentiment dropped to its lowest point in more than three decades in early August, as fears of a stalled recovery gelled with despair over government policies, a survey released on Friday showed. The Thomson Reuters/University of Michigan’s preliminary August reading on the overall index on consumer sentiment came in at 54.9, the lowest since May 1980, down from 63.7 in July. It was well below the median forecast of 63.0 among economists polled by Reuters.

3) Economic anxiety. A recent Gallup Poll found that 76 percent of Americans mention some economic issue — the economy in general, unemployment, debt —  as the most important problem facing the country, the highest percentage since April 2009. And just 11 percent said they were satisfied with how things are going in the United States:

4) The Big, bad picture. And if you still want more, I believe this is the Mother of All Political Economy charts, with data through the end of June (from American Century Investments). Even a quick glance suggests  Obama faces an amazingly challenging environment:

Now perhaps the economy is about to ignite. Or perhaps Republicans will pick a terrible nominee. Or perhaps some international crisis will make the economy less important. Or perhaps voters will simply give Obama the benefit of a doubt since he did inherit the Great Recession.  But Gallup already has his approval at just 40 percent (with the RealClearPolitics average at 43.5 percent.)  Another year of high unemployment and show growth — much less a double-dip recession — seems likely to make Obama a one-term president.



Interesting article. Only problem I see is that this article separates the economic trends from the actual policies of the president, his cabinet, and congress. It makes it seem that the president who is elected is based on the random up and down movement of the economy.

I don’t think that it is sheer blind luck that Obama “inherited” this economy. I think he has worked very hard to ram through half-baked laws, grown the size of government even more, and squandered our chances at real economic recovery. We will now have to work even harder to first un-do the damage that Obama caused, repeal all those crazy laws, and then get our country on the right track.

He will go down in history as big a failure as Jimmy Carter. Interesting that the big liberal presidents, Johnson and Carter, both have been one term presidents, whether the economic data was good or bad. I see Obama going down that route.

Still, it is amusing to see him squirm around and blame everybody but himself for all the problems he and his policies have caused.

Nov 2012 can’t come around soon enough!

Posted by varun.mitroo | Report as abusive

Is S&P’s debt warning creating a tax trap for Republicans?

Apr 18, 2011 15:08 UTC

The White House believes America’s debt problem is an important issue, but not an urgent one. Bond rating firm S&P seems to think differently:

Standard & Poor’s Ratings Services said today that it affirmed its ‘AAA’ long-term and ‘A-1+’ short-term sovereign credit ratings on the U.S. Standard & Poor’s also said that it revised its outlook on the long-term rating of the U.S. sovereign to negative from stable. …

Because the U.S. has, relative to its ‘AAA’ peers, what we consider to be very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us, we have revised our outlook on the long-term rating to negative from stable. …

We believe there is a material risk that U.S. policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013; if an agreement is not reached and meaningful implementation is not begun by then, this would in our view render the U.S. f iscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns….

“Our negative outlook on our rating on the U.S. sovereign signals that we believe there is at least a one-in-three likelihood that we could lower our long-term rating on the U.S. within two years,” Mr. Swann said. “The outlook reflects our view of the increased risk that the political negotiations over when and how to address both the medium- and long-term fiscal challenges will persist until at least after national elections in 2012.”

Here’s the problem: Any attempt to cut deficits and debt faster than Paul Ryan’s “Path to Prosperity“  would almost certainly have to involve immediate benefit cuts to Medicare and Social Security recipients or higher taxes. And to the extent that S&P’s call will be interpreted as an exhortation to cut now, those Democrats and Republicans (such as those in the U.S. Senate’s Gang of Six) who insist higher taxes must be part of the fiscal fix will have their hand strengthened. But what S&P is really saying is Washington must decide on a plan. Ryan has a plan, the Obama White House does not.

Conflict of visions: Obama vs. Ryan

Apr 15, 2011 20:53 UTC

So the House just passed Paul Ryan’s highly-detailed “Path to Prosperity” Plan. It almost immediately achieves primary balance and reduces debt as a share of the economy. It balances the budget in the 2030s and eliminates outstanding debt in the 2050s by cutting and restructuring government healthcare spending. And it does all this without raising taxes while also lowering tax rates on companies and investors, both big and small. Even more impressive, the plan uses the slow-growth economic assumptions of the Congressional Budget Office, which, by the way, has scored the lengthy fiscal blueprint.

