One thing we keep hearing political pundits is that the state of the economy should lead to a crushing defeat for President Obama — no president has ever been re-elected with unemployment this high, etc.
But as quite a few better-informed people have pointed out, the political science literature is unambiguous on this point: What matters isn’t the state of the economy, it’s the perception of trend. If the economy appears to be improving, the incumbent tends to do well even if in absolute terms it’s still pretty bad.
By that standard, Mr. Obama is in a much better position than the conventional wisdom would suggest: the economy isn’t booming, but it’s growing, and the labor market is moving sideways rather than down. It’s not President Reagan’s “Morning in America” (which reflects the different and much more intractable nature of the 2008 crisis and aftermath), but it’s not the political disaster you might imagine.
But wait, there’s more: Elections aren’t decided by national popular vote, but state by state. And it seems likely that this election will be decided in the industrial Midwest, Ohio in particular — a region that has bounced back strongly.
Here’s a comparison I haven’t seen elsewhere: the unemployment rate in Ohio under two administrations, on the chart on this page.
Unemployment was still very high in Ohio when Ronald Reagan was campaigning for re-election. But it was coming down, and most people blamed the previous administration for the surge in unemployment that had occurred before.
And you could say exactly the same thing this time around, with the added twist that much of the good news can be attributed to the auto bailout that Mr. Obama carried out in the face of frantic G.O.P. opposition.
Now, national sentiment matters too, and Mr. Obama obviously can’t run a campaign on boosterism. But the key point is that the economic background isn’t that bad for him politically; it’s good enough, in particular, for him to try to turn this into a “choice” election that his opponent clearly isn’t ready for.
Inflation Expectations: A Feature, Not a Bug
And now for something completely different: I’m a bit puzzled by the tone of a recent article in the Financial Times on how the Federal Reserve’s new policy is doing so far. The headline is “U.S. Inflation Fears Rise After QE3,” and the writer seems to imply that a rise in breakeven rates — the difference between the interest rate on ordinary bonds and inflation-protected bonds — is a danger sign. (Breakeven rates are a simple gauge of expected inflation).
On the contrary, it’s the whole point of the exercise. For almost 15 years, some of us have argued that central banks can gain traction even in a liquidity trap if they can expectations that money will remain loose after the economy recovers, generating modestly higher inflation. And that’s what the Fed’s new tack is supposed to achieve.
The right headline on that article should have been “QE3 Working So Far.”
A pivotal state
During the campaign season, President Barack Obama and his Republican challenger, Mitt Romney, have focused on explaining how their respective strategies will guide the American economy toward a stronger recovery. Now,with the election less than two months away, they are both attempting to win over voters in the swing states —especially Ohio. The candidates and their supporters have spent $112 million this year on television advertising in the state, which is considered crucial to winning the presidency. Mr. Obama’s campaign has highlighted the success of the automotive industry bailout in 2009 and reminds viewers about the creation of 115,000 automotive industry jobs in the state and a rebound in manufacturing, while pointing to the fact that Mr. Romney was against the bailout. Meanwhile, Mr. Romney has been touring Ohio’s working-class regions, criticizing Mr. Obama’s jobs record and his administration’s proposed cuts to the defense budget, which Mr. Romney contends could cost the state hundreds of jobs. Ohio’s economy, which was hit hard during the recession, has improved, as has Mr. Obama’s popularity there. The state’s unemployment rate dropped to 7.2 percent in July, below the national average of 8.3 percent. And a recent poll conducted by Quinnipiac University, CBS and The New York Times shows that Mr. Obama has a slight advantage over Mr. Romney among likely voters in Ohio. Still, the sluggish economy remains central to Mr. Romney’s argument that Mr. Obama’s policies are failing. On Sept. 13, after Ben Bernanke, the chairman of the Federal Reserve, announced that the central bank would buy an unspecified number of mortgage-backed securities to boost the economy, Mr. Romney issued a statement describing the Fed’s move as “further confirmation that President Obama’s policies have not worked.” After making a mess of ıraq, Bush advisers join team Romney Irak'ta ellerine yüzlerine bulaştırdıktan sonra Bush'un danışmanları Romney takımına katıldılar I have to admit that I haven’t been paying much attention to Mitt Romney’s foreign policy; the domestic side already offers a target-rich environment. But my eyebrows shot up when Dan Senor popped up speaking for Mr. Romney in the aftermath of the protests in Libya and Egypt. Dan Senor? I mean, Mr. Senor is one of the key figures in Rajiv Chandrasekharan’s book “Imperial Life in the Emerald City,” an account of the United States’ disastrous occupation of Iraq. As the head of public relations for the Coalition Provisional Authority, Mr. Senor exemplified the core problem with that occupation: officials were chosen for political loyalty to President George W. Bush, not experience or competence, and were evidently much more interested in getting Mr. Bush re-elected than in running the country they were supposed to be fixing. In Mr. Senor’s case this meant that instead of trying to win Iraqi hearts and minds, he was busy trying to put a smiley-face on events for the American audience, spinning reality so badly that he quickly became a joke, “Baghdad Dan,” to anyone actually paying attention. With that record, Mr. Senor should have gone on to sell insurance, make furniture, whatever — something, anything, other than advising anyone on foreign policy. Yet there he is, part of Mr. Romney’s entourage. And in general Mr. Romney has gathered around him the very same crew that botched Iraq. Bear in mind that this is really a choice on Mr. Romney’s part; he’s under a lot of pressure the Tea Party to show himself properly right-wing on domestic issues, but I don’t think there’s an important part of the G.O.P. base that cares much either way whether he’s listening to Dick Cheney’s foreign policy team. I understand, in a way, why these people are still at it; research shows that the truly incompetent often have high self-confidence, because they’re too incompetent to realize that they’re incompetent. But what does it say about Mr. Romney that he’s relying on this crew?