Then we have President Obama’s plan, as outlined in his speech earlier this week. Despite an economy plagued by high unemployment and falling wages, somewhere between 40 percent and 60 percent of his debt reduction would come through higher taxes over the next decade.  And there is no long-term plan to bring the budget into long-term balance. Achieving that while also keeping Obama’s high level of spending — even assuming unproven, Washington-imposed healthcare cost controls work —  would require raising middle-class taxes, a reality the White House wishes to hide.  Even worse, Obama assumes growth will be stronger than the CBO does, making a comparison with the Ryan plan even less flattering. And will the White House ever submit this plan to the CBO? Who knows? The fiscal scorekeeper would have a tough time scoring it in its present shape. (The propeller-heads in the White House budget office apparently had no role in in creating Obama’s new plan. Neither did the defense department despite the defense cuts.) And it was all bundled in a thick wrapping of class-warfare rhetoric.

At least, that’s how I see things.


So both plans fall woefully short of addressing all of the challenges confronting the Nation’s fiscal state. Once again, no doubt, politics has clouded the better judgement of our representatives and forced our “Better Angels” to be driven away. As usual for most complex problems, the real solutions lie somewhere in the middle between the typically delivered two extremes. The question for us to answer is does any of our Congressmen Possess the intestinal fortitude to risk their political futures, step away from the party lines/positions and reach across the political aisle and embrace compromise and consensus building. Everyone, and I really mean everyone, has to sacrifice their current socioeconomic positions in this great Nation and give back to demonstrate to the rest of the world (and financial markets) that we are very serious about addressing our debt situation. Credit worthiness is truly a matter of perception. If the lender believes you are a credit risk, then you are a credit risk regardless of the details or numbers. The same applies for the nation. So our near-term objective should be to change the perceptions of our creditors. The first step toward that end is to generate a fiscal plan that reassures them we are serious about addressing our debt situation. Start there, focus are actions accordingly and work our way back to that AAA ratings the world is accustomed to seeing from the United States!

Posted by Norm_Al | Report as abusive

How the economy may undermine Obama’s 2012 reelection hopes

Apr 7, 2011 16:15 UTC

It’s not just the labor market that worries Team Obama:

“We are making progress on jobs and need to make more progress on jobs,” said David Axelrod, a former senior White House aide who is part of Obama’s 2012 campaign team. “But people are also grappling with stagnant wages and rising prices. That’s a legitimate, important concern for people and we have to pay close attention to it.”

Further, Jay Cost of the The Weekly Standard elaborates in great detail on something I have been writing about, how weak income growth could hurt Obama’s 2012 chances:

So basically, here is where we are. Policymakers have spent the last three years tossing not millions, not billions, but trillions of borrowed dollars at the output gap in the American economy. And what is the result? A fair measurement of unemployment comes in higher than anything we’ve seen since the Great Depression. Real wages are in decline. Food stamp enrollment is at an all time high. Jobs are coming back, but at a painfully slow rate and without very good pay. Growth for this year and next are expected to come in below the historical trend. We’ve created a huge budget deficit, as we’ve borrowed from future generations to cover the output gap from the last couple years. And let’s not forget this one (not that we ever could!

So, for those analysts in the press who think that Obama will win in 2012 if incomes are still being propped up by massive (deficit financed) government spending, real salaries are declining or flat, unemployment is far above the historical trend, good paying jobs are scarce, the deficit is at an all time high, and the president has no real idea about what to do (except, of course, high speed rail), I have only this to say: you might want to think twice before you place that wager. This president is not yet out of the woods on the economy. Not even close.

The piece has some great charts, but I particularly like this one which shows any income bounce is all sugar and steroids:



James, they will not let me post.

Posted by madmilker | Report as abusive

No ‘substantial effect’ on long-term budget woes

Feb 14, 2011 19:50 UTC

Hey, it’s not just me pointing out the many flaws in the Obama budget. This from the Committee for a Responsible Federal Budget:

Unfortunately, the Administration does not achieve either of the fiscal goals it established for
its own Fiscal Commission. For one, the budget does  not reach primary balance in 2015.
Instead, at just over $600 billion, the deficit remains more than $100 billion away from
primary balance. Secondly, the budget does not make meaningful improvements to the longterm fiscal outlook. Few of the policies in the budget would have a substantial effect on the
trajectory of spending or revenues outside of the ten-year window.
As noted above, the level at which the budget stabilizes the debt – 77 percent of GDP – is
way too high. It is well above historical levels (about 40 percent of GDP) and the traditional
target of 60 percent of GDP – and could threaten the government’s ability to borrow in case
of a real emergency down the road. It also begins to creep up again at the end of the ten-year
window, and likely will grow substantially beyond this window.
Unfortunately, the budget doesn’t make any meaningful improvements to the largest
problem areas of the budget. The budget does keep defense costs from increasing, trim
Medicare and Medicaid spending a bit, and limit tax expenditures for high earners. But these
measures only scratch the surface when the Administration should be calling for real
defense cuts, serious changes in federal health spending, and fundamental tax reform – as
well as Social Security reform designed to achieve 75-year sustainable solvency.

Unfortunately, the Administration does not achieve either of the fiscal goals it established for  its own Fiscal Commission. For one, the budget does  not reach primary balance in 2015.  Instead, at just over $600 billion, the deficit remains more than $100 billion away from  primary balance. Secondly, the budget does not make meaningful improvements to the longterm fiscal outlook. Few of the policies in the budget would have a substantial effect on the  trajectory of spending or revenues outside of the ten-year window.

As noted above, the level at which the budget stabilizes the debt – 77 percent of GDP – is  way too high. It is well above historical levels (about 40 percent of GDP) and the traditional  target of 60 percent of GDP – and could threaten the government’s ability to borrow in case  of a real emergency down the road. It also begins to creep up again at the end of the ten-year  window, and likely will grow substantially beyond this window.

Unfortunately, the budget doesn’t make any meaningful improvements to the largest  problem areas of the budget. The budget does keep defense costs from increasing, trim  Medicare and Medicaid spending a bit, and limit tax expenditures for high earners. But these  measures only scratch the surface when the Administration should be calling for real  defense cuts, serious changes in federal health spending, and fundamental tax reform – as  well as Social Security reform designed to achieve 75-year sustainable solvency.


perhaps it would help us all understand if someone would put in plain english the effects of having a high and prolonged defecit. I’m conservative, but so far, I don’t see how the defecit has done much to the average joe in america. Certainly hasn’t hurt the stock market lately.

Posted by zotdoc | Report as abusive

Obama budget reveals Obama’s core

Feb 14, 2011 18:54 UTC

Here’s what President Barack Obama’s new budget tells me: He hasn’t shifted to the center, he’s shifted into 2012 campaign mode, one that let’s him be who is really is.

The budget is a political document that bets voters really don’t care much about deficits. (Over the next decade from 2012-2021, it would add another $8 trillion dollars to the national debt and take the national debt as a share of the overall economy to 77 percent from 62 percent in 2010). As such, Obama will portray himself as the jobs-first, going-for-growth candidate who does a bit of fiscal gardening on the side — just a few prudent budgetary snips here and there.

And on the other side (at least as painted by Team Obama): the fiscally austere Ryan-Rand Republicans who would savage Social Security and Medicare and recklessly slash critical investments necessary to win the future. No wonder his budget calls for cutting expected deficits over the next decade by just $1.1 trillion vs. the $3.9 trillion (including $556 billion in entitlement cuts) advocated by his own debt panel. To support his commission would mean going off message and losing a valuable campaign issue.

Any slight chance that Obama might chart a bold path on debt reduction probably died when the UK recently reported an unexpected economic decline, a drop some economists incorrectly blame on Prime Minister David Cameron’s tough-love budget. No way is Obama going to risk a renewed economic slowdown and his potential reelection. As it is, his budget forecasts average 2012 unemployment of 8.6 percent. That means Obama expects to try and win a second term in the most hostile employment climate since the Great Depression.

Oh, and tax cuts? Not there. This budget adds little to Obama’s vague State of the Union talk of cutting U.S. corporate tax rates, soon to be the highest among advanced economies. Obama only calls only for “beginning the process of corporate tax reform. Overall, he wants to raise a variety of taxes, including $700 billion in income and capital gains tax rates on wealthier Americans.

Of course, that merely circles us back to the driving force (besides ambition) behind the Obama presidency: to redistribute wealth after decades of growing income inequality and to finish weaving the social safety by creating universal healthcare. He certainly didn’t run to become an Eisenhower Republican — as Bill Clinton once referred to his administration — and comfort jittery bond markets. But markets will eventually have their say — and maybe sooner rather than later.


But the GOP is NEVER in campaign mode, right? This article reveals James Pethokoukis’ core more than anything else.
So let’s talk honestly about the budget. Republicans don’t care if their agenda puts hundreds of thousands of Americans out of work, by design. THey don’tcare if their cuts undermine education, law enforcement, infrastructure, and public safety. They don’t care if their budget plan undermines economic growth, competitiveness, and innovation.
But if the Obama administration wants to cut wasteful spending on military projects the Pentagon doesn’t want, all of a sudden, the GOP not only cares, but they are demanding unnecessary spending that looks, feels, and smells very much like earmarks and “make work projects” that benefit certain Republican districts.
And you have the gall to accuse Obama of being in campaign mode?

Posted by GetpIaning | Report as abusive

Obama’s big shift?

Feb 7, 2011 15:53 UTC

The president told Fox’s Bill O’Reilly that he hasn’t shifted to the center. “I’m the same guy,” Obama says.  Right, he’s the same guy — a guy who will try and push through as much of his left-of-center agenda as he can.  If he had the votes,  for instance,  Obama would certainly be pushing a cap-and-trade energy plan or higher income taxes. But he doesn’t, so it’s time for Plan B.

And at the heart of that plan is winning reelection, a goal Obama apparently believes will be much easier if America’s CEOs aren’t railing against him. Conflicts with Corporate America cuts against the post-partisan mantle is his trying to reclaim.Thus his speech today to some 200 executives at the US Chamber of Commerce.  But here is the thing:

1) Obama should try and make these folks, at least some of them, angry by taking away tax breaks and subsidies in exchange for a lower corporate tax rate.

2) Fundamentally, Obama is skeptical  of markets which is why his way of embracing the private sector is via a grand, corporatist partnership with Big Business who will rent seek with the best of them. Established giants don’t want new competitors. They don’t want a constantly churning, entrepreneurial economy. The status quo is just fine for them, especially regulations that help preserve their advantage. Innovation can be a threat.

3)  When Obama decides to rely on markets rather than government for allocating healthcare resources, then I will acknowledge a shift to the center.


This from the author who thinks Reagan was a conservative. Obama has cut taxes for billioniares, signed a stimulus bill that was over 30% tax cuts, increased defense spending, expanded the War on Terror, surged in Afghanistan, signed a Republican health care bill, made the Too Big to Fail banks whole, proposed off-shore oil drilling, proposed cutting entitlements, frozen government pay, and just hired the CEO of General Electric and a Chief of Staff from JP Morgan Chase. You think he’s “left of center”? Well, perhaps. You think Paul Ryan is moderate.

Posted by GetpIaning | Report as abusive

Thoughts on Obama’s SOTU speech

Jan 26, 2011 06:44 UTC

Whenever I would ask folks at the White House about how they planned on dealing with America’s long-term debt problem, they would more or less tell me the same thing: “Wait for the deficit commission.” Well, Obama’s panel has come and gone. And in his speech last night, he failed to explicitly endorse any of its budget-cutting recommendations. This part particularly frosted my pumpkin:

The bipartisan Fiscal Commission I created last year made this crystal clear. I don’t agree with all their proposals, but they made important progress. And their conclusion is that the only way to tackle our deficit is to cut excessive spending wherever we find it – in domestic spending, defense spending, health care spending and spending through tax breaks and loopholes.  … To put us on solid ground, we should also find a bipartisan solution to strengthen Social Security for future generations.

What, did Obama not check his in-box? His bipartisan commission gave him a Social Security fix, not to mention a host of other ideas. Now perhaps this is all about some grand negotiating strategy. But it sure seems like the White House has clearly decided that a “pro-growth” message will serve Obama well in his 2012 reelection bid, with the Sputnik space race reference meant to evoke the can-do 1960s. To hammer home the point, Obama emphasized the need to keep investing in the “Apollo projects” of today. In other words, let the GOP be the Party of Austerity and root-canal economics. Except, sunny and smiling Paul Ryan refused to play the role. He gave a common-sense perspective on the budget deficit, an issue which the 2010 midterm results suggest is a big one with many Americans.

Yes, the corporate tax cut stuff was pretty good. But nothing in the speech hinted at any sweeping tax and spending reforms on the horizon. Maybe with Obama’s approval ratings back over 50 percent, the White House thinks it can afford a cut-and-paste agenda and squeeze out a 51-48 victory in 2012. A nod to tort reform here, more R&D investment there.  More to come later …


We are all aware that, re the change in corporate taxes, that almost no major corporation actually pays taxes at the 35% rate. If there is a change, it would certainly help the smaller corporation but it would also allow for more crony capitalism as those “preferred”, ie solar and wind companies, will get special offsets. Not sure what the final result will look like but it’s doubtful that our corrupt Congress will bite any hand that feeds them.

Posted by apberusdisvet | Report as abusive

It would be nice if Obama’s SOTU included some of this stuff

Jan 25, 2011 22:13 UTC

The folks at Americans for Tax reform have assembled a pretty solid list of ideas.  Since Obama is apparently going for growth in an attempt to get reelected, he might want to take a gander at a few of these:

1.  Cut the corporate income tax rate.  The United States has the highest corporate income tax rate in the developed world.  This puts American employers at a disadvantage to our international competitors, and costs U.S. jobs.

2.  Move from “worldwide” to “territorial” taxation.  The U.S. is one of the few developed nations that not only seeks to tax all profits earned within her borders, but also the profits of her taxpayers earned all around the world.  Most other countries are closer to a “territorial” system.  The U.S. should move toward this type of system, which would make the complex maze of international deferrals and credits unnecessary.

3.  Make full business expensing permanent.  As part of the tax increase avoidance deal in December, Congress and the President agreed to one year of full business expensing (as opposed to multi-year deductions called “depreciation”) for new business machinery and equipment.  This should be expanded to real property and made permanent to further equalize the tax treatment of investment versus consumption.

4.  Call on Congress to repeal Obamacare taxes on families making less than $250,000 per year.  Obamacare contained nearly two-dozen new or higher taxes, at least seven of which are directly-levied on families making less than $250,000 per year.  At the very least, those taxes which violate President Obama’s “firm pledge” not to raise “any form of taxes” on any family making less than $250,000 should be repealed first.

5.  Remove uncertainty from small employers and investors by making current tax rates permanent.  The top personal rate of 35 percent is also the rate at which a majority of small business profits face taxation.  The capital gains and dividends rate of 15 percent has been priced into the value of every American’s IRA and 401(k) balance.  To restore certainty to the economy, businesses and families need to plan with steady and permanent tax rates.

6.  Call for a moratorium on new federal regulations.  According to the annual “Cost of Government Day” report issued by Americans for Tax Reform Foundation and the Center for Fiscal Accountability, regulations impose a cost of $1.5 trillion annually on our economy.  There were over 60,000 pages added to the Federal Register in 2009.  Americans had to work nearly 75 days just to pay for the regulatory burden of government.  At the very least, no more damage should be allowed to occur, starting with harmful Obamacare regulations.

7.  Admit “stimulus” failures and rescind the unspent funds. This could save taxpayers almost $200 billion. Famously threatening that absent an influx of cash in the form of government “stimulus” unemployment would crest 8 percent, two years of economic stagnation and unemployment holding steady above 9 percent shows the plan to be a failure by the White House’s own standard. Admit defeat and move on to proven pro-growth policy.

8.  Promise to veto any further state government bailouts.  Refuse to reward the fiscal recklessness of the states by pledging to end state bailouts. Due in part to the snake oil of “stimulus” funds, states expanded rather than restrained their bottom lines during the economic recession, and are facing a cumulative $72 billion overspending problem, on top of a $3 trillion hole dug by unsustainable pension promises. If the President is serious about fiscal restraint, he should make clear states are responsible for their own spending habits.

9.  Keep your promise on earmarks. According to Citizens Against Government Waste, earmark spending has topped $36 billion over the past two years of the Obama Administration, to say nothing of the trillions of dollars of spending that have been enabled by greasing the palms of elected officials.

10.  Support lasting reform to permanently shift the bias away from spending. Prudent measures such as allowing taxpayers to read bills online for five full days before they receive a vote would ensure lawmakers are diligent stewards of taxpayer dollars.